M&A Announcement

Nov 11, 2019

Slides

Good morning, ladies and gentlemen, and welcome to the conference call regarding TAG Immobilier AG to enter the residential for rent market in Poland. At this time, all participants have been placed on a listen only mode. The floor will be open for questions following the presentation. Now I hand the floor over to your host, Mr. Martin Thiel. Yes, thanks and good morning, everybody. This is Martin from PG. Many thanks for dialing in for our conference call today. Today with a new topic, surely have seen the acquisition that we announced last week Friday, the acquisition of all shares in Managed Development. But of course, it's only an ambition and acquisition of another property company. It's of course, as more important, our entry in the Polish residential current market. And think you have seen that we have published presentation on our website. Let's go through it and afterwards, of course, as always, we have enough time to answer your questions. Let's start on Page two, where we show the executive summary of the transaction and we'll focus on this slide that's just on the transaction scope and the key transaction terms. And after that, on the next slides, we can discuss the strategic rationale and why we entered the Polish residential market and why now. So talking about the transaction scope, what have we accepted for what kind of company, what kind of product? We acquired or we signed a contract to acquire all shares in Vantage Development. Vantage Development SR is a WhatsApp based developer within the residential business, within this development business now since exactly 02/2007. It employs approximately 100 employees, developed and handed over approximately 4,000 units so far to give you some main data, some main figures from the last full financial year so that you get a rough understanding of the size of the company, Turnover, the sales revenues last year in 2018, the last full financial year, was €112,000,000 The EBIT amounted to approximately €28,000,000 and the net income was €18,000,000 So to make it short, well established, very well in the markets, known mid sized developer with very good financial numbers. The company itself is still listed on the Warsaw Stock Exchange, but there's basically no trading in the shares as all the shares are held by just three companies. So that means technically we have to run a tender offer process for the shares in Vantage development, but we already have at a 100% tender commitment secured from the selling shareholders. So this tender offer that will be announced in Poland starting on Thursday is more or less something technically we already have the commitment of 100% of the selling shareholders to tender their shares. Talking about the purchase prices, the key transaction terms, the full total consideration for the tender offer is approximately €131,000,000 but this €131,000,000 contain in the amount of €46,000,000 the purchase price for the commercial real estate business of Vantage. And this commercial real estate business is not taken over by TEG. This will be sold back to back to the selling shareholders. So that means after €131,000,000 €46,000,000 will directly be repaid to the company to Vantage Development and that means also to us. So therefore, the net consideration, the total purchase price for the residential business that we acquired in Vantage Development amounts to €85,000,000 And it's not just the residential business, it's and it's important for us, the whole platform that we acquired. That means all the employees stay in the company. What is sold prior to the commercial business is just the assets. We also acquired the cash that is in the company and we expect that the cash amount in the company will be more than €30,000,000 by year end. So just to give you an idea, the really net consideration after the cash that we acquired is perhaps a little bit more than EUR50 million. Therefore, we think the whole terms of the transactions are very effective for us. So this is some introductory words on a transaction scope and the key transaction terms. Let's turn to the next page where we show the portfolio map of the regions that you already know, our regions in Northern And Eastern Germany, and then the new region, Poland. And looking at the portfolio map, it's quite clear that we're doing here perhaps something natural. So yes, we are entering a new market. Yes, we're doing outside Germany, but we go in really direct into a neighborhood country. We add a new region to our existing portfolio. And that's also important to point out already here, the decision or the transaction that we do here is definitely nothing where we say, well, in Germany, there are less opportunities to acquire or in Germany, we have some concerns about our future business. That's definitely not the case. But we simply see that the Polish residential rent market is something that allows us to grow in very attractive terms in the future and therefore we add a new region to the existing portfolio. And looking at the distances, if we compare some cities in Poland, like for example, Wroclaw, in Germany, Presslau, where the main focus of Vantage development is today, that's even closer to Berlin or of course even closer to Tasten than other regions that we currently have in Salzgitter or in the Rhine Duhoe area. Turning to Page number four, what's the strategic rationale behind it? As I said, it's an evolution of KAG's acquisition strategy. That means we expand into a directly neighboring region. What is special about the market that we enter and special about the product that we will offer in the future in Poland is that we're talking about new developed products. That means newly developed apartments. So compared to what we are buying in Germany, this is now really something different as we're buying and with Hyper Vintage developing newly constructed apartments. And why is that the case? If we look at the Polish residential market, first of all, it's very fragmented. And also we have a quite substantial number