Thank you. Good afternoon and good morning, everyone from the LEG team. Welcome to our special call today. As promised, we wanted to provide you with an ESG deep dive after we published the key pieces at our Q1 reporting already. Management will focus on individual slides today and discuss environmental and social aspects of our ESG strategy. We have in the call our entire management team with our CEO, Lars von Lackum, our CFO, Susanne Schröter, as well as our COO, Volker Wiegel. You'll find the presentation document within the IR section of our homepage. Without further ado, I hand it now over to you, Lars, to kick it off.
Thank you, Frank, and also welcome from my side. It is a great pleasure for all of us to present to you today our ESG strategy in more detail. As I said at our Q1 reporting, this is just the start of our journey. It will be a joint journey for all of us, for us as LEG, for our tenants, for our communities, for our colleagues, and also for our investors. Therefore, I am particularly pleased that we issue today also our Sustainable Financing Framework, which allows us to better tap ESG-related financings. Susanne will present the framework in detail later on. We published our full slide deck. I am sure that it will be the basis for our continued dialogue with all stakeholders on the topic. It gives you the background to our actions. It explains further our ambitions and targets.
Therefore, we call the presentation a deep dive. As Frank said, we will not run you through the presentation page by page, but instead we'll point you to the topics of major interest. We can certainly discuss further aspects during our Q&A session. Let me now start on slide seven with a reiteration of our ESG targets. We defined six ESG targets, which you are already familiar with. Except for the new customer satisfaction target, all components are part of our remuneration system, which we implemented as of January 1st this year. It was of utmost importance to us that all those targets could be quantified. The entire organization operates consistently along those targets. However, whilst political focus with regards to ESG has moved almost exclusively to environmental aspects, together with our supervisory board, we have decided to add one additional midterm target regarding customer satisfaction.
We are absolutely convinced that the ecological improvements can only be realized together with our customers. Therefore, we need to invest in customer satisfaction and will strive to be among the top performers over the course of the next five years. Before we go into details, let me first remind you of the legal and regulatory framework we operate in. I am now on slide 14 of our presentation. You should be aware that two different pricing frameworks exist within the carbon context. On the one hand, you have the European Union Emissions Trading System, known as the EU ETS. On the other hand, you have the German National Emissions Trading System, which covers the carbon tax. The EU ETS covers three sectors on a European basis: the power, the manufacturing, and the airline industry. It captures around 10,000 installations with an energy output above 20 MW.
Therefore, our biomass plant is not part of this framework as it is just too small. The EU ETS works on the basis of certificates, which are provided by the states. The issuance is kept at a certain level, and the number of certificates declines every year to set a strong incentive to reduce carbon emissions. Companies may sell their certificates in case they do not need them or buy additional ones in the market to compensate for a bigger carbon footprint. The price per ton of carbon dioxide is currently at around EUR 50 under the EU ETS. District heating is taxed at the origin, i.e., with the utilities company providing it via the EU ETS system. Therefore, district heating is not part of our carbon tax framework, i.e., not part of the National Emission Trading System.
Let me now move on to slide 15 , the German National Emissions Trading System. The German national ETS covers the carbon tax and was introduced January 1st of this year. The national ETS, known as NETS, covers heat energy as well as traffic. The carbon tax in the NETS is currently fixed at EUR 25 per ton, which is roughly half of the price under the EU ETS. The current regime defines gradually rising carbon prices until 2027. From there, it will switch to a free market price mechanism. Political discussions are still ongoing on how the carbon tax for heat energy should be split between the property owner and the tenant. Currently, the tenant pays the full carbon tax for the heating energy consumed. Following a decision in the cabinet, we factor in a 50/50 split of the carbon tax on energy heating.
This has a EUR 2 million effect on our FFO I in 2021 and a EUR 420 million valuation effect, which was already included in our financial year 2020 valuation. Let me now present some LEG-specific drivers to you. To start, I would like to briefly recap our transition path on slide 23, and then give you further details on the three levels. We presented our transition roadmap already with our Q1 figures. The graph breaks down our transition path towards climate neutrality into three key drivers. Firstly, we do expect a measurable, albeit small, contribution from our tenants. Secondly, the biggest effect will come from the energy transition. Thirdly, we need to energetically refurbish our buildings to reduce CO2 emissions overall. Let me now move to slide 24 and walk you through those drivers. Overall, we believe that the tenant needs to contribute as well.
Otherwise, all our efforts would be in vain. To achieve our targets, the transition needs to go hand in hand with a change in the consumption behavior of our tenants. We expect our tenants to contribute up to 10% to the overall transition. The key success factor will be smarter, digitized buildings that allow the tenants to benefit via a more efficient usage of heating energy. Such buildings will enable real-time data exchange via smart metering. Wherever possible, we will work with actual usage data, and we plan to adjust for external factors like temperature and weather. We will provide the data to our tenant via our app in order to allow them to engage more frequently. We are exploring tools like gamification to incentivize our tenants to a more efficient consumption behavior.
