Earnings Call: Q1 2020

May 14, 2020

Good morning, ladies and gentlemen, and welcome to the TAG Immobilier AG Q1 Statement twenty '20. At this time, all participants have been placed on a listen only mode. The floor will be open for questions following the presentation. Let me now turn the floor over to your host, Mr. Martin Thijs. Yes. Many thanks and good morning, everybody. This is Martin from KAG. Good to hear you again. Very much welcome to our Q1 conference call. And today, what are the topics we want to discuss with you? Of course, the Q1 results, but perhaps even more interesting in these days is the impact of the COVID-nineteen crisis on our business. And additionally, we want to report on the development of our business in Poland as well in the presentation that you hopefully have in front of you, which is also available in our website. So let's start with Page number four. That's the highlight slide for the first quarter of twenty twenty. Looking at the operational performance, which refers solely to the German portfolio, the vacancy rate in the residential units is up by 30 basis points from 4.6 at the beginning of the year to 4.9. That's a development which is not unusual for the first quarter. We'll come to that a little bit later. Like for like rental growth, including vacancy reduction, basically stable and positive at 2.3% compared to 2.4% in the financial year 2019. Quite strong increase in FFO by €2,800,000 quarter on quarter now at €42,000,000 and that translates into €0.29 per share. Looking at the EPRA NAV and LTV, as expected, no major changes in the first quarter as we had no valuation in the first quarter. So the EPRA NAV or now called EPRA NTA, net tangible assets, so without any goodwill, without any intangible assets at 20.23 LTV at 44.6% compared to 44.8% at year end 2019, so that's basically unchanged. Positive news from our side regarding acquisitions, so we were able to acquire in Germany eight sixty five units in the first quarter at an attractive nearly 8% gross yield. And also Poland looks very positive in this regard. We were able to secure land banks and projects of more than 1,100 units in the first quarter, mainly in Poznan at our second location in Poland after Wroclaw. Looking on the disposal side in Germany, this is not really a material business that they have there, 48 units disposed. Poland was also in this regard successful with two zero five units in the first quarter of twenty twenty, which is an exceptional good number for our first quarter of our development. That's, let's say, the quite normal picture from Q1 and I think definitely good numbers. I'm now on the next slide on Page five, where we'll take a look at the COVID-nineteen business update. Putting that more generally, the good news is that we see really limited impact from the current COVID-nineteen crisis. But let's start with how we behave in this environment. Of course, as a big landlord, like other companies, we have definitely responsibility not only for our employees, also for our clients, for our tenants. So therefore, we voluntarily decided since the March 2020 to stay away from any rent increases on the basis of adjustments to local comparative rents. So that means ongoing rent increases from the local Nietzschevigers have been paused since March 2020. And for us, this is clear. It's on one side a commitment and a sign that we show to our tenants in these days, which we consider to be something which is sensible. On the other side, of course, we see this as a kind of temporary situation. So therefore, yes, it's very clear. At some point in time, we have to get back to normal. And that is also something that happens by now in June or July that we go back to a kind of normal mode. So therefore, we don't expect here any material effect on our like for like rental growth for the full year. Also, we're doing no terminations due to loss of income caused by the corona crisis. That's clear. That's also more or less what the law already says. And we have no evictions of inhabited apartments right now. Increased social engagement for nonprofit organizations is something which is also very important for us in these days. It's basically nothing new. You know that we are in locations where we really have a big focus on what we call neighborhood development. So the social engagement has always been part of our business, but we clearly increased that now in last weeks. And then coming to the numbers, and we think it's really good news to show you that the vacancy rates are stable and that we have no material impact on rent payments. So for example, looking at the vacancy rates in the course of the first month of the year, We started at 4.9% in January in our residential units, which is by far the highest share of our portfolio. We've been stable in March and April and basically also stable in May, so 5% is the vacancy rate at the May 2020. Looking at rent receivables, they are basically on the same level compared to the month before, so no material increase. And the deferral of net rents so far has been really limited So just 0.4% of our tenants in total residential units asked us for a rent holiday and are currently not paying the rent. And looking at the commercial units, which is a small size of our portfolio, it's approximately 8.5% of the total commercial tenants who ask us for