of older apartments, apartments that are now thirty, forty, perhaps 50 years old, not anymore in good shape. So therefore, is coming new to the market to new constructed apartments is very attractive, also very attractive to future tenants. And perhaps the only way that makes sense from our point of view to build up a new residential for him portfolio is to build this up via newly constructed apartments. And the nucleus for this, the starting point is Vantage development. We secured a pipeline of 5,300 units that Vantage development is currently working on, out of which we think that more than 3,000 or up to 3,400 units are already available for the residential brand business. So a midterm growth target for the next three to five years is to have 8,000 to 10,000 units in Poland available for the residential French market. And the first step is already done with Vantage development. As I said, out of the 5,300 units, our estimates are that up to 3,400 units are really available for the residential for rent business. Rentage development is offering definitely high quality product. So if you look at the apartment, if you look at the buildings, that's of course nothing luxury, but we would consider or we would estimate it's more the mid to upper end of the market. First, the interesting thing about this step to Poland is that, of course, we are then quite quickly one of the largest landlords in Poland. So clearly, we're having a kind of early mover advantage going into the Polish residential for end market, which is at the moment very fragmented. So there is of course already residential for rent business. But for example, looking at the business that Vantage is currently doing, they are currently just selling the apartments, but also they have already a share of approximately 30 of their disposals that go to private individuals that are renting out the apartments afterwards. Thus, these are just private persons owning perhaps five or 10 apartments and renting them out quite successfully. But of course, that's not comparable with a large landlord with business like Weetring in Germany with economies of scale we want to create by doing this much more professionally. Important for us, of course, is that we see an attractive risk return profile. So we are expecting strong cash returns from our investments in Poland, the year down costs, so that means the rent that we expect compared to the investments we do, for example, via the investments in Vintage Development are between 78%. And if you compare the 7% or 8% gross yield with gross yields for newly constructed apartments in Germany, that's clear that this is of course much more attractive. Coming to Page number five, of course, the question is why are we going to Poland and why are we doing this right now? First of all, as I said, definitely nothing against the German market. But we simply see in Poland not only very good macroeconomic developments like a very low unemployment rate of 3.5%, like a very strong GDP growth rate of currently 4.2%. We especially see a mismatch between supply and demand in the Polish residential market. There's a supply shortfall in all the larger cities in Poland. As I said, many of the buildings constructed after the Second World War now reached a certain age. Therefore, the demand for higher quality product is definitely there. And secondly, within the society of Poland, there's a certain change. Currently, Poland has a home ownership rate of approximately 85, just as 15% of the people are renting their apartments. But there's a clear trend, especially concerning younger people, that they are renting apartments simply to get or to have more flexibility because also in Poland is the case like in many other countries in the world that perhaps after two or three people move to other cities, move to other countries to work and therefore buying an apartment also in Poland is not anymore the thing everyone does. This residential for rent market segment is clearly upcoming. And looking at the customers of vintage development already today, we're talking here about people, young people who finished their education, who started to work in the age between 25 and 35 on average. Many cases, young couples as with one child that are simply searching for an attractive apartment in a larger city. And it's also something which is different concerning our strategy in Poland compared to our strategy in Germany, where in Germany we are going more to the so called B or C locations, so that means not the big cities, but cities like, for example, Kamlitsch and Halle and so on. In Poland, we will concentrate on the larger cities. For example, like Wartsilaaf, but also other cities are attractive for us, cities like Poznan and perhaps mixed to long term, also cities like Lodz, Krakow or the Tri City in the Northern part of Poland. Another advantage in Poland, and that's of course an intensive discussion in Germany today, is the regulatory environment. Basically in Poland, there's no special tenant or rent law. So everything that landlords are doing in Poland is just governed by the normal civil law. And therefore in Poland, as a landlord, you've got a lot of freedom how to create the rents, how to design the contract of all your tenants' contracts. I already said the risk return dynamics are very attractive. Gross rental income yield between 78%, we expect. And not only an attractive gross yield, also the EBITDA margin that we expect is higher than in Germany. Why is that? The operating costs in Poland, the salaries, the costs of the SG and A are, of course, much lower than in Germany. And of course, it is not included in the EBITDA margin. The CapEx needs in the future are very, very small as we're talking here about a product for new constructed apartments. So every time we're talking about, for example, potential FFO effects, this nearly equals completely expected AFFO effects as you don't expect to have large CapEx needs in the future. On Page number six, you see again an overview of the transaction scope. As I already