Such apps are already used successfully in other sectors, like the car industry, where the individual's driving behavior is benchmarked against the efficient usage of the car. Our efforts in this area are at a very early stage, and it will take several years until we see a significant contribution from the digitization of our units. It does not only require technical progress, many legal questions regarding data protection regulation need to be answered as well. With this, I turn to slide 26, which shows the transformation of the energy mix. The nationwide transition of Germany towards green heating energy will be a key driver for the real estate industry and for LEG to reach climate neutrality. Therefore, that part of the transition contributes up to 70% of our CO2 reduction. The key input factors will be green district heating and green electricity.
It is important to note that our current energy mix represents an attractive starting point compared to the overall market. District heating in our portfolio already accounts for almost 30%, while usage of heating oil is only minimal. Investing into that transition over the course of the last years via our subsidiary, ESP, has proven to be right. As you see from our detailed planning, we will only gradually shift our gas share from 2030 onwards. This is due to the fact that we exchanged old, inefficient heating systems by more efficient gas heating systems in the past years. Economically and ecologically, it makes no sense to exchange those new systems far ahead of their technical replacement cycle. Let me now walk you through our slides on energetic refurbishment and our track record on slide 29. We started our refurbishment program already in 2017.
We targeted to energetically modernize 3% of our units per year. Since the start of the program, we completed more than 450 projects or around 17,000 units. Overall, we achieved an efficiency improvement of more than 30%. Around half of those projects were full modernizations, i.e. we improved all major parts like the facade, the roof, the windows, and the heating system. Going forward, we will increase the share of full modernizations to increase the efficiency improvement even further. As we have the planning expertise in-house, we are in a strong position compared to the overall market. Moreover, we have a strong network of craftsmen and service providers to execute energetic refurbishments across our full asset base. However, we as an industry need to change the way we currently do modernizations.
We need to replace the current materials, reduce the required time, and at the same time bring down the cost substantially. We started a lab in order to explore the standardization of energetic modernization. I move to slide 31 of our presentation now, giving you more details on our Energiesprong project. In our Energiesprong project, we have identified 22 similar buildings in the city of Mönchengladbach. We have selected four different contractors, which will in parallel modernize the buildings. This allows us to test different approaches and technologies. As of today, we need different craftsmen for different parts of the building. At the same time, the entire process is divided into small pieces with a high number of interfaces. The level of standardization and industrialization is minimal. In contrast, the target of the Energiesprong project is to explore on how we can shift the process towards serial modernization.
Core to success is the use of prefabricated parts. Additionally, we aim for a net zero standard and make use of photovoltaic and heat pump systems to offer on-site green energy production, the combination considered to be most promising in Germany to provide green heating energy if green district heating is not available. We expect to invest more than EUR 10 million into the project. This innovative project might increase affordability of energetic refurbishments substantially if scale can be reached. Finally, let me briefly touch on an additional topic: new construction. I turn to slide 33 now. We face a comparison of apples and oranges whenever the energy efficiency of our existing stock is benchmarked against green, newly developed residential buildings. Obviously, the energy consumption of a newly built residential unit must be lower than that of an average unit in our book.
This does not take into account the construction process itself, which comes with a substantial carbon footprint. For a fair comparison, you need to include the carbon produced by the demolition, as well as the usage of concrete, steel, glass, and copper for the new building. Quite intuitively, new construction cannot be the better solution from an E perspective. At the same time, it is not the better solution from an S perspective either. New construction comes with higher costs per square meter and results in higher rents. The traditional construction cost per square meter for residential space of an average LEG quality comes at costs of at least EUR 3,000. This still does not include the price for land. That is roughly twice the book value of our existing portfolio, leading to rents significantly above our average rent.
Undoubtedly, new construction has a social value in tense rental markets, as it mitigates the supply-demand imbalance. However, it does not improve availability in the affordable living segment. Therefore, we believe that lobbying exclusively for subsidies for new buildings cannot be the solution. The much bigger part of the transformation is the modernization of the existing stock. Only that part will allow to achieve a balance between affordability and an optimized environmental footprint. With this, I hand over to Susanne, who will give you an update on our planning process and available options to finance the transition.
Thank you, Lars. I'm now on slide 34 of the presentation. As Lars mentioned, we are currently working on our investment budget for 2022 and for the following year. In the past, our key focus was on the CapEx yield and the affordability for our tenants in the respective locations. As you know, CapEx projects take time to plan, to instruct, and to execute, depending on the complexity of the measures, up to several years. Therefore, everything you see in today's investment spending has been planned in the past under the old paradigm with a focus on CapEx yield. Going forward, we will add a new layer to our planning process, which is the energy efficiency or carbon yield. We will continue to be committed to achieve attractive returns on our modernization projects and will also remain committed to affordability for our tenants.