a rental day and are not paying the rents. Looking at the absolute amount, you see this, this is a quite manageable amount. So it's approximately €100,000 per month that we currently have suspended or deferred regarding the rent for residential units and approximately €70,000 per month for the commercial units. So this is really, really a limited number. And so far, we don't expect any changes in that, especially not any increases in the coming weeks. Looking at the next slide, of course, in these days, liquidity position and maturities is something important to look at. You see also in the balance sheet that we have enough cash that we have unchanged three years before, 120,000,000 of credit lines fully undrawn. That for us it's absolutely not a problem and absolutely as planned that we pay out the dividend, which is by the way tax free again after the AGM on the 05/22/2020 of €0.82 per share. Also good news that we were able to do bank loan refinancings in March and April 2020. So this was something that basically happened right in the middle of the crisis, and that was something where we were, of course, happy and proud of that our banks are still fully committed to us and also the conditions were very favorable. So looking at the terms, euros 143,000,000 new bank loans in five contracts with different German banks at an average interest rate of 1.17% for ten year maturity on average. That's of course definitely positive for us and reduces our average cost of debt. There are no major upcoming maturities in the next two months. So what we have in 2020 as maturities is €65,000,000 all in all, taking into account the bank loans, corporate bonds and some commercial papers. And for 2021, that's EUR46 million basically or the most part of it is bank loans. So that puts us in a very stable financial and liquidity position. Looking at our business in Poland, also here we have definitely positive development. So the business in Poland has not been materially affected. The most important news is that the construction sites are still running. You know, and I will come back to that a little bit later in more detail, that we want to build up a pipeline of 8,000 to 10,000 residential units in Poland, and therefore, the construction sites are important for us so that we stay in our plants and that's so far without any delays. Of course, the second quarter shows so far reduced sales from apartments. So in the first quarter, as I've said, we sold two zero five units in Poland that was in January and February approximately 80 to 90 units per month on average, whereas in March and April, we have seen this to a number of around 30 units. But this is something that we consider to be temporary, and that's more something that is then linked to restrictions that you have in Poland as well as in Germany. So people at the moment simply are not leaving the house if they are not have to. Visiting apartment, visiting construction sites for them is, of course, nothing that is that easy as it has been in January and February. But as the situation turns also in Poland, not only in Germany, more and more positive, we expect that the Q sales will be back on a level that we expected. So this should be clearly something temporary. Also important, the acquisition processes for new landbags and projects continue. A lot of that is done also from Germany, but the largest part is done from our colleagues at Vantage Development in Poland. So therefore, the current travel ban, so that means that the borders between Germany and Poland are not open, is for us not that important as we have a good team in Poland who is then responsible for the acquisition processes and that continues. So this is an update from the regarding the impact from the COVID-nineteen crisis. And again, we think good news is that we are really stable and this business model is, as we expected, also very resilient. Then looking into our financial statements for the first quarter, and I'm now on Page eight of the presentation. First of all, you see here a detailed split on Page eight regarding the P and from Germany and the new P and L, the sponsor from Poland. We do this for to give you here full transparency how the effects are and of course, the effect from Poland in the first quarter is limited. So the numbers are small, but perhaps interesting to see the effect here in detail. So commenting on the development on the first quarter, generally a very positive development with increased net rents, a slightly decreased net rental income, but this is something which is in the first quarter and not that unusual. We had here higher maintenance costs, we had temporarily higher cost of vacant real estate, so therefore that's basically in plan. Looking at the net income from sales results in Poland, you see that we have here a negative result of 700,000 units. But don't be confused, so don't assume that we have here sales losses. This is the effect of the purchase price allocation that we have to do in our consolidated financial statements on TAG level. So 1,600,000 additional cost of goods sold were implemented here. This €1,600,000 is a net number for after deferred taxes. So looking at the local P and L in Poland, the net income from sales has been positive. That was a result or a net income positive of €1,500,000 So this is really purely something if you want