Dear ladies and gentlemen, welcome to the conference call of TAG Immobilien AG regarding the publication of the interim report Q2 2021. At our customer's request, this conference will be recorded. As a reminder, our 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 star key followed by the zero on your telephone for an operator assistance. May I now hand over to Martin Thiel, who will lead you through this conference. Please go ahead.
Yeah, many thanks and good morning, everybody. This is Martin from TAG. Many thanks for dialing in to our Q2 2021 conference call. Yeah, as always, let's jump directly into the presentation with the highlight slide on page number four. First of all, a quick look on the operational performance on the German portfolio. I would say vacancy rates, like-for-like rental growth on a solid way. Vacancy slightly decreased by 10 basis points after the increase that we saw in the first quarter, which was roughly 60 basis points. We are more or less now back on track, and we are quite confident that we can reduce this vacancy rate even more during the second half of 2021. The total portfolio vacancy rate remains stable at 6.1%. Like-for-like rental growth, a little bit higher than in the first quarter.
1.6% was the actual number, including and excluding vacancy reduction after 1.2% and 1.4% in the first quarter. FFO I slightly increased by EUR 300,000 quarter on quarter. If you compare the first half of 2021 with the first half of 2020, the FFO I increase was around 6%. Good development of the EPRA NTA per share, up by 8% on a semi-annual basis after the good valuation results that we saw at 30 June 2021. This valuation result came up with a total valuation gain of around EUR 310 million. Yes, of course, the largest part of that still is attributable to the German portfolio, which is clearly in total numbers much larger with EUR 305 million. Also not a bad sign even in the quite small Polish portfolio. We saw a slight valuation uplift by around EUR 5 million.
Out of this EUR 305 million valuation gain in the German portfolio, as in the past valuations, the largest part was coming from yield compression. Still, we receive valuation uplifts from the operational performance. New valuation levels stand now at EUR 1,150 per sq m and a 5.5% gross yield. This should be still something where we could expect further valuation gains in the future. Coming to the next page, a look on our operational performance in Poland. Let's say we're very happy what happens currently in Poland with our business. Not only that the selling business is on a good way, also the renting business has now actually started. I will come back to that a little bit later. The first tenant has moved in now. In total, we achieved a result operation Poland in the first half of 2021 of EUR 4.5 million.
This is a strong increase in comparison to the previous year. This EUR 4.5 million currently is coming solely from the selling business. The build to hold units pipeline increased. The contractually secured pipeline stands now at 8,200 units. The build to sell contractually secured pipeline is roughly stable with 3,700 units. We are currently at total contractually secured pipeline. That means acquired land plots or contractually secured land plots or projects even under construction of nearly 12,000 units. GAV at the Polish portfolio is growing now at EUR 260 million after EUR 191 million in the first quarter. Just a quick comment on the COVID-19 business update. More or less everything unchanged. Rent deferrals are still of minor impact. We have discussed this in last call, vacancy increases during the lockdown.
Now this is absolutely stable again, hopefully then is reduced in the second half of the year. Also in the Polish portfolio, we have good news. Here it was, of course, also for us a little bit unclear how does that unregulated market react in such times. Sales prices and volumes in our markets have even seen a strong growth in the second quarter of 2021. The rental markets, at least in our regions, like for example, Wroclaw, have been very stable. All the construction sites in Poland are still running, no delays are expected. As I said, the 1st build to hold projects are now completed. Also very positive that we received a very nice ESG rating from Sustainalytics in the end of last week.
We are now rated in the best category with a score of 9.9. That puts us among the top three of all real estate companies worldwide. Let's go to page number seven. Perhaps some comments on the income statement are worth mentioning. If you look at the development of the net actual rent, we saw a slight decrease in the net actual rent quarter-on-quarter. This is the result of ongoing sales that we signed in 2020 and that closed in 2021. The better picture is to look at the first half of 2021 and compare this range with the first half of 2020.