However, we will also choose our projects based on their carbon yield. That means the best energetic improvement. To successfully operate within this triangle of financial and carbon returns as well as affordability, two things will be key. Firstly, we will look at the refurbishment process more holistically than we did in the past. In order to achieve at least 30% efficiency improvements, and maybe even more, we might target a lower number of units but touch more parts of the building. If you look at our portfolio, we have a very heterogeneous structure when it comes to the level of modernization that has already happened in the past. On some buildings, we did only the roof, on others, we exchanged the windows, and some , we have already refurbished two or three components. Therefore, the starting points vary substantially from project to project.
For 2022, we have already identified feasible projects and the measures that should be taken. We've also evaluated their respective energy efficiency improvement potential. Over the coming months, we will choose those projects that offer the best CapEx carbon yield return. Secondly, we will use the grants and subsidies available under the new BEG in combination with regional and local subsidized funding wherever possible to ensure that our apartments remain affordable after their modernization. In a minute, I will walk you through the key aspects of the BEG and an illustrative example how the BEG allows us to do projects that would otherwise not be profitable. Like every year, we will publish our investment budget for the following year with our Q3 results.
Therefore, I would ask you for some patience with regard to further details. We provided you already with some ballpark numbers for our energy efficiency measures, which is the EUR 450 million-EUR 500 million until 2024 and the EUR 1.4 billion-EUR 1.6 billion range until 2030. This compares to the EUR 110 million which we are going to invest into energetic measures for 2021. It does not include potential subsidies. Now moving on to slide 35. As promised, I wanted to provide you with a brief overview of the BEG or Bundesförderung für effiziente Gebäude, which will be available from July 1st of this year. Generally, we can benefit from subsidies in two ways. Either we opt for the KfW loan option, that means that with the help of a partner bank, we apply for a KfW loan at a subsidized interest rate, and we receive a repayment bonus.
Alternatively, we opt to fund the project ourselves and apply just to receive a grant. The amount of repayment bonus or grant can be the same under both alternatives. The amount is dependent on the type of energetic improvement we are achieving with our project. The technical requirements of the BEG are broadly in line with the previous KfW and BAFA programs, so they are not an extra burden. We have summarized the two different programs on this page. The first program focuses on new developments and holistic modernization projects on existing buildings. The maximum subsidy we could receive is 40% of the maximum amount we are allowed to spend per unit. This is in this case EUR 120,000. Consequently, the maximum amount would be EUR 48,000.
If we don't only build or modernize to a high energy efficiency level, but also supply the building with renewable energy, this is what the EE stands for, in line with specific criteria, an additional 5% can be received, bringing the total subsidy to 45% of the higher maximum amount of EUR 150,000. That equals EUR 67,500. The second program focuses on individual measures, for example, just the facade or windows. Overall, the BEG leaves us with a high degree of flexibility, and we can cover a wide range of projects depending on whether we start with a completely unmodernized building or one that has benefited from some measures in the past. Both programs are relevant for us already within our ongoing CapEx program in 2021. We are using the first program for some of our development projects and the second program for some of our 2021 modernization projects.
The evaluation of the most efficient use of the BEG is also part of our current planning process for 2022. Our communication in November will also include further details on the use of the BEG. On the next slide 36, we wanted to illustrate how the BEG subsidized affects our project analysis and calculations. In this example, we are using the BEG Individual Measures Program, which you saw on the right side of the previous page. It is based on a real project we are conducting this year. To fulfill the technical requirements of the BEG, we have calculated an increase of 10% or EUR 40 in our modernization costs compared to the standard LEG approach. Typically, each modernization project contains elements that are not related to energetic refurbishment. In our example, this is 25%.
Consequently, we are entitled to a 20% subsidy based on 75% of the total project cost. You can see the use of the BEG brings down our net investment from EUR 440- EUR 374 per sq m . What does this mean for profitability? Let us assume that we can increase our rent base, also taking into account social criteria, from EUR 5.90 per sq m to EUR 7 per sq m post the completion of the project. The net present value of the investment would flip from a slightly negative NPV to a positive one. It would also result in a positive valuation impact. You can see that the introduction of the BEG allows us to do more modernization projects we could otherwise not do in a profitable way, even if we only make use of the lowest percentage of subsidies.
We therefore consider the BEG a key element for our successful transition along our carbon reduction path. You may have seen that we published today our Sustainable Financing Framework, and I'm now on slide 37. The framework aligns the Green Bond Principles, the Social Bond Principles, and the Sustainability Bond Guidelines, the Green Loan Principles, as well as the Social Loan Principles. By combining both green as well as social aspects into the framework, we are underlining our strategic commitment to both carbon neutrality as well as affordable housing and engagement with our communities. Under the framework, we can issue corporate bonds as well as other debt instruments. You can find the eligible categories for the use of proceeds on this page and further details in the framework itself. Our framework has received a Second-Party Opinion from Sustainalytics.