to technical or accounting wise a negative result. We have no portfolio valuation results in the first quarter. As usual. So the next portfolio valuation was done at half year. So we'll do this again twice this year. And looking into potential effects from this portfolio valuation at the end of the first half. I mean, we have not really final results so far, but for us it is very clear that we expect a very similar result as we had in the second half of twenty nineteen or in the first half of twenty nineteen. So looking at the absolute amount we had in the last two half years, around €200,000,000 valuation gain, if you ask me, well, what's a good estimate for that? Perhaps a similar number should be something that we also expect, but please understand that this is more or less a preliminary thought on that. Very clear is we don't see in the market here any negative effect on purchase prices from the COVID-nineteen crisis. So therefore, when we talk with our valuer CBRE, the positive trend that we have seen in German residential and especially in the B and C locations where we are in should also continue for the first half of twenty twenty. Very clear, the second half of twenty twenty has more uncertainties. But if you look what we see today in the market, do we expect here a material negative development? No, that's definitely not the case. But of course, everything, and I think that's true for nearly every business, depends on the further development of the COVID-nineteen crisis. And commenting on the net financial results, an increase or an improvement of €500,000 quarter on quarter due to cheaper refinancings and also the tax effect, so the cash tax effect was more positive than in the fourth quarter of twenty nineteen, so with approximately €1,400,000 reduced taxes. I'm now on Page nine, which shows the overview of the EBITDA, FFO and AFFO calculation. And important to explain how we calculate FFO I and FFO II in 2020. So looking at the FFO I, this is an FFO I that is purely generated by our German business. If you want to, this is the old TAG, so purely the German business. So therefore, FFO I in 2020 is completely comparable with FFO from 2019. And all the results from our business in Poland, which is mainly vintage development, is included in FFO two. So you see on the left side in the FFO two calculation that, of course, on the one side, as in the past, the net income from sales in Germany are included in FFO2, but new, the results from operations Poland is included and contributes to FFO2. And how we calculate this result from operations in Poland is shown on the right side of Slide number nine. That's basically the net income from Poland after minorities without any effects from the purchase price allocation. And if necessary, this was not the case in Q1, if there are any deferred taxes and if there are any larger one offs, we would exclude them. So the idea behind that is that, a, the result from Poland is completely included in FFO II and b, this result is a cash result from disposals. So looking then at the developments in the first quarter of twenty twenty, I already said a strong increase in FFO by €2,800,000 Also the AFFO increased from €19,400,000 to €21,300,000 an improved EBITDA adjusted margin. And looking at the results from operations in Poland, now after the effect from the purchase price allocation, this was then already a positive result of €700,000 for the first quarter of twenty twenty. On Page 10, you see the balance sheet development. Just one small comment on that. For the first time now, we have a goodwill in our balance sheet from the purchase price allocation of Vantage. This purchase price allocation is still preliminary, but for now, we have a goodwill of around 18,000,000 so not really a significant large number, but just something to point out because it's also important for the NAV calculation that is here on the next page, on Page 11. Where the two calculations on the left side, as EPRA announced, new calculation way, the EPRA, if you look at that exactly, net tangible assets value in euro per share that excludes not only the goodwill, but also other intangible assets, other intangible assets that's basically IT software, which is not really a huge number. And that leads then on a fully diluted basis to an NAV of 20.23 And if you want, so the old definition from 2019 would lead to an AMRA NAV per share fully diluted of 20 point euros 3 So that's really a material difference, but the main difference is now the goodwill that we have in our balance sheet. Then I'm coming to Page 12, the financing structure. You see here the full maturity profile and that includes all the debt that we have now taken over from Vantage from our business in Poland. This debt is not really significant when looking at the amount. So the total bank loans at the end of the first quarter have just been €6,000,000 and the bond that Vantage issued in the past amounted to 24,000,000 so €30,000,000 of debt. And comparing that with the cash advantage had in the balance sheet of the first quarter, which was €46,000,000 that leads then to the fact that we have a positive net debt in Poland that is coming into our balance sheet now at the end of the first quarter. As already said, LTV on our LTV targets of 44.6% was the exact number, and there's still refinancing potential. So when