mentioned, Vantage has a current secured pipeline of approximately 5,300 units, out of which approximately 1,900 units are earmarked for sales. Why is that? Why is there a number of 1,900 units already earmarked for disposals? First of all, a larger part of this 1,900 units, approximately 60% to 70% are already sold. And the remaining part, it doesn't make sense from our view to take this to the residential for rent business because then that's the typical scenario where you have an apartment building, you already sold apartments and then it doesn't make sense as it is the case in Germany to rent out just some apartments in a full apartment block and you end up with a kind of Swiss cheese for the renting business. So therefore, what we are trying to bring to the residential for rent market, of course, more completed full apartment blocks. So therefore, we have to have this 1,900 units that are earmarked for individual sales and then the remaining up to 3,400 units are potentially available for the renting business. On Page number seven, you see some more figures on our platform and our plans in Poland. Looking to the top right, you see the key figures for the long term renting business. And these figures, these results will kick in from the year 2021 onwards. So our investment in Poland is definitely something for a mid to long term. In 2021, it is the case because what we will rent out in 2021 will be constructed right now. So then we have the usual construction time of one, one point five years, so we will have the first effects on our FFO I from the Lettig business from 2021 onwards. As I said, the midterm target in Poland is to have between 18,000 apartments already secured by the acquisition of Vantage are approximately 3,400. If you apply the estimated gross yield on cost and the estimated EBITDA margin, then we're talking about then really for the mid to long term perspective, looking at the 8,000 to 3,000 units about net rents in Poland between EUR 60,000,000 and EUR 75,000,000 and already secured, already available via the Vantage business is an approximately €25,000,000 of rents. But the short term outlook for Vantage is also very attractive. So referring to this 1,900 unit that I mentioned for the selling business, Vantage has achieved in the past EBIT margins of approximately 20% and net income margins, so really after all taxes after financing, of approximately 15%. So from these disposals of 1,900 units, we expect estimated net cash flows of €30,000,000 out of which in the financial years 2020 to 2021 will be approximately €20,000,000 €10,000,000 already included in the financial year 2019 numbers. So in the first two years, what we think is a quite attractive cash flow from net disposals And afterwards, when we build up the platform, a step by step attractive cash flows on the Renting business with gross yields on costs between 78%. On Page eight, you see highlighted a summary on the impact for our shareholders. As I said, and it was always important for us when we thought about entering the Polish residential market, we really have here a strong cash flow profile. Yes, of course, you can discuss where the risk profile is different in Poland. And of course, compared to the German residential market, nearly everything else in the world has a high risk profile. But we think looking at the growth units that we achieved with the acquisitions in Poland with newly constructed apartments in the large cities in Poland, this is definitely something that gives us a very strong cash flow and an attractive risk return reward. The transaction will for sure be FFO accretive in the first years, as I said, accretive to the FFO two, that means the disposal business. And then from 2021 onwards, of course, we will have a significant attractive impact on our FFO I. Also an advantage for us is that currently, Vantage development has, as it is very natural in Poland, of course, higher financing costs than we have. For example, Vantage has development has Vantage development has issued in the past also bonds to finance their activities. Currently, the total volume outstanding regarding the bonds is approximately €14,000,000 and the average interest rate of these bonds is around six percent. So that makes it clear that every refinancing we do here in Poland will create financial cost synergies. So therefore, we're doing here business in Poland at attractive gross yields with financing costs that are then perhaps very similar to what we're doing here in our German business. The transaction will definitely not change our LTV targets, our LTV assumptions. So the current LTV target of a maximum of 50% will stay in place. We're paying the total transaction amount from our cash position. But looking at the numbers, this is of course not change our financial metrics in a negative way. And the LTV also after the acquisition will stay well below the current target of 50%. Then coming to Page number nine, some last words on the timetable and the timeline for the tender offer. I already mentioned that we have to run this tender offer more technically, although we already have the commitments of 100% of the shares outstanding. The tender offer will be announced formally on the November 14, so that's this week on Thursday. Then we are running the usual process that includes also an anti monopoly clearance filing. We clearly expect that this will cause not any problems. And then the subscription period and the tender offer period will January or February year. So that means the closing of the transaction payment and settlement will be perhaps early in the first quarter of twenty twenty. After that, the clear plan is to delist the currently still at the Washoe Stock Exchange listed shares so that we have a non listed company afterwards. That's it from my side as a short overview of our transaction regarding the acquisition of Vantage Development, about what we are planning in Poland mid to long term. And of course, now I'm happy to answer your questions. And first up is Andre Kremke from Dade Bank. The floor is