To supervise the allocation process and the ongoing reporting requirements, we have established a sustainable financing committee. Depending on our upcoming financing requirements and the respective use of proceeds, we aim to issue instruments under this framework. With this, I will hand over to Volker for a deep dive on our S initiatives.
Thank you, Susanne. I am now on slide 43. Social is certainly the core of our DNA. We provide affordable living and, therefore, more than anyone else, we need to evaluate the needs and requirements of our customers. Social is certainly the customer, but it goes beyond that. We want to be a good corporate citizen. We want to be a partner for our colleagues as well as a partner for our communities. As we presented our new 2025 Customer Satisfaction Index target last time, I would like to give you some more color around the target and our initiatives. Let me go to slide 44. Slide 44 should give you a rough overview of our customer structure. We do not have one type of customer. We have a big diversity when it comes to the age structure and nationality.
We have 167 different nationalities in our units, and certainly the degree to which apartments are self-financed or partially or entirely paid for by the state. All of them have different needs we need to take care of. We grouped our customers in four different personas, ranging from entrants to work to senior citizens, from families to tenants with a migration background. While entrants to work usually have high expectations regarding a 24/7 full digitalized service experience, senior citizens, even having basic skills in using digital channels, require social contact with their landlords to let them feel at home. Families have definitely strong needs for safe and attractive playgrounds in the neighborhood. Tenants with migration backgrounds are often less capable in speaking German and are less used to habits expected from their neighbors, and require more explanations and communication in different languages.
We are committed to create a customer service experience actively addressing these different needs to reach high degrees of customer satisfaction. Let me now move to slide 45. We carried out a comprehensive customer survey with more than 20,000 customers. We identified two key areas to focus on to affect all four pillars of our Customer Satisfaction Index. This is our service and our product, shaping our image and resulting in a convincing price-performance ratio. Instead of talking about all the positive feedback received, let me share some of the most critical remarks with you. 52% of our customers demand a faster service and a faster resolution of their request. Therefor 2021, we target to bring down the iteration calls by 15%. This is a very good KPI for the speed and quality of our service activities and will help to improve the respective customer feedback.
An additional feedback received was that around a quarter of the participating tenants asked for an improved technical condition of our buildings or a better caretaking of the outdoor facilities. We take all those areas serious and will include them in the investment process. Ultimately, we believe that an improved service and a better product should support our image and improve the price-performance ratio. In order to reach our 2025 target, we need to change our organization and become more solutions-driven . We illustrate this on slide 46. We kicked off a quite massive cultural transformation process to become a solutions-driven organization. Historically, we come from a culture where business processes were designed to optimize the internal targets of every department. We now implement end-to-end processes and define corresponding service level targets for each customer request, allowing us to manage these targets and their fulfillment.
While in the past, we had one entry point for the customer, by now the customer decides on the entry point for his request via the individually most preferred channel. While in the past, during the processing of the request, the customer typically did not receive updated notifications, by now we inform the customer more regularly about the current state of the process. Certainly, we have not yet reached Amazon's interaction frequency and precision, but we started to increase the touchpoints with the customer along the resolution process. Going forward, we will become more and more transparent towards the customer on what we do and when we do it. Wherever possible, we build proactive processes to inform all affected customers about possible outages, resolution time, and actively manage the customers' expectations.
For all of us on the call, this is certainly nothing new to our lives, but it means a cultural shift for LEG and the industry overall. Apart from our service, the product is a core driver in improving customer satisfaction. For this, I would now continue on slide 48. Most important driver to customer satisfaction is a reliable, functional product. Of course, the tenant expects working heating systems, hot water pouring out of the tap whenever he turns the knob, and an elevator where he feels safe, as well as surroundings that make you feel at home.
To further improve the quality of our product, to minimize outages, and to strengthen the value of the green spaces, we rolled out a significant investment program for our heating system, have a EUR 90 million elevator program in place, and started various initiatives to develop the green spaces. Regarding the heating systems, we holistically look at the entire technical system and invest in smart predictive maintenance devices. Ideally, this brings us in a position to reach out proactively to our craftsmen and customers even before a default in the heating system or elevator negatively impacts the customer. With regard to the elevators, we will see 900 elevators being renewed over the next five years and equipped with remote monitoring systems. All of this will also improve our image. We want to be seen as a reliable partner for our tenants and our communities.
With this, I would go on to slide 49. At our Q1 call, we showed you the example of Remscheid, where we are a partner for the city and where we could buy into the public housing company. Especially via our two foundations, we have strong links into the communities and can provide more than a normal landlord. With our foundation, Dein Zuhause hilft, we work together with around 50 local partner organizations. Beneficiaries are a wide variety of people, from the elderly, from those requiring support, to families and kids, and also small business owners, which we have also in our districts. In the appendix, we have the key projects listed, which we supported via our new foundation in 2020.