I refer to maturities and when looking at the effects from the COVID-nineteen impact, this is something different compared to the refinancing potential as we have substantially bank loans where not the maturities are in 2020 or 2021, but we have bank loans where the interest terms are ending. And we are then, from our side, able to reset that. We are able to cancel the contracts if we want. And that's, of course, something that we are planning in this environment with still lower interest rates. So still EUR $294,000,000 of German bank loans maturing in the next up to three years, and that should give us additional financing cost savings. Then let's go to Page 15, where we show the development of rental growth and also the CapEx that we spent. We had increased CapEx in the first quarter, so analyzing that we have been at €16.8 You see this on the top right of Page 15. That adds up to total investments, including the maintenance cost of €23.6 per square meter. That's more than in the financial year 2019, euros 20.4 was still a number. But you should not expect that we have for the full year really a material increase compared to 2019. So the full year numbers should be something perhaps a little bit below the current level. So that means that the CapEx strategy is unchanged. So we're not changing that to any large material modernization projects, especially not for existing tenants. But we're doing more modernizations regarding vacancy reduction. You know already from the last financial year that we did a lot in the Candidates region. And as announced already in the last calls, we are studying now more in the Berlin region and better focus is on the 3,000 units that we have in Hamburg and Harfel, which is part of the Berlin region where we started already at the end of last year, but more material in the first quarter, a monetization program to reduce vacancy. Like for like rental growth was in total at 2.3. That compares very well with the financial year 2019. And also the like for like rental growth without retail reduction was stable at 1.9%. And as I said, for now, we don't expect here really a material impact on the fact that we voluntarily suspended rent increases for now as we assume that this is something that is temporary and perhaps already in the third quarter will come back to a modus, which is a more normal. But for now, we thought that's something that we have to do as part of our social responsibility for our tenants. So I'm turning to Page number 16, vacancy rate development. Well, it's not unusual for the first quarter that we have an increase in vacancy rate. Generally, the increase at all wasn't very strong. The increase was 30 basis points between January and March. So if you compare that with the financial year 2019 and 2018, you'll see, yes, also in these years, have been increases 20 basis points in the first quarter of twenty nineteen, also the 30 basis points likely 2020 and 2018. So for what reason ever that kind of seasonality in that? And looking into our region, yes, of course, we have in Berlin and cheminids the monetization programs plus the seasonality plus what we really see as an effect and that's true especially for a region like Horsstadt that we have in this region quite a lot of apartments that rent out to students. So Geiswold, for example, is a big university of Rostock where we have, of course, in this regard an impact from the COVID-nineteen as many students are not now hiring the renting their apartments. So therefore, that's not really material, but that explains in this region a certain increase of vacancy rates. But as I said, this is nothing unusual for this time of the year. Then I'm now on Page 18. A quick comment on our acquisitions in Germany in the first quarter twenty twenty. First of all, for us, very good to see that acquisitions are still working. And yes, of course, looking for if you want some more technical perspective, it's difficult to do due diligence processes in these days, but that still works. So we were able to sign in January and March contracts for eight sixty five units. Closing has already taken place, so in the March and the April, so these acquisitions will contribute to the FFO from the second quarter onwards. And the growth yield that we achieved was still very attractive at nearly 8%. And looking into our acquisition pipeline for the full year 2020, we are optimistic. So we see portfolios on the market that are interesting for us. Of course, to give you concrete guidance, but we should at least achieve what we have done in the last year or even in the year before. So therefore, also acquisition markets are still open. If you ask me, well, do we see an impact from the COVID-nineteen crisis on portfolios on the market? No, not really. So we don't see any forced sellers. We don't see any drops in purchase prices, which is then on the other side, of course, good news for our operation. It's more or less an ongoing process, but also this should be good news that these markets are not closed. Then I'm on Page 20, and you see here from Page 20 onwards some slides regarding our business in Poland. Some of that some of the content you already know, so the strategic rationale to start with this of our Poland expansion is very clear. We want to build up here in a very promising market, which is the residential for rent