There we saw in total an increase in the net actual rent of 3.9%, out of which 2.3% refers to net acquisitions and 1.6% as I said, is coming from the like-for-like rental growth. The net income from sales in the second quarter of 2021 was quite strong, with EUR 4.5 million. In total, we achieved EUR 7.5 million net income from sales in the first half of 2021. This is mainly coming from our activities in Poland. Out of the EUR 7.5 million, EUR 6.7 million are coming from Poland, and this EUR 6.7 million are after effects from purchase price allocation that we still have that reduced this result by EUR 1.8 million. If you compare the personal expenses quarter-over-quarter, we see an increase by EUR 0.8 million.
This is mainly coming from the effect from the settlement of the long-term incentive plan 2018 to 2020 and the new management board compensation after the approval in AGM in May 2021. This refers to the compensation in TAG's shares that all the three board members have received or will receive in the future. The net financial result reduced in H1 2021 in comparison to H1 2020 by nearly EUR 15 million. This is mainly driven by the valuation of the equity option of the convertible bonds. The net financial result cash after one-offs, improved by EUR 0.8 million during this time, and this net financial result is relevant for our FFO calculation. As in the previous quarters and years, the income tax still mainly contains deferred taxes.
The cash taxes in H1 2021 amounted to EUR 3.8 million, after EUR 5.6 million in the previous year on the comparable period of the previous year. That's interesting, out of this EUR 3.8 million, just EUR 0.7 million are coming from the German business. Here we still benefit from positive tax effect that we have after repurchasing of the convertible bonds last year. On the next page, we can take a look at the EBITDA, FFO I and FFO calculation. As I said, the FFO I was slightly increased by EUR 0.3 million quarter-on-quarter. It increased by EUR 5 million, so nearly 6% year-on-year. Here we benefited from the higher EBITDA that we achieved from the lower net financial result that I mentioned, and also from lower cash taxes by EUR 3 million. The FFO development is very positive quarter-on-quarter, and it was slightly reduced by EUR 0.7 million.
If you compare the first half of 2021 with the first half of 2020, you see a quite significant increase due to the higher FFO and also to the lower CapEx. To make it clear, this CapEx number is more or less temporarily lower by EUR 8.3 million if you compare the first half of 2021 with the previous period. We expect that we will use a little bit more CapEx in the second half of the year. I think the general message is definitely positive, that we do not need to invest too much to achieve our like-for-like rental growth that we currently have. Page number nine, balance sheet. Perhaps just a short comment on this cash position. The cash position is definitely strong with around EUR 270 million in the balance sheet.
That means even after the dividend payment in May 2021, for 2021, there are no urgent financing needs. Everything that we want to do, especially in Poland, is for the next months, definitely already financed. Page 10 shows the EPRA NTA calculation. As I already said, an 8% uplift. If we exclude the dividend payment from this EPRA NTA calculation, the uplift was even by 12%. Just to remind you, this EPRA NTA calculation is without a paying back of transaction costs. If we would do that, you see this on the footnote of this page, the EPRA NTA would increase by roughly EUR 3.44. Page 11 shows the financing structure. We are now with an LTV of 44.1%, below our LTV target of 45%, or more or less at the LTV target. This is everything as it should be. We still have further refinancing potential.
EUR 365 million of bank loans, you see this on the right side, are maturing over the interest terms ending in the next two years. Average coupons of these bank loans are still north of 2%. If we finance today bank loans for 10 years, the coupons are clearly below 1%. Let's move to page number 13, that shows the portfolio total. The units in Germany are still at 88,300. This is more or less unchanged to the beginning of the year as we had no acquisitions in the first half so far. In Poland, the secured pipeline, so what's really acquired and really secured, increased quite strongly to, as I said, nearly 12,000 units from 8,700 units at the end of the last financial year. Page 14 shows the like-for-like rental growth, 1.6% including and excluding vacancy reduction.
The composition is, as usual in our company, shown above this chart and is mainly coming from rent increases for existing tenants and tenant turnover, and just to a very small part, 0.2%, from the modernization surcharge. As we have spent in the first half of 2021 a little bit less CapEx, we are now at total investments on a per square meter basis, annualized at EUR 18.80. You see this on the top right of the page, after roughly EUR 20.21 in the financial year 2019 to 2020. For the full year, this number should be a little bit higher, but more or less in line to what we have invested in the previous years. Page 15 shows the development in vacancy rate. We are now in June at 5.8% in our vacant units, so a slight reduction in comparison to the first quarter.