A more client-centric approach, a more proactive communication with the customer, and key investments into the core pain points from the perspective of the customers should help us to bring down customer complaints and increase satisfaction overall. Together with our sensible approach when it comes to rent increases and our active hardship management regarding rent adjustments following energetic modernization measures, this improves the price-performance ratio and makes the customer feel at home. Let's now move to slide 50. All our actions should ultimately allow us to set ourselves ambitious targets. Our CSI target of more than 70% by 2025 would put us in a best-in-class position. I hope you understand why this is an ambitious target, also when taking into account that we have a different asset class with a pure focus on affordable living, while staying committed to achieve best-in-class profitability.
Before we come to the end of the presentation, I would like to briefly touch one point, which is our new building program. This is on slide 59. We are committed to contribute 500 new units per year from 2023 onwards. Half of those units will be built by LEG, mainly via redensification projects, and half of it will come from third-party developers, where we buy turnkey projects.
This is our contribution to the supply gap without putting too much additional risk and leverage into our balance sheet. Almost all new build projects qualify for the Effizienzhaus 55 and are efficiency class A. This helps us to improve the efficiency of our portfolio over time. One of our biggest projects is Köln-Höhenhaus, where we built around 400 units in 2029. Before we hand it over to you for your questions, I give it shortly back to Lars for a short summary.
Thanks, Volker, for building an understanding of how far we will shift the culture in our operations to serve our customers even better. Let me briefly summarize the key elements of our deep dive. I hope we could give you a better understanding of the framework we operate in. We tried to create a clearer picture of the high degree of uncertainty when it comes to regulations and alignment of frameworks. We and the whole real estate industry rely on the energetic transition. If we as a country fail to provide Germany with green heating energy, we as an industry and we as a residential company will fail as well. Independently of this transition, we will significantly improve the efficiency of our portfolio over the years by energetic refurbishments and higher tenant engagement.
We are convinced that we, as one of the biggest professional players in Germany, are much better positioned than the vast majority of the market. This will leave us with sufficient opportunities going forward. Fourthly, being fully committed to shape an ecologically committed real estate player, we will always remain a social landlord. We have a specific client base, and we will stick to this client and asset base and its needs. We are aware that there is room for improvement and higher customer satisfaction. We therefore strive to become a customer-centric company over the course of the next years, including a targeted, proactive communication. Finally, rest assured, we will continue to target high returns for our shareholders. We are and will be a public listed company.
There will be investment requirements along the path, but we will always make sure that we make use of public subsidies wherever possible to guarantee our tenants an adequate rent level and our investors an adequate yield level. With this, I come to the end of today's presentation. We are looking forward to your questions. Due to the pandemic, we are still in different locations, so please keep in mind and it would be highly appreciated if you could just ask your questions one by one.
Thank you, Lars. With this, we begin with the Q&A session.
Ladies and gentlemen, at this time, we'll begin the question- and- answer session. Anyone who wishes to ask a question may press star followed by one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. If you are using speaker equipment today, please lift the handset before making your selection. Anyone who has a question may press star followed by one at this time. One moment for the first question, please. The first question comes the line of Christopher Fremantle with Morgan Stanley. Please go ahead.
Hi. Good afternoon, and thank you for that presentation. I had one specific question on slide 36 and then one more general one. I'll ask the specific one first. On slide 36, you're talking about the impact of the subsidy. I just wanted to check my understanding was right there. When I look at the gross yield on your net investment, it looks as though in that example, you're investing EUR 374 per sq m net of subsidies.
Your annual uplift in rent is just over EUR 1 per sq m per month. That would be EUR 13 roughly per sq m per year, which seems like quite a low gross yield on net investment. I just wanted to check whether I had understood those maths correctly, because clearly, for your financial model that's quite significant. That strikes me as relatively low, but again, I may be miscalculating that. Just if you could help us on that, please.
Hi, Chris. Thanks for the question. Generally speaking, the way you look at it is correct. These are the numbers. As I said, this is a specific example of a project where you can see that without subsidies, it's not an economical project. You can imagine that this is some project that we might otherwise not actually be doing because there is limited rent potential in this location, might be driven by a generally low renting in the area, and also the social situation of our tenants in that location. Obviously, in addition to the pure rental yields, we also expect a positive impact on valuation from the project, which is then if you look at the EUR 7 only not reflected. Any positive impact on valuation is also included in or should be monitored as well when you look at the overall efficiency of such a project.
Right. Do you think the 3.5% gross yield on investment is representative of the EUR 110 million investment that you are making of your overall envelope? Is that a representative number or?