yours. Yes, good morning, Martin. Thanks for the presentation. And a couple of questions, please. One, you mentioned some motivation to step into the Polish market. Maybe some indications on the process itself. When did you start to consider regional expansion abroad? And or was it simply that you have been getting aware of the opportunity advantage to step into this market? Yes, thanks for the question, Andre. This was not the way that we simply had the opportunity to acquire Vantage and then thought about the possibility to enter the market. It was the other way around. I mean, basically, would say one year ago, we start to think about entering foreign markets and quite quickly we figured out, well, the best only country that makes short term for us sense is Poland. And then we started to look at the market and we quite quickly found out, well, what's the difficult thing about the market? The numbers are attractive. Poland, the whole economical development is very attractive. But what is a and what is a step that makes sense to enter the market? Because if you look what is on the market traded as portfolios, and as I said, we're always talking about new developments, you can buy perhaps portfolios of 200 units, 300 units. So therefore, our doubts were can we really enter the market with a size where we really have a secured pipeline, where we really can get at least midterm into a size that makes sense to invest. And this size is basically to add another region, means another 8,000 to 10,000 units. So and then Vantage came to the market via a structured process some months ago. And then of course, we worked intensively on that and said, well, there's secured pipeline of Vantage of more than 5,000 units that could be the nucleus for us. And then on top and that's something that you should expect to follow, can then add 200, 300 unit portfolio step by step to create the targeted size of 8,000 to 10,000 units. So your midterm target of 8,000 to 10,000, you mentioned this in the presentation via development. So will this be not directly via Vantage developments? So you also consider further, let's say, acquisition of other projects or completed properties from other developers. Is it right? Yes, that's the case. Of course, both ways will be continued. So we will develop also other projects via Vantage. So it should not only stay at this 5,300 units. Of course, the plans are to acquire further land backs via this company and then to build them via Vantage for our own pipeline. But yes, we are also looking at other project developments to acquire directly from other developers. And in general, the potential via Vantage developments, what is the track record for the 4,000 units in terms of time line? So how many years did they need to Yes. Set this What they perhaps to give you some current numbers, what they announced, what they want to expect to sell this year, 2019, is approximately 900 units. In the financial year 2018, I think they've sold 700 to 800 units. Given the let's say, it's not limited financial power, but given, let's say, what was doable for them, then of course, with the financial funds that we have, even more is possible. But for us, it's very clear, we need to follow here a targeted approach. So to add on top another, let's say, 1,000 units year by year via Vantage, that should be absolutely possible. Then another question, you mentioned a gross yield of 7% to 8% at least on the rental portfolio. I assume that this is the development yield on costs. So how does this compare to yield for existing properties in Poland in comparable regions? And what do you expect from, let's say, appraisals point of view, how to value such newly built properties after completion? Yes. But to give a concrete number and to talk in round numbers, we're currently talking in the vintage case about a rent multiple of 13 times rent. So the expected rent of, as we said, euros 25,000,000 in the future is then based on total construction costs, total investment costs, including the land of approximately €330,000,000 So if we divide that, that's 13 times rent and a little bit more than 7.5% gross yield. And yes, of course, if we acquire directly from another developer, the rent multiple, the in place marketplace, nothing at 13%, but perhaps a little bit more than not 13%, sorry, 13 times rent, then it's perhaps 14 times rent or fourteen point five percent fourteen point five times the rent. So these are approximately the differences. For new construction? For new constructions. We're always talking about new constructions and always talking about cities like, for example, Wartsila or like Poznan or like Krakow. So we use the large cities in Poland. Yes. Okay. Then coming back to the offer price of, let's say, 85,000,000, how is this being calculated? What is the basis for this calculation? And what's because the missing point is what is the amount of CapEx you do have to pay to develop at least 3,400 units? Translating this into our quite simple numbers that we use for German portfolios, basically the key numbers are like I just what I just said, so 13x rent, that includes the normal CapEx. So a 7.7% cost yield on total investment costs. If you look at it from the other way around, so how are, for example, prices for developers, we're talking here about an EBITDA and in relation to the purchase price of if you really deduct the cash that is in the company or perhaps 5x the EBITDA. So that's give you an idea where we're what the pricing of this transaction is. But this also excludes the amount you gave for the commercial properties? Because you gave us some figures for last year of an EBITDA of, let's say, 21,000,000, but this includes also the commercial segment. That's right. But the impact from the commercial portfolio is quite moderate. The commercial portfolio of Vantage that is now sold to the current shareholders consists of land banks, so without any yet developed projects and three office parks, small office buildings, which are currently rented. So as it does not disclose, I can't give you