As I said, we're quite confident that we will achieve further reductions in our vacancy rate in the second half of 2021, as we are now hopefully in a more or less normal mode and hopefully not any lockdowns in Germany on the horizon anymore. Page 17 shows a summary of the valuation results. 5.2% valuation uplift was quite strong. That was definitely much more than what we have seen in H1 2020 and also in H2 2020, where we achieved valuation uplifts of around 3%. This is clearly a reflection of the market that we see out there. What is the good news on the valuation side is, of course, the not so good news on the acquisition side. The competition is incredibly tough, and you know that we are very disciplined.
Clearly, we have portfolios now under review in due diligence processes, but it's really extremely difficult now to talk about larger acquisitions at attractive prices. 5.5% is the valuation gross yield now, EUR 1,150 per sq m. If you ask us, well, what should we expect for the second half of 2021? It's clearly difficult to predict, and we are not giving any concrete guidance, but for us, it seems clear that this is not the end of the road. Therefore, we expect further valuation uplift to what size ever in the second half of the year 2021. On pages 19 and following, we show you the slides that you know from us regarding the Polish portfolio. We have changed some things a little bit. First of all, from now on, we will only talk about really the contractually secured, that means acquired or secured projects.
In the past, we have also presented planned projects, that means where we have not signed a contract, but we are perhaps looking at this project, or there are more or less general plans acquired for land banks. We have now really received already a significant number that we have acquired, we think it's better and simply more based on facts and hard contracts. That's how we look at it also internally, to look at the contractually secured projects. Don't be confused if perhaps you miss some numbers from previous quarters. If you compare that with previous quarters, you should always look at contractually secured projects that we have called current projects in the past. We saw a quite nice increase in our contractually secured pipeline. If you look at the build to hold projects, we are now above 8,200 units.
That compares with 5,900 units in the first quarter. The main reason for that is that we have now acquired land banks in a fourth location, which is Gdansk in the northern part of Poland. It means that we have now all in all four locations in Poland besides Gdansk. That, as you know from the past, Wroclaw, Poznan, and Lodz. What we have also adjusted is the estimates for the total investment cost per square meter and also for the rents. This is then more or less an experience that we have made, not so much because of increasing construction costs. That's also the case. We see currently construction costs that have been increased by roughly 5% in comparison to the previous year.
We simply are building apartments from a little bit higher standard to what we have planned before, and therefore, we also expect higher rents in comparison to what we have achieved before. This is also something that we have seen now, these numbers in the actual projects. In total, the gross yields that we expect are unchanged, so still 7%-8%. Please see this as an update to be more accurate or to be more closer to the now first finished project. Page number 20 shows the build to hold pipeline in Poland. Here, the time schedule is more or less unchanged. As I said, now a fourth location in Gdansk in the northern part of Poland. On page 21, you see the first rental units that we have in offer. At the end of July, roughly 400 units are in the offer.
You can take a look at the homepage, vantagerent.pl, to get a first impression. It's also available in English. We are absolutely happy that these projects are not only ready, but that they have been within the time schedule, that they have been within the budget, and that we achieved the rents that we have expected. By the way, the first project with 57 units that you see on the left side of the very first, is already fully rented out. It's clear these are still small numbers, but for us, it's good to see that this first proof of concept, if you want so, really works, and we're very optimistic on our renting business in Poland, and that everything that we've seen so far was really very positive. Page 22 shows the build to sell pipeline.
Here we have a second location from the land plot that we acquired in Gdansk. Some project stages will be dedicated for the selling process. Page 24 shows a summary of the ESG ratings, as I said. We are very happy that we received even an upgrade from Sustainalytics now at the beginning of August. That puts us among the top 3% of all real estate companies worldwide. In general, we can tell you that we're really working hard on these ratings. It's, of course, good for us that nearly every rating agency sees what we're doing regarding the ESG activities. Yeah. Finally, on page 26, quick look on the guidance. FFO and dividend guidance remain unchanged.
If you look at the H1 FFO of EUR 91.5 million and compare that with the midpoint of the guidance of EUR 180 million, it should be clear that we're here absolutely on track and that this guidance that should be not too challenging. That is for me, as a summary of the H1 results. Thank you so far for listening, and now of course, I'm happy to take your questions.