That's not the intention with the example, Christopher. I think very specifically we wouldn't want to speak about outlook for the next few years in terms of the yields that we are looking to achieve, because this is exactly what we are calculating at the moment. It's just an illustration of one example. I think for the EUR 110 for 2021, we've been clear that we are aiming for the around 5% yields that we have guided to in the past. That hasn't changed. This is just as I said, one illustration.
When it comes to outlook for the next few years, where we will more holistically use the subsidies, and remember the subsidy program is new, and obviously, I guess from the previous slide 35, it's clear how complicated it actually is to calculate exactly what is the most efficient combination of measures you can take to achieve a maximum subsidy amount. We are calculating that, and we will give you more details around the outlook for next year on the yields we aim to achieve overall in November.
Okay. Thank you. Just my general question, which was, as you think about making these investments in the future, can you talk again about sort of economies of scale? I appreciate you're going to be the sort of second-largest business here. When you look at the shape of these investments that you're going to be making over the next decade or so, does it make sense to be an even bigger and to have an even bigger platform to sort of spread that knowledge and that know-how across a larger number of units? Is what we're really talking about a catalyst for further consolidation? I appreciate-Given recent news flow in the sector, that may be a sensitive answer to that question. If you could just comment a little bit on that, it'd be helpful, please.
No, I think you kindly already answered a little bit your own question, I think with pointing out what is happening in the sector. I think also when you think about what Lars talked about with regards to our Energiesprong project that we are currently doing. All these sort of projects, they will really get to the best of their performance when we are able to scale them. Obviously, we already have a big portfolio, so we can already achieve significant amounts of scale in our current portfolio with our current size. However, we do think that actually, the developments we see on the investment side of the requirements that will come to the market will lead to further consolidation in the sector as well.
If you think about the fact that in Germany a large number of apartments is not in the hands of professional landlords, but in the hands of individual owners of small family offices. Obviously any large landlord like ourselves is much better positioned to deal with the challenge of energetic refurbishment and to achieve economies of scale. Thus, that we do expect opportunities for us to drive consolidation in the sector as a result of this transition.
That's great. Thank you.
The next question comes from Thomas Neuhold with Kepler Cheuvreux. Please go ahead. Mr. Neuhold, your line is open. Please unmute your telephone. Thank you.
Sorry for that. Good afternoon, ladies and gentlemen. Thank you. I have three questions, and I suggest you take them one by one. The first is on page 31, the standardization of modernization. Can you talk a little bit about the cost reduction potential or targets you have for these projects, and also about the rollout potential in terms of which % of modernization projects you think could be standardized in the future?
Yes, very happy to do that, Thomas. We are also there just at the beginning of starting that project. We have selected the four contractors with which we want to work now on those 22 very similar buildings in Mönchengladbach. The potential from our perspective will definitely not be realized with those 22 buildings. Therefore, please do not take those EUR 10 million and say that's the assumption going forward. The scale will drive down costs substantially. The EnergieSprong concept has been tested already in the Netherlands, has been done there thousands of times, and you can see there that scale just were driving down costs substantially. We are talking a double-digit % amount by which those costs were driven down over the course of the time. Therefore, from our perspective, it is absolutely worthwhile into investing into it.
Currently, we still are doing modernizations like we have done modernizations since the 1970s. I think it is also quite obvious and intuitively that this cannot be the solution going forward. Therefore, what we strive to do is look at different materials, look at different technologies, look at different processes to apply those new facades, new insulation to the facade, look at different options to provide renewable energy to those buildings in order to then identify the best solution and then scale that up quickly.
That's most probably, and that's something we already mentioned, is we will open up our know-how which we are generating to the industry, because we are of the strong belief, regardless of how many units you are currently possessing, you will definitely need to exchange on those know-how being generated in order to make the progress as quickly on those innovations, in order to then really enable Germany to meet its climate neutrality targets by 2045, especially for the real estate industry.
Great. Thanks. The next question is a follow-up on the refurbishment question. I was wondering if you can give us an indication for modernization, what an average percentage amount of CapEx you have passed on historically to tenants. I know the modernization surcharge is up to 8%. What was the percentage points you passed on historically, and what was the average increase of the rent for the tenants after modernization per square meter per month?
Yeah. Thank you, Thomas, for the question. I think historically, we have passed to the tenant around EUR 1 on average per sq m for modernization measures. That means obviously that in some locations we have passed on more, in others, we have passed on less. There was some sort of a cross-subsidization also between the locations where there is more rent potential and where rent levels overall are higher with other regions where rent levels are more restricted or where we are in areas where the tenants simply cannot afford higher rent increases. Generally, on average around 70% of the total cost we have been able to pass on to the tenants.
Thank you. My last question is on the slide on page 59, the new building program. Can you give us an indication what the long-term redensification potential is in the current portfolio in terms of additional units you can build in the long run? I was also wondering if you plan to build these new units in a traditional way, or were you also considering to use more renewable materials?