exactly the figures for the residential segment only. But when I'm talking about total turnover of EUR112 million, let's say 95% of that applies to the residential business. And therefore, out of the CHF 18,000,000 net income, also the very largest part of that applies to the Residential business. Okay, perfect. Then the very last question, you mentioned to expect FFO two contribution of €30,000,000 from the disposal of the asset. You mentioned 2019 to 2021. So in the for 2019, will this belong to your accounts as the closing will only happen in 2020? Yes. No, you're right. The cash flow already belongs to us. But as the first time, contribution will be just in the first quarter of twenty twenty. In the figures, the FFO two figures for 2019, we will have no impact. So out of this €30,000,000 total cash inflow, approximately €10,000,000 we expect already in 2019. That means, yes, the cash is ours, but no contribution technically to the FFO too because we're not consolidating in 2019 vintage. And then the remaining approximately EUR 20,000,000 will be done in the years 2020 and also a little bit in the year 2021, then also affecting positively our FFO too. What we've not looked at so far are any exact outcomes and consequences from the IFRS purchase price calculation. So therefore, this CHF30 million is a simple cash flow approach. Okay, that's from my side. Thank you. Okay, thank you. And now we're coming to the next questioner. It is from Sander Bank from Barclays. Over to you. Hi, good morning. Various questions from me as well, please. Just first on the acquisition price, can you give a bit more detail on what it exactly is you acquire? What is actually what is at the moment in the business? What are your annual operating costs within the business? Is it mainly land that you're acquiring or options to land? Or is it mainly political sense? Just a bit more comments on that, please. That's the first one. Yes. Yes. Mean, thanks, Sander. And to make it simple, we are acquiring the whole company, and what is sold to the existing shareholders are basically this plot of land and these three office buildings plus the respective bank loans. So what is sold are purely assets or purely SPVs and we keep everything else. So that means we are acquiring really the whole platform, everything what is really, let's say, the value of Vantage. I've said, the company employs approximately 100 employees. And the business model is currently, of course, to acquire landbags and to develop, at the moment, residential apartments for sale. And in the future, that's our plan to develop residential apartments to rent it out. Okay. And these 100 what are broadly the run rate in terms of the costs of this business? Yes. Well, as I said, the last figures from the financial year 2018, the turnover was approximately EUR112 million euros and the EBIT was €21,000,000 And about future platform costs that we have in mind to run the current pipeline, so the approximately 3,000 to 4,000 units, we are penciling in approximately platform costs for, let's say, 1,500,000.0 to 2,000,000 a year. So that should be quite moderate, at least definitely less than in Germany. And we're talking about an NOI, so that means rent after directly attributable operating costs for NOI margin of more than 75%, more around 78%. So also higher margins than we have in Germany, clear because the maintenance requirements for new constructed buildings are lower than in our portfolio in Germany. Okay. And that's very helpful. And then in terms of the land that you are acquiring, is that already all the land for the 3,400 units or the 5,000 units that you intend on developing? Or is it only for a certain portion of that? No, that's all secured. So it's not, let's say, mid to long term pipeline. When we talk about 5,300 units in total, out of which we think up to 3,400 units are available for the letting business, that's all secured. That means really, really acquired. For not every part of the pipeline, the public commission is already there, but that's a very natural process. So we have no projects in the pipeline where perhaps there are complex transactions required like changing zoning plans from commercial use to residential use. So that's really a secure pipeline. So basically of the 5,300 units, you own the land and you're pretty much planning permission for most of the development units? Yes, that's correct. Okay, perfect. Thank you. Then just a bit more on the market because quite frankly, I'm not that familiar with the market at all. And just kind of looking at the various metrics that you've provided, it really looks to be a premium product if you look at affordability mainly on Page 14 that you're offering. Also on Page 15, it looks actually that market rents in Rocklaw actually peaked in the early twenty seventeen and that's since been a bit on the decline. Just trying to get a bit more feeling on how you're positioning this product and what you're offering here and what the additional risks are because obviously, it is not as risk free as Germany, but just to get a bit more understanding on how you think about that. Well, you're absolutely right. If you look at prices, I mean, we're talking here about per square meter prices in the letting business, which is currently on the market, so not mid to long term assumption, but really it was currently paid for this kind of product. For example, in Wroclaw, the per square meter prices are in slotties between PLN 45 and PLN 50 PLN per square meter. So that's, let's say, between EUR 10 and EUR 12 per square meter. So that seems to be quite a lot. But the typical household looks like this. We're talking here about more small apartments. So for example, a 40 to 45 square meter apartment is absolutely the typical product. We're talking about a household size of at least two people. So a young couple, perhaps with an additional child is living in this apartment. And that's the way in Poland people are financing this this product. So two people are living there, but both of them working, but on a