Dear ladies and gentlemen, we will now begin our question and answer session. If you have a question for our speakers, please press zero and one 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 zero and two to cancel your question. If you are using speaker equipment today, please lift the handset before making your selection. One moment, please, for the first question. We have a first question. It's from Sander Bunck, Barclays. The line is now open for you.
Hi. Good morning, team. Thanks very much for that. Two topics I guess I wanted to ask about. The first one is indeed on Poland and your pipeline. Thanks for the clarification that you already provided somewhat during the conference call, but it was just interesting to get a bit more color in terms of the units that were previously included and now are excluded. Is there a way to get an apples for apples comparison compared to the last quarter? Also just more looking at your timeline of the planned completions, there looks to be a bit of a slowdown, compared to before. Basically, do you expect that then to ramp up as you get more contractually agreed units in there?
Lastly, within that, also, it looks like the average apartment size has reduced quite dramatically from, I think previously it was between 45 sq m-55 sq m to now around 40 sq m. There looks to be quite a few moving parts within the pipeline, and was just wondering if you could give a bit more color around that. That's the first thing I wanted to discuss.
Yeah, clear. Good morning, Sander. Well, what we have done right now is simply an update as we have now really more or less in the one business. You know that these first estimates are from November 2019 when we acquired Vantage. Something changed, I would say that changed perhaps not dramatically. If we talk about, for example, an apartment size of 40 compared to 45%, we simply came to the conclusion that a little bit smaller apartments are perhaps more asked in the market. It's now hopefully more and more accurate. As I said, important in total, the yields that we expected have not changed. We expect even a little bit better EBITDA margin on the letting processes. That number was increased now from 70 to 75%.
If you want, the first really observations from our now finished projects have led us to the conclusion, okay, let's do an update here and put the numbers on a more, let's say, accurate basis. I think the time period or the timeline of planned completions in both pipelines, so the ready for rent and the ready for sale business should not have changed too much. Perhaps there are slight changes, but in general, we are not aware of any construction delays, so the projects are working as expected. If you look at the build-to-sale projects, the number of units, you should be aware that we are also selling units and are handing over units. For example, in the first half of 2021, if I remember correctly, we have already handed over 400 units roughly.
The build to sale project has two dimensions or two directions. The first one is a continuous reduction from handing over apartments, and the second one is an increase from land plots that we acquire. As I said, in the build to hold project, we saw a quite strong increase by more than 2,000 units in the contractually secured pipeline. There are from quarter- to- quarter also changes that we redefine some projects from build to sale, but build to hold. We're talking here not about large numbers. We're talking here perhaps about 200 units, 300 units during the quarters that may shift. I think these numbers are stable and hopefully this is now clear with these explanations.
Okay. Just from my understanding, previously, I think the build to hold pipeline was around 10,700 units. That is now 8,200 units. The delta is purely units that are not yet contractually agreed. That 10,700 unit number has remained broadly the same. Is that fair to say?
Yeah. Well, you're absolutely right when looking at it this way. This number, if you would continue this kind of presentation, would be more at 12,000 units.
Sorry, how many units, sorry?
It would be perhaps around 12,000 units.
12,000 units.
Yeah. What we have done is to say, well, let's stick really to what we have acquired, what we have secured. This is already a substantial number, and perhaps it's not that relevant as it has been 12 moths or 18 months before to give more an outlook where we want to go to. If you want, so with the 8,200 units that we have in the pipeline, we have already achieved what we wanted to have as a minimum size. You know the 8,000 units-10,000 units that we want to build in Poland. We're not stopping there. It's good to say, and it's clear we need to build the apartments, and we need to rent out. The kind of minimum investments that we want to do in Poland, the basis is already there.
Okay, fair enough. Basically, in total, if you were look to apples for apples, then the portfolio has actually increased as opposed to reduced. Is that fair to say?
Yeah, that's correct.
Okay. Just, sorry, another slight technicality on that, I'm just trying to square the math here. The number of units has reduced, and as a result, your total investment cost has reduced accordingly, which is fine. The midpoint average apartment size previously was around 50 sq m. It's now 40 sq m. That would actually imply that on a per square meter basis, your costs would have increased quite dramatically. What am I missing here?