market in Poland, a portfolio of 8,000 to 10,000 decking units in the next three to five years. We're doing this in the large cities in Poland. So far we have two locations here, which are Poznan and Drozdlaff. Other locations in the Western Part of Poland are also very promising and we are working here on concrete acquisitions. And perhaps in the second quarter, we can already report here on concurrent further acquisitions in other locations. Looking at our plans, you see here on the bottom of Page 20, a summary of what we are planning and what we have on current projects. So the total projects that we want to have in the build to hold projects until the end of twenty twenty four is at least 8,600 units. And looking at the build to sell projects, this number should get up to 4,600 units that we want to build and to sell in this time. Out of this total volume of 30,200 units, you see this on the very right side, 5,700 units are current projects. That means we have already acquired the landbags or secured. All these projects are already under construction and 7,500 units are planned projects. But planned projects, to the very last part, doesn't mean that this is something far away. These are really concrete projects we are working on, and we clearly expect that in the course of the financial year 2020, we can really announce more concrete about these acquisitions. So it's not a far away pipeline. This is something that should be very, very close. Looking then at the midterm effect, and you can see this on Page 20 on the bottom left, looking at the Build to Hold project, we should achieve an estimated EBITDA contribution from the letting panorama between EUR 30,000,000 and EUR 35,000,000 out of this EUR 80 sorry, 8,600 units. And from the build to sell projects, the total EBITDA contribution from sales will be between 50,000,000 and €55,000,000 So you should expect in next years a year by year stronger cash flow from our activities in Poland. How are we achieving this? You see this on '21 that, of course, a big part of that is Vintage Development. That's the company that we acquired last year when we signed the contract. The closing was in January. We're very happy with our acquisition so far. First of all, the first good news is that the whole team is still on board. If you on the left side, the Vantage has around 100 employees in different departments. And not only the CEO, Efra Laufer and CFO, Darius Babukovic are still on board. Also, as I said, the whole team in the different departments is still with us. And that's, of course, something that is very positive that we really can build up our portfolio on the knowledge of these people. And looking at the results from Vantage for the financial year 2019 as shown on '21 on the right side, the numbers were even a little bit better than expected. So Vantage achieved revenues from sales of €84,000,000 and EBITDA of nearly €14,000,000 the net income after taxes, after increased cost, which is really a cash result, or level of €11,300,000 So this was something that was definitely positive for us after the closing. Then on Page 22, you see more details on our build to hold pipeline, further details on the number of project stages and so on. But what's most interesting is on the bottom left of Page 22, how do we expect or at what point in time do we expect that projects are completed and when rent starts. So I can see that we will expect and have the first rents towards the end of the financial year 2021. So we expect that we have around 500 units, which are currently already under construction then in 2021, ready and rented out. And then the number year over year increases up to the 8,600 units that are already mentioned, which should then be finished more or less towards year end 2024 or at the beginning of 2025. Page 23 on next slide, you see basically the same structure for the build to sell pipeline. The timeline of sales shows you that in 2020, we will have again strong sales results and strong cash inflows from Vantage via the disposed units. And this disposal business in Poland is something that we clearly want to continue. So if we look mid to long term in our business of Poland, of course, the last part of the cash flows will come from the residential for rent business, but this residential for sale business or disposal business will always be a part of our business. In Poland, in the year, how we expect that to translate into cash over the years. On '24, some words on our financing strategy. First of all, for 2020, the financing needs are quite moderate. As I said, Vantage has in its own balance sheet a strong cash position of more than €46,000,000 And clearly, we expect strong cash inflows in 2020 from the disposals. So therefore, what we currently are planning is that we will downstream to Vantage up to 50,000,000 for further projects. And I think that's important. This financing, if needed, of up to €50,000,000 is then really for new acquisition. So to put it the other way around, the existing projects in Advantage for 2020 are fully financed, so there's no need. But of course, as I said, the plan is to acquire further land banks, to acquire further projects, and therefore, we expect up to €15,000,000,000 that we will get by a shareholder loan from TAG to Vantage in Poland. So that's not really a material size that is needed. Mid