definitely lower square meter area compared, for example, to Germany. And then on this basis for them, it's absolutely affordable. And we're talking here about people who are then not in, let's say, the lower income segment, but more in the mid to upper end of the income segment. Okay. So basically, the stats on Page 14 are more for the average, but that does not necessarily apply to the type of people that you're targeting with your product. That correct? That's correct. So that's, of course, only average numbers for Wartslav, and that includes really everything. And as I said, perhaps in Poland, you have to look at two different parts of the residential market. The first part is really the older product who are now coming into a certain age need to be replaced. And then on the other side, the clearly more mixed to higher quality products like we are offering via Vantage. Okay. And in terms of the market rental in Rokla, which looks like it has been down since the peak in 2017. And also looking at the level of development that at the moment seems to be going on, it seems like development activity is quite strong at the moment more generally. How are you thinking about market rental growth going forward? Well, in our model, we really have cautious assumptions and that means we're talking about rental growth that then really fulfills our requirements between perhaps 12%. So that should not be really an aggressive assumption. But what we clearly see in this market or this product that we're offering is a very strong demand. For example, I think I mentioned that already currently 30% of the disposal of Vantage is basically for the residential business as it goes then to people who are renting it out afterwards. And the time it takes to rent out an apartment after someone acquired it, we're talking in not about weeks, we are basically talking about some days and already or a very short short time. And then afterwards, the apartments already rented. And looking at the purchase price assumptions, the selling price assumption for Vantage, currently compared to some months back when we started to take a first look at the company, the realized prices are better than expected some months ago. So therefore, this gives us, let's say, a very good feeling and makes us very optimistic for the current stage of the market for our product. Okay. And that also means because I know you mentioned it earlier in the call that you're targeting a yield on cost of around 7% to 8%. If you look at the yield proxies that you're highlighting on Page 14, they're all pretty much well above that. But you're saying again that is then probably not reflective of the type of product you're offering? Yes. Yes, that's correct. Okay. Okay. Understood. And then very yes, one more on that. How does the rent structure work? Is it basically do you agree a rent on a yearly basis and does it then get reset to market? Or how should we be thinking about that? Yes. I mean the contract can, of course, from both sides be terminated as it is normally international context, in most cases after one year. So and then you definitely renegotiate the tenant from time to time about the rental. There's no really rental law in Poland. So that's all part of the general civil law. Okay. And also no indexation? Of course, you're free to do this, but there's no general law that rents are kept indexed or something like that. Okay. So it's very much on an individual basis. In principle, it's a one year contract, could be subject to inflation, but could also be readjusted to market upwards or downwards after a year, effectively? That's correct. Okay. And then very last one, sorry for the various numbers of questions, but the very last one. How are you intending to fund this the pipeline? Are you looking to do that through basically selling out of Germany and going into Poland? Or are you looking to use other sources of funding as well? What we want to do is that we sell apartments in our portfolios in Germany to fund our business in Poland. As I said, the business in Poland is really something additional. So and therefore, we're talking about portfolio of 8,000 to 10,000 units that we want to build up. And then we have here, let's say, the very normal assumptions that we need to have for debt. So what is not needed is in the short term any of the equity increase to finance debt. So we can do this from existing cash. We can also issue bonds or promissory notes to finance debt. But of course, as investments become larger, which will not be the case or not be necessarily next weeks or months, we also think about using equity for building up pipeline. But that's then something which is very comparable to our financing strategy financing in Germany. So this acquisition is definitely nothing that should change our balance sheet metrics, which developed so positively in the last year. Okay, understood. That's great insight. Thanks very much, guys. The next questioner is Peter Papadakov from Green Street Advisors. Good morning. Just one question really on alignment with the Vantage team. So are you doing anything to try to retain key people? Obviously, you're going to rely on the local team for as you understand the market in more detail. So what are you doing to retain some of the key people? Yes. Thank you, Peter. Of course, it was an important question for us because there could be, let's say, risk. We're buying a company, all the people leave, and then what we wanted to do when we entered the Polish residential market that we not only buying assets, but also the platform, then how it's done in the next day. So the top management, that means the two management board members and also the first layer below them is already incentivized to stay in the company. And perhaps that's a lay more formal point and, of course, a financial point. But perhaps for us, even more important that we really get the impression in the discussions in the last weeks and months that they, first of all, are convinced themselves about our plans in Poland. And secondly, that for them, of