Well, the increase in costs in average total investments cost per square meter in the build to hold pipeline is roughly, if I remember correctly, EUR 300, EUR 200- EUR 300. Also the average rent that we expect has increased now to on average, roughly EUR 11.50. Before that it was more towards EUR 10.50. It's just, and as I said, it's not a reflection of dramatically increased construction costs. It's more the decision that we are building apartments which are of a little bit higher standard that leads then also to higher rents.
Okay. Sorry, you said the cost has increased by EUR 200-EUR 300 per square meter. Is that correct?
Yeah. Again, it's a decision to, for example, put furniture into this apartment as well to build the apartments of a higher standard. This is not just a construction cost inflation topic.
Okay, that's clear. Great. Thank you very much for the clarification. One second quick one actually is just on your ESG upgrade that you referred to. I was just interested to understand what has led to that additional upgrade, in terms of what are the additional bits that you have provided, or what are the additional bits that the rating agencies have looked at, that led to an improvement in your sustainability rating. Just a bit more color on that would actually be useful.
Yeah, I would say this is more as a continuous improvement especially in the E and also in the S. We are doing things in Poland regarding new construction business that have then also positive impact on our E scores. We have also more data that we simply can provide to the rating agencies. I would not point out any special thing that led then to this increase. It's more or less an overall improvement through the categories.
Okay, that's great. Thanks very much. That's very helpful.
Our next question is by Dirk Klose, Berenberg. The line is now open for you.
Yes, hello. Good morning. It's Kai Klose speaking. I've got a question on the adjusted EBITDA margin. Could you indicate why that decreased by 200 basis points year-on-year? It's on page eight, to 68.8% after 70.8% in H1 last year.
Good morning, Kai. That's indeed correct. I would say the EBITDA margin in H1 2020 was above average. If I remember this correctly, we had some cost reductions which were a little bit more seasonal, like maintenance in H1 2020. If you compare the EBITDA margin of the first half 2021 with financial year 2020, we are more or less stable at roughly 69%. Of course, next question would be, where do we expect this EBITDA margin to go? We are clearly looking for improvements. We have here also seen some things like perhaps a lower vacancy reduction than expected that have not then contributed to the EBITDA margin in H1 2021 as expected. As I said, this EUR 1.3 million from the share-based payment of the management compensation, weighed a little bit on the EBITDA margin.
I would not say that we saw a direct strong reduction as a general trend. This is more or less in line with what we have achieved in 2020 in the full year, and you should expect further at least slight improvements in the next quarters.
Thank you. second question, if I may, on page 29 of the presentation. Could you give a bit more flavor and bit more color, where do you see on a regional basis, the vacancy rate to improve then in the second half? We saw that CapEx was spent in the first half, particularly in Leipzig and in Rostock, which might explain the increase in vacancy rate in Rostock. Could you give a bit more details what kind of initiatives you have taken regionally to see a bit of a stronger improvement in the second half?
Yeah. Well, what we are currently seeing is especially positive development again in Salzgitter. If you look at page 29, you see that we had an even negative like-for-like vacancy reduction in Salzgitter in the first half of 2021. That was -0.3%, as vacancy rates have increased slightly. Now when we look into our current numbers, that's on a much better way. These are regions where we saw during the lockdown, of course, a slowdown in tenant rotation, and this is clearly also one location where we hopefully attract other tenants or tenants from other landlords as we have hopefully the better apartments there. In, let's say the more challenging markets like, for example, Salzgitter and like Gera, we should see a good development in the second half of 2021.
The regions that contribute quite significantly to the like-for-like rental growth, like Berlin, which is in our case, the Berlin commuter belt, they should also see a good performance in the second half of 2021.
Okay. May I ask again, have you taken any special initiatives in some regions, like Chemnitz, where you've spent a lot of CapEx over the previous years, where vacancy rate has also slightly gone up in H1? Just asking, is it a kind of general trend, or is it because of COVID in H1 that the former, previously relatively strong reduction vacancy rates have at least temporarily not continued?