to long term, so from 2021 onwards, the financing needs will be between 150,000,000 to 200,000,000 So that's something that we have to finance, and we have two ways to do that. That's on the one side, similar to what we do here in Germany, secured financing advantage level by a mortgage growth income and on the second auction, and that's clearly attractive to do that. We have the possibility of unsecured financing at TEG Holding level, for example, via corporate bonds or promissory notes as we did in the past. Yes, of course, we have a certain foreign exchange risk. And for now, we are not under pressure to do something right now, but we are currently working on our strategy. When we look at the historical developments between the euro and the Polish zloty, that has been very stable over the last three to five years. So the idea behind it is to have more hedging strategy, which is not a full hedge of the full complete foreign exchange rates. We don't think this is necessary, but of course, we want to do something that we will prevent it from suffering unexpected peaks in the exchange rate or unexpected losses. And this is something that we want to implement from 2021 onwards. And then some final comments on Page 26, that's the guidance slide. Looking at the German guidance for financial year 2020, the guidance is unchanged. So therefore, we clearly committed and clearly confirm our FFO guidance between January and €117,000,000 We also confirm the dividend guidance for the financial year 2020 then paid out at the AGM in 2021 of €0.87 per share. New is the guidance that we gave on the business in Poland. And as I said, this business in Poland for 2020 is solely a disposal business. We expect here sales revenues between 80,000,000 and €85,000,000 and the result from operations, and that's exactly the result that I explained in the summary before, of around €10,000,000 for 2020. This will then be part of €10,000,000 for FFO2. And if you divide that through the current number of shares, that translates into a value per share of €07 From 2021 onwards, Poland will then contribute to the FFO I of TAG. But as pointed out, for 2020, we will have, on one side, some cash flows, but on the other side only an FFO to contribution from our business in Poland. That's it from my side so far. So assuming that again, first, perhaps the most important news for today, we don't see really any impact from the COVID-nineteen crisis on our business. So everything is running more or less as expected. Q1 was a good quarter with an FFO that increased quarter on quarter by nearly €3,000,000 and the business in Poland is already successful in the first quarter and is something that we regard as very promising for the next year. Thank you very much so far. And of course now, we're happy to take your questions. And we have first questions coming in. First, to read the question is Mr. Thomas Neuhold from Kepler Cheuvreux. Please go ahead. Good morning. Thank you very much for the presentation and taking the questions. Actually, I only have two on the Polish business. Firstly, strategy wise, you plan to increase the number of units quite strongly in next year in Poland, leading also to quite high CapEx requirements. What impact will this have on your capital recycling strategy in Germany and also your acquisition policy in Germany? Do you plan to slow down the acquisitions in Germany a little bit and try to focus on Poland? Or do you plan to increase also the disposals in Germany in order to finance the expansion in Poland or to increase the debt of company? That's the first question. Yes. Thank you very much, Thomas. I have to say this very clearly. Poland is something additional. So there are no plans to sell assets in Germany and take this as financing for new acquisitions in Poland. I mean, the German market is, as you noted from the past, it's very competitive. So therefore, do we expect significant large transactions in the market in Germany? That's perhaps nothing that is really realistic. But again, as I said, we are still optimistic that we are able to deliver for 2020 on similar acquisition sizes than in 2019, 2018 and perhaps even a little bit more. But that's one side. And this German acquisitions on the other side, will be also financed via disposals in Germany, but really in sizes like you know from us from the past. And then the second and new external growth opportunity is then Poland, where we see really, yes, of course, also competitive market, but not really comparable to what we see in Germany, especially not in this institutional residential for rent sector that we are now entering as perhaps one of the first institutional landlords in Poland. So therefore, we definitely have enough financial power to do acquisitions in Germany on top of that what we do in Germany. And again, if you look at absolute volumes that are necessary, so it is up to around €50,000,000 for 2020 and then annually around €150,000,000 perhaps up to €200,000,000 from 2021 onwards. This is something that based on a current GMV of €5,400,000,000 should be absolutely manageable for us. And the second question is on the build to road pipeline in Poland. There were trend levers since relatively high €10.11 euros I know the apartment size is not that big, so we're talking about a total rent of maybe €450 to 5,000,000 per apartment per