course, it is also an attractive perspective, an attractive chance to be part of perhaps one of the largest landlord in Poland. And then what was a certain limit in the past, that means the availability of capital, the availability of equity now is there. So that means their sourcing activities can really be then translated into concrete projects. And that seems for us is perhaps even a higher motivation than financial incentives that are already in place. Great, understood. And sort of related to that, in terms of the business strategy or Vantage going forward, will you continue to pursue development to sell as part of that business? Or will it, over time, really all be PAG is the acquirer of developed units? Yes. And you're right, it will, from our point of view, never be a 100% approach. And this also depends then on markets and depends also on the projects. So simple example, if you acquire a new land bank via Vantage and say, well, that's available for, let's say, 1,000 apartments, perhaps then there are parts in this development project of, I don't know, 100, 150, 200 apartments where one would say, well, that's then something where the demand from the selling pipeline or from the selling perspective is much higher because these are in the larger apartments, the more high priced apartments where we have demand and where we have a better choice to sell it. But of course, the idea is to have the very largest part in the relating business. But it will that's I think the logistic assumption never be a 100% very strict approach and something that is that's very natural. And therefore, we are always speaking of up to 3,400 units available for the letting business. So yes, the clear plan is to have that, the largest majority in the letting business. But let's see how this develops in the future. Clearly, the business model is to have the very largest part of business in the letting business in Poland. Understood. And final question, just theoretically, if you buy in a year's time 2,005 apartments in Krakow, what happens day one in terms of who does the letting management on day one? The idea is to build up this letting platform now within Vantage, within the team. And the good thing is, I mean, we're talking about now a time of perhaps one point five years, perhaps a little bit less until we really see the first tenants moving in. So remember, from 2021 onwards, we'll have really cash flows from the letting business. So and that allows us now in the next month to build up the processes for the letting business. And that's something where we say, well, that's where we are hopefully very experienced. We really know how to do it. So therefore, this combination from the TAG know how, how to structure the letting business, from the local market know how, from the sourcing power of Vantage, this is a good combination. And in other locations in Kako, of course, then the central management would be from within Vantage, that means that's from Wartslav. But then I'm sure we will follow quite quickly our approach that we are using also in Germany that we, of course, in Kakao, we need people managing the portfolios right underground, right where we own the properties. And the next question comes from Thomas Neuhaus from Kepler Cheuvreux. Actually have two. First is a follow-up on the 8,000 to 10,000 unit long term target. Does this or will this eventually also involve a regional expansion within Poland? Or you want to stay focused on the most loved region? Morning, Thomas. This also includes other cities. But it's not purely Wartsila. This also includes, for example, cities like Poznan or like Kako. Perfect. And then I was wondering if you can give us an overview about the similarities or differences in the regulatory environment between Poland and Germany, especially in terms of approval process, building requirements and regulations, which govern the construction process and the rights of the acquirer of buildings and also what the typical throughput time in Poland is versus Germany between the acquisition of Landblot and then you can really hand over the apartments with tenants or opine? Yes. That's really a big difference and in a positively manner. So if you really concentrate on a project, if you really acquire, let's say, acquired a plot of land or secured a plot of land until the the time until you get a building permissions, we're talking here about months and not years, like in Germany. And then also the construction process is then done as what we have observed quite quickly. So we're talking about whole cycles of perhaps two years, three years compared to perhaps double the time it takes in Germany. So this whole process, yes, of course, is regulated and it's a formal process. But what we have seen, not only advantage developers, but generally in the market, the whole processes are much quicker, much more natural, much more in a normal time frame as it is in Germany. Whereas in Germany, we're really talking about extremely long periods of time to develop products and extremely long time until you get certainty whether the billing permission is granted and so on. That's different in Poland. So therefore, a large part or a substantial part of the development risk that we have in Germany is, in Poland, from our point of different and much lower. Okay. And in terms of minimum quality criteria, you have to have if construct a residential building, are there also differences between Germany and Poland? No, we wouldn't say this. Of course, we have done within this transaction or within the whole process an intensive due diligence, also a technical due diligence. So we really had also external advisers went into the buildings who made a deep diligence on the construction quality on the whole building process. And the quality is absolutely comparable to what we have in Germany. And as I said, we're talking here in the vintage case of a product more to the between the medium and the upper end of the market. Thank you very much. Now we're coming to the next questioner. It is Georg Kanders