Thanks, Thomas. Currently, we have identified around 1,200 units which we can do in redensification projects on our land. Whether that is all heavily depends certainly on the building permission processes we are currently running with the different municipalities. You know how difficult that is. You are talking to developers on a regular basis, I can only tell you that we are unfortunately running the same problem. Sometimes, there are changes in persons being responsible. There unfortunately is also not enough know-how being present at the municipality level. All that takes quite a lot of time. Currently, we stand at 1,200, certainly we have the hope that there will be additional projects which we can realize going forward. If we look at the methodology we are currently using, most of the buildings which we are creating as redensification are at least Effizienzhaus class 55.
That's the current standard we are building. Looking at the current political discussions, especially with regards to the changes to the Climate Change Act, you hear already that the efficiency house class standard 55 most probably also becomes the standard for new buildings. If we are doing new buildings, we always also look at the renewable energy production at the building. We are looking into combinations like the one already mentioned during the presentation, adding a photovoltaic to the roof, plus a heat pump or other options in order to produce renewable energy and then provide green heating directly to the building. If we look at the construction process itself, certainly we are looking into circular economy solutions. That's something which still is driving costs substantially. That's something we are exploring, but it is not something which we are using on a regular basis.
Finally, we are also looking into options of modular buildings, and we are also doing that in the one or the other project. Unfortunately, there are strong limitations with regard to the architectural aspect to it, and sometimes the requirements coming from municipalities are not matching the optionality you are given by modular buildings. Therefore, that's not a one-size-fits-all solution, but certainly something which helps to keep a strong grip at the costs you are running with regards to construction costs.
Thank you very much.
Thank you.
The next question comes from the line of Jaap Kuin with Kempen. Please go ahead.
Hi, good afternoon. A couple of further questions from my side, also starting please with the slide 36. Here, you're painting a picture of the return without the subsidy program or with. Just to understand your assumptions behind the -6 in the program without the subsidy program. How does this turn into a negative? Because I'm assuming that you also get the majority of the rent uplift without the subsidies. Could you please walk me through the calculation, please?
No, I think that the reason is that, yes, we do get also a part of the uplift without the BEG, but the initial investment amount is obviously higher as well, and as such, you get to a negative return. Remember, it's only 20% subsidy we have included here. Obviously, when we do a more holistic refurbishment, we can also achieve higher subsidies, which makes the impact even bigger.
Okay, this is calculated with the same rent uplift with or without subsidies?
Yeah. Mm-hmm.
Okay. Very good.
It's a simplified illustration. I think if you want to do all the details, it's certainly more complicated, but this is a simplified assumption and a simplified example of a project with rounded numbers from this year's program.
Yeah, fully understood.
Yeah.
No, thanks for that. I guess it's a key question that I think is present around the investment community. What are the returns of these climate investments? I think it's a very key part of the presentation. One more question on slide 35. Just from my understanding, planning 50% in a repaying bonus, I'm not sure if I caught what that exactly means.
Could you just repeat the question, 55% of what? Or did I misunderstood?
Yeah, sorry, slide 35.
Planning. I see what you mean, yeah. Basically, this means that in addition to the energetic refurbishment itself, you know that often you need to hire somebody to do the detailed planning, especially with the more complex measures you are taking into account. There you can get a subsidy for up to 50% of the total planning amount that you can see in the row above. Planning can be EUR 44,000 per unit or EUR 40,000 for each building. If, let's say, you had the maximum amount of EUR 40,000 here, you could get up to 50% of that subsidized, so that you only have a net cost of EUR 20,000 for the planning, because, yeah, the planning is often quite complex here and requires additional
Yeah. Okay, clear. Maybe onto looking forward, and I was hoping you could at least share your current thinking about the political situation currently and potentially post-elections with a bit more green-oriented government perhaps, on where, in what area you would expect additional regulation and what the potential impact could be of that specific type of additional regulation on your business?
Yeah. That's a very difficult question because you might be aware that the Green Party will hold its party convention , starting today until Sunday. There are plenty of discussions still going on within the Green Party. It reaches as far as, once again, revising the rental cap, which we've seen in Berlin, now joined the fight. On the other hand side, you also hear, especially from more the southern part of the party, those politicians coming from Baden-Württemberg, et cetera, being much more in favor of free market solutions. I think the next two days will bring about more clarity how the Green Party will position itself with regards to rent regulation, but also with regards to modernization surcharges. Current situation there is that the Green Party definitely wants to make sure that Germany is reaching its carbon neutrality targets until 2045.
Current discussion in the party is that the current financial subsidies will not be sufficient, and that's especially meant with regards to the real estate industry. The current discussions go along the lines that most probably the current subsidies, which are meant to be EUR 3 billion per annum, need to be at least doubled. The number currently being in discussion is EUR 7 billion on a per annum basis, just being focused to enable more modernizations in the real estate industry.