month. But still, you have quite ambitious rollout plans, and you will bring roughly, I would say, in terms of 1,000 to 1,500 new apartments to midsized Polish cities. Do you think there's a risk that you might not be able to let out the apartment that is price tag? Well, the prices that we are putting into our business plan are really prices that we currently see in the market and also currently see with the Vantage product. So that's interesting to know that Vantage already in the past sold around 30% of its apartment to people who rented the apartments out afterwards. So these were the mostly private people who bought three d five or even a bit more apartments and rented it out. So in the rent level of €10 or €11 per square meter is something that we already observe in the market, so that's not a pure assumption. And of course, not only with vintage apartments, also with other apartments that we observe in the markets of Ostas and Tosnen. Compared to our German portfolio, I mean, this is clearly higher. You know that our average rent in Germany is 5 point euros 4 But it's, first of all, a different product. So in Poland, we're talking about newly constructed apartment. And secondly, in Poland, we are really talking about the large cities. So perhaps except Warsaw, we're talking about then all other cities that have then 600,000, 800,000 people living there, like Wartsila, like Poznan. And the apartment size is smaller than in Germany. So whereas in our German portfolio, we have on average 60 to EUR 65 per square meter. In Poland, in a rental apartment, we're talking about the size of perhaps 40 to 45 square meters. That's the difference. And we see that the demand in the market, so we were very optimistic that we're able to do this. And again, it's not concentrated only on one location like Wartsilaft. We've already entered the second location, Poznan, and a third or fourth location will follow quite soon. So it should be also a very well diversified approach. Understood. Thank you. The next question comes from Mr. Sander Bank from Barclays. Please go ahead. Hi, good morning team. Two or three questions from my side and I'll ask them one by one. The first question is a bit back on the funding strategy for Poland and how you expect to do that going forward. And I appreciate the outlay in itself is not too high. But yes, just kind of thinking about because in total you're looking for at least sort of to hold pipeline to $600,000,000 which is more than 10% of the existing portfolio. So are you just fully using your further valuation growth to lever up again and get those proceeds? So yes, so kind of how are you thinking about that? Yes. Thank you for the question, Sander. For us, it's clear that also equity is at a certain point of time an option. That's to not perhaps, surely nothing to think about that in the short term. So you've seen that the financing needs for 2020 in Poland are very limited. So therefore, there's not equity for our business in Poland needed. But yes, of course, if we are realizing that's a clear plan also that the pipeline in Poland in the next years, that is a clear option for us. So using valuation gains in Germany need to keep the LTV on that level only is perhaps nothing that is in line with our thoughts of how, let's say, stable financing structure should be. Okay. Perfect. That's very clear. The other question I had is on your potential rating. I was wondering if you've had since in the last couple of months, if you've had contact with your rating agency and what they're kind of saying about the current rating and if there's any potential for improvement? Or is it more expected to be stable going forward? Well, first of all, the rating should be definitely something stable. In these times, of course, it's difficult to think about upgrades. Would that be something realistic? I don't know. We have clearly or had clearly expectations that we are very well positioned between our Baa3 rating at Moody's that the trend was clearly more towards an upgrade, and perhaps this is still something that is realistic. We have no detailed discussions so far with the agency in the last weeks. We will do this in summer again as planned. Of course, Moody's has received as it is common after each quarter and after each full year, cash forecast, our business plan. So and this was all, from my point of view, very well received. And we have definitely not received any negative comments on our business, whether this is the German or the Polish business. So therefore, if you ask me, we feel very well positioned within BASF III. And perhaps in a world where the COVID-nineteen crisis is not that dominant as today, the trend should be clearly more towards an upgrade. Okay. And the development business in Poland is not having an impact on that potential rating, I. E, they do not require you to have a lower LTV to compensate for the slightly higher development risk that you eventually take on? No. That's not the case. Okay. Perfect. And then very last question. Just on the rental growth, how do you and I know kind of this question has been asked in previous times as well, but how do you think about that going forward? Do you still kind of expect 2% base rate plus 50 basis points from vacancy reduction and modernization? Is that kind of the ongoing run rate? Or is that something that