I would say it's a mixture. One part, as for example, Salzgitter, perhaps that's the best example, was for once COVID-19-driven. We have in the Chemnitz region, or had quite significant CapEx investments. If you ask me what are the regions that are more COVID-19-driven, I would say regions like Salzgitter or Rostock where we have a higher share of students. If you ask me, well, what are the regions where perhaps CapEx programs are now finished or will finish, and that will lead to a continuously good like-for-like rental growth, I would mention as the two most important examples, still Berlin and Chemnitz.
Great. Many thanks indeed.
As a reminder, if you want to ask a question, please press zero and one . The next question is by Simon Stippig, Warburg Research. The line is now open for you.
Good morning. Lots of questions have already been answered, especially around the pipeline. I just want to clarify two things please. The first one would be in regards to construction cost. You mentioned 5% increase or on a per square meter basis, EUR 200-EUR 300. If you would split out this furniture and the construction costs increase per square meter, how much would be the construction cost increase? Is that possible?
With the pure construction cost inflation, that would be based on the roughly 1,600 that we had previously and 5%, something around, let's say, EUR 80 to EUR 99 per square meter.
Okay, great.
If you continue this simple calculation, perhaps on top of that EUR 200 or EUR 220 are then the outcome of putting in furniture in there and bringing apartments to a higher standard and so on.
Okay, great. To clarify the second part in regard to the pipeline. The overall increase, what you just mentioned, the 12,000 units, and let's say to the 10,700 units for year 2020 you reported, minus the 200 units variation. That would be roughly 1,300-1,500 units in overall increase. Is that roughly right within the build-to-hold pipeline?
The main part is coming from this new acquisition in Gdansk with 1,400 units. It's a rough calculation. This is absolutely correct.
Okay, perfect. Then maybe last question in regards to pipeline. Do you expect to expand further in other regions within Poland, or is it more that you, the BUWOG style or ex BUWOG style, where you focus really on those four locations, or how can I see the strategy going forward?
Yeah. If we look at the larger cities in Poland, if we say, which is still the case, that perhaps the yields in Warsaw as the capital city are not that attractive and the competition is extremely high. You're more or less left with perhaps a last location or two locations, which is Katowice and Kraków. We look at these markets. If we are really successful in acquiring there, if we find something, that needs to be seen. That's it, and that would absolutely fit into what we have planned and as we entered the market. We always said at least four locations make sense. A fifth location might follow, but we should not expect that we really now spread into a lot of locations in Poland in the next years.
Okay, perfect. Thank you very much. I would have a question in regard to German inorganic growth. You mentioned that it's very competitive, and surely I totally understand that, and it's better to stay disciplined. I totally agree on that, too. There's just one thing I was wondering about is, what locations are you looking at, and what size and units would that actually mean if you have something on the due diligence and portfolios you're looking at? Maybe also what years would they be transacted currently?
Well, what would be a typical acquisition today that's unchanged to last three years, that's then sizes of perhaps 500 units. These are then, in most cases, locations in East Germany. These are then cities that are not Leipzig and Dresden. This is then more something like Schwerin, Halle. Sizes like that, with a vacancy rate which is nothing extreme, but perhaps between 10%-20%, and with gross yields, taking into account this vacancy rate of perhaps, let's say 6%-6.5%, that would be something typical we look at the moment.
If I may, one last one. In regard to revaluation, that was really strong first half year revaluation. I just wonder what is your view going forward? Do you think this is more for the next year front and loaded revaluation, where it might be lower in the coming years or also in H2 2021? Do you have any view on that? Would be great to get your insight on that.
What I would generally say, the whole market benefited really from, in this regard, from the COVID-19 pandemic. You know that simply a lot of investors have looked at German residential in the last year because the business remains extremely stable. What happened in the last year is then now more or less reflected in the H1 revaluation. Is there anything on the horizon that this trend could get into a negative direction? That's clearly not the case. Have we seen an unusual strong market development now in the last quarters? I would say yes. Just as a personal opinion, I would expect that we see valuation uplifts also in the future, but perhaps we've seen something really extraordinary now in the last quarters.
Okay. Thank you very much.
There are no further questions, and so I hand back to Martin Thiel.
Yeah, many thanks from our side. Thanks for dialing in. As always, if you have any questions, please feel free to contact me or our department. Have a good day, and bye from Hamburg.