That comes also together with a second idea being discussed in the Green Party, that in order to avoid a situation that you have some people being just left behind because they cannot afford neither the rising carbon costs on the current heating, which is a lot of still fossil fueled heating, or if they are seeing a modernization coming, they will not be able to afford to live in a modernized building, that there is something discussed like the subsidy to make up for rental costs by including an aspect with regard to additional energy costs or additional modernization costs. Those aspects, I think, make clear that if we are coming into such a situation, and looking back just to the last weekend where we had the country elections in Saxony-Anhalt, where we've seen the Conservative Party winning the election strongly with votes of 37% backing them.
If we are really seeing the situation, once again, a Conservative Party leading the government, the Greens as a junior partner, that once again might have or hold a lot of opportunities for us as a real estate industry while seeing more subsidies coming into the sector, more help to those which really need help, which are especially our tenants, people which cannot otherwise afford heating the building or pay for the modernization, then this might have very positive effects on ourselves. Always keeping in mind, and that's just reiterating what Susanne already said, there will be plenty of private landlords which will still not be able to do the modernizations themselves. They will not have the technical know-how. They will not know how to access those subsidies or apply for those.
Therefore, from our perspective, there are a lot of opportunities for us then also to grow our business and at the same time do a lot with regards to modernization of the buildings and make use of the subsidies and being paid either directly to us or to the tenants.
Okay, thank you very much. That was very helpful. Maybe just one final one on the trade-off between cash returns versus value growth. I think it's an increasingly discussed topic. I think also the management of one of your peers named it as a specific reason to maybe agree with a takeover proposal. If you look at the potential situation that with all these subsidies, your cash flow upside is capped, but perhaps maybe the value upside is less capped, meaning that probably your NAV growth from these investments will maybe have a stronger impact than the actual cash flow growth impact. Would that, for example, lead to a different assessment from your side on strategy with regards to asset rotation and perhaps recycle more capital by more actively trading your portfolio?
Yeah, very relevant and good question. Thank you for that. I think it's true that certainly on the cash return, we don't know exactly what the outcome will be. As Lars just highlighted, a lot will depend also on the political situation and the potential there, what the framework is going to be going forward. On the value growth, indeed, obviously, including all the subsidies, we will have a more holistic, higher quality refurbishment to our building than we otherwise would have had, and that should generally have a positive impact on valuation. If you look at the mechanics, you will normally start with just capitalizing the investment plus the potential rent growth, whatever that may be going forward, and apply the cap rate. Initially, with the subsidies, the cash investment is lower, so the amount that you capitalize would be lower as well.
The driver of the valuation is obviously going to be reflected in the price that the market determines for the asset, which is then driven by the location, the rent potential, et cetera, but also the so-called technical score, which is higher, as I said, when you do a more holistic refurbishment to the building. While clearly with different locations and different markets, the exact impact on valuation is going to differ in the different markets, we do definitely expect an overall positive impact on valuation from the measurements that we are doing. In terms of the second part of your question, capital recycling, this is still nothing that we foresee for LEG as a core part of the strategy. The rationale behind that is that we already talked about scale.
It is relevant for us to be large to make sure that we can actually generate economies of scale and save money on the new technologies that we are using or the new approaches that we are using for refurbishment. We also believe that the current renovation wave that is lying ahead of us will represent good opportunities for us to consolidate the sector and grow the business rather than go into a divestment strategy.
Yeah. That's okay, and I fully appreciate you have your work cut out for you with your existing portfolio. Isn't it also the kind of true meaning of good corporate citizenship and having a focus on ESG that you perhaps even buy lesser quality apartments and upgrade them ESG, and then do that more often, hence, I think probably also having a higher social use?
I think that-
Apologies, Susanne.
No, go ahead, Lars.
Honestly, our strategy exactly will be that we will offer not only our expertise to modernize our own buildings, but we will also do that for third parties, because once again, there will be plenty of people not being able to do so. Therefore, from our perspective, that's a huge business opportunity for us, and we will definitely try to use it. At the same time, that means from our perspective, there will be no assets being left behind. There are no stranded assets because, as already touched about, new development will definitely not help and will not bring about the solution either on an E or on an asset perspective.
Therefore, modernization of all buildings in Germany, especially due to the building ages and the distribution of those across the years 1950s to 1970s of the last century, will bring about a lot of chances for us and will definitely help us to then also gain all the understanding, all the know-how around modernizing such buildings.
As a reminder, if you wish to ask a question, please press the star followed by the one on your telephone at this time. That's a star followed by one to ask a question. It appears there are no further questions at this time. I hand back to Frank Kopfinger for closing comments.
Thank you, and thanks for your participation and all your questions. As always, should you have further questions, then please do not hesitate and get back to us. The LEG IR team is here for you. With this, we close the call, and we wish you all the best, and we hope to see you soon. Thank you and goodbye from the entire LEG team.