ultimately is just going to trend more towards the 1.5%, 2%? No, that's not the case that we are expecting mid to long term and lower like sequential growth. Therefore, really the underlying fundamentals will change. I mean, if ask us well, what do you see regarding vacancy rate development, I mean, it's clear that staying on the level that we had at the beginning of the year in these times is very good news from our point of view. But clearly, we expected already that we had a reduced vacancy rate at the end of the first quarter, but that's not really a material difference. So therefore, yes, potentially, we have some delays in vacancy rate reduction during the course of financial year 2020 as a result of the COVID-nineteen crisis, but that's nothing that is that we consider as something that is mid- to long term the case. So what we see in our markets is also in this time a very good demand, a very healthy demand. And we feel very well positioned even in a time where we have perhaps tougher times in terms of higher unemployment rates and so on because we really offer affordable housing with a per square meter end of $540,000,000 and that should be something that is also very much searched from potential tenants in the future. Great. Thanks very much. And the next question is Mr. Kai Klose from Berenberg. Your line is open. Yes, hello. Good morning. I've got three questions, if I may. The first one is on Page 28 of the presentation in the appendix. And you had in correctly, in all locations, an increase in vacancy rates. Was that expected? Or is it something which was maybe not because of the crisis, but somewhat more than you expected to see? Second question would be on the acquisitions you did in Germany on Page 18. Could you maybe elaborate a bit more on the sell off of those two portfolios? And what do you expect or how quickly you expect the properties to be upgraded? And then the third question would be we had a lower cash tax rate, if I see it correctly, in the FFO calculation. Is it something which then we should expect for the remainder of the year? Or was it something specific for the first quarter? You. Thanks for the question, Kai. To start with the third question, you should expect similar cash taxes in the second, third and fourth quarter because the cash tax expense in the fourth quarter of twenty nineteen was higher than normal. So therefore, what we have today in our books also or in the first quarter, that's something that from our point makes sense to pencil in to our model for the remaining part of the year. Answering the question regarding vacancy rates, yes, that's basically something that we expected for the first quarter. So it's not unusual, as I said, that we have a kind of seasonality for what reason ever a lot of people are leaving the apartment in January and February. That has been the case also in the last two years, as you see from our chart. So that's not really a surprise for us. As I said, that's the only impact from COVID-nineteen was in some regions where we have a higher proportion of students. And the main example here was the Rostock region where we, in fact, really had an increase in maintenance rate by 80 basis points. And here, we are not offering, let's say, 100% student homes, but we offer apartments that are a lot of them are used by students. And therefore, as universities are shut, we saw here in Chukwon. So the only unexpected increase, but generally that's not really far behind our plans, to put it like this. And then commenting on the acquisition, the type of seller. Well, there's not one special type of seller on the market where we're buying from. I would say, as I think it also said in the past calls, there are perhaps two type of sellers. And in this regard, these were more local sellers who are very well familiar with the market but perhaps was lacking, to some extent is the financial power to modernize apartments. And you have to do this in many cases in the first step from equity that as a listed company, not the problem. So there, we're very optimistic that we can improve vacancy rates, increase rents quite soon as we're really able to do the monetization and refinance that then afterwards with our banks when we have decreased cash flow. The second type of seller, which is not the case in the business, is the more institutional seller with a lot of financial power, but not that, let's say, locally in the market. And this combination is something that we consider to be really an advantage of our structure. So we're acting very decentralized, very locally, but with the financial power of a listed company. I see. And last question would be on Page 10 on the balance sheet. Just to clarify the real estate inventory, which went up quite strongly. And you mentioned you had a footnote on the right hand side. Is it coming from the from or does this reflect Vintage development activities? Or is it from the consolidation of Vintage as a corporate? That's from the consolidation as Vintage as a corporate. Mr. Thiel, there are no further questions at the moment. Okay. Thank you very much from our side that you've joined our call. As always, if there are any questions left, please feel free to contact us. I'm happy to hear you at least in the next days and weeks via virtual conferences. Stay all happy, and have a good day. Thank you very much.