from Bankhaus Lampe. Hi, good morning from Bismarckoff. So I understood that this 3,000 yeah, up to 3,400 units you have acquired, this will be completed until 2025. Is this correct? Or is this 8,000 to 10,000 target for 2025? No, that's correct. That's correct. So the 8,000 to 10,000 is even a little bit longer term target? Is this The idea is to acquire also from other developers or now to, first of all, perhaps speed up the process advantage development because now the financial power is there to build it plus to additionally acquire projects via Vantage. We're about a midterm target to 8,000 to 10,000 units within the next three to five years. And that means in five years from now on, we're talking in about 2025, perhaps the 8,000 units should already be in the process of producing cash flows for us via the letting business. And then from the larger cities of Poland, on the map, Stachin is quite close to Germany. Is there other economic environment there that it's not your preferred target? Or because it's very close to already existing properties? Yes. Of course, Stetin is very clearly also market we are looking at. And the reason is you're absolutely right. It's very natural because it's very close to the German borders. Stetin is not part of what Poland calls the so called big six cities, but it's definitely one of the larger cities. But let's say, below the size of Stetin, not so much looking at the cities. Contrary to Germany, we really are concentrating in Poland on the larger cities, like, for example, Wartsila or Poznan. And you met more or less two circles, so Warsaw would then be in the and Krakow would then be in the larger distance, so a little bit something for a little bit later and more Poznan or Lodge as a premier target? Yes. Internally Just by accident on the circuits. Yes. We internally discussed also about the circuits. So but to make it concrete, we very much looked at markets at Orslaf, Poznan and Stoecking right now. So this is something where we really feel comfortable. But of course, a very close and logical next step would then be to expand entities like, for example, Taco or like Lodge or perhaps even like Warsaw. But Warsaw needs to be really, let's say, Handle with Care, of course, good dynamics. But in Warsaw also price levels are then in a region where perhaps sometimes we then see across yields that are not attractive for us. Okay. Thank you very much. And next up is Thomas Rotheisler from Jefferies. Hi, good morning. Just one question to get a rough idea about the residential developers market in Poland and get an idea about the competitive position of Vantage there. I guess it's a fragmented market. Also, are there other listed players in the space? Yes, there are other listed player in the space. So you have names like, for example, EcoDevelopment, who, by the way, was just recently sold to a Hungarian fund and developer companies like DOM, for example. So yes, there are also larger players. But what we especially found interesting advantage is, first of all, this focus on a very attractive region and a very attractive city of Warsaw. Then secondly, let's say, a team that really fits to us, people that are, let's say, have a kind of hands on approach that are experienced where we simply have the feeling this is something a team that we can integrate quite quickly and from the size is a good first step for us because it would not have made sense for us to acquire a huge developer in Poland who have often then a really, let's say, wide business model. So not only residential, but also constructing shopping centers, constructing offices and so on. That's what was not what we were looking at. Maybe a last one on recent developments of land costs and also CPI development. I mean, the house price inflation, I think you gave some figures. But just to get a rough idea of what the numbers are there, maybe as per square meter or just to get a rough idea. For example, the current disposal prices at Vantage development on average, of course, it differs a little bit from project to project, are at without the so called fit out cost at EUR 1,800 per square meter. And including the fit out means in this regard, in Poland, it's very natural to acquire as a private person the apartment without the bathroom, without the doors, we much, much more basic. So to if you include the fit out costs to the selling prices, you are, I'd say, euros 2,000, 2,100 per square meter. And what we had in the last years is, of course, an attractive growth in the square meter prices. But we don't think that the current level is already at a level where perhaps this is, let's say, the end of development. So yes, for example, in 2018, the difference in per square meter prices in Wartsila was more than 10%. I think 13% was the exact figure above the previous year. But again, we're talking here about small sized apartments. And therefore, for the people that buy this apartment or even more for the people that rent the apartments, the prices are still affordable. And do you have a rough idea about land costs? What do you currently pay and CPI dynamics or cost dynamics in the business? Yes. Let's say, the wages had also increased strongly. So I think we had last year in Wartsila was around five or 6% on average or even Poland wage growth in the larger cities. But we're talking here really from a different basis in absolute terms. So that means that also for our platform costs, even if we have strong growth in wages, the absolute costs are for a long time for us definitely attractive. And on the other side, a strong growth in wages and salaries is then for us more good news because this then creates more and more dynamics, more demand in the product that we offer to the market. Thank you. Mr. Thiel, at the moment, there are no further questions. Many thanks all to listening to our call. As always, if there are any questions left, please do not hesitate to contact our IR department or myself directly. That's it from our side. Many thanks again for listening to the call, and talk soon to you.