Dear, ladies and gentlemen, welcome to the H1 2019 Results Analyst and Investor Conference Call of Monovia SE. At our customer's request, this conference will be recorded. After the presentation, there will be an opportunity to ask questions. May I now hand you over to Rene, who will lead you through this conference. Please go ahead.
Thank you, Angela, and welcome, everybody, to our earnings call for the first half of twenty nineteen. Your hosts today are CEO, Rolf Buch and CFO, Helene von Roeder. Rolf is enjoying some time away from the office this week, which is why we are in different locations today. So in case there's any delays we may have in Q and A later, I ask for your understanding. I assume you have all had a chance to download the presentation.
Just to be sure, it is available on our IR website in the section Latest Publications. Rolf and Helena will lead through this results presentation on the basis of the agenda on Page 2, and we'll then be happy to take your questions. So without further delay, let's get things started. And for that, I'm handing over to Leif.
Thank you very much, Rene, and also Ron will come from my side. Let me start with the highlights of the H1 twenty nineteen performance. Similar to what you have seen in the Q1, we continued our solid operational performance across all our 4 segments: rental, value add, recurring sales and development. I'm happy to say that we are well on track on all the segments and that we look it is confidence to the remainder of 2019 beyond. And of course, I will come back to regulation later, but the confidence is completely intact.
Our adjusted NAV at the end of H1 is 48.51% compared with last years and 2018, it is up 13.1% in absolute terms and 8% on a per share basis. Similar to last year, we have reevaluated around 2 third of our portfolio, basically the 26 largest locations in our portfolio plus Vienna, plus Sweden. The remaining 1 third was not revaluated, but will of course be part of the 2019 full year devaluation where we will then revaluate 100% of the portfolio. This half year valuation resulted in a 7 0.9% value growth for the revalued portfolio only. I think Helene will talk about this later.
Our LTV is at the end of Q2 was on 40.4% and the debt to EBITDA at multiple was 11 point 2. So both are very comfortable levels. We feel that we have a very solid balance sheet. Coming to regulation, and I think a lot of questions will arise later. We I personally think that the REN3 legislation in Berlin is scheduled for later this year and it will come as it was announced in the points in July.
So I personally see do not see any fundamental change in the legislation process in spite of the fact that this is some fundamentals of this legislation will be not or will have constitutional concerns. We expect that the Federal Constitution Court will rule this legislation later, but this might take a long time, even it might take 2 to 5 years until we have a ruling. And we continue to see the spillover risk of the business outside of Germany extremely, extremely limited. I think they have clear message from all other states that they have understood that this is not the right way. And we have a especially about regulation, we have also included a separate check-in our FAS, financial reporting, to this subject.
And with this, I hand over to Helena.
So thank you very much, Rolf, and a warm welcome from my side. On to Page 4. You see that we show growth across all segments. This is, of course, partly driven by the inclusion of BUWOG and Victoria Park, which only had a small impact in the first half of twenty eighteen. The average number of residential units in H1 twenty nineteen was 3.8% higher than in the prior year period.
On that basis, we actually grew the adjusted EBITDA total by 22.2% and the group FFO, which is the basis for our dividend, by 12.9%. Group FFO per share was up 7.7%. You also see that while recurring sales and development make a considerable contribution to overall EBITDA and will continue to do so, the operating business with rental and value add clearly remains the largest part of our business. So let's have a closer look at the rental segment on Page 5. Rental income is up almost 14% on the basis of a larger portfolio and organic rental growth.
The slight increase in maintenance expense is volume driven. On a per square meter basis, maintenance did not change much. The increase in operating expenses needs a bit more explanation. In Sweden, rents are reported on a gross basis, so net cold rent plus ancillary costs all in one number. The concept of a net cold rent does not really exist.
For Victoria Park, this means that around about €9 per square meter are the all in rent. About €6 to €6.50 is that of that amount, our net cold rent, if you apply our logic, and the remaining €2.50 to €3 ancillary costs. You cannot break it down to the last $0.02 but that is broadly it. These ancillary costs paid implicitly by the tenant are included in the rental income and because they're basically a pass through item also in our operating expenses. Rough math shows that it's about €20,000,000 for the first half year based on the 1,100,000 square meter of Victoria Park and an assumed €3 per square meter.
The impact of €20,000,000 in the rental income line is not all that material, but in operating expenses, it's quite significant, and it distorts the comparisons. Page 6 shows the main operating KPIs for the rental segment. Organic rent growth was at 4.0% year on year and in line with our expectations at this point. As you will see on the guidance page later, we remain optimistic about our full year guidance and a rental growth of around 4.4%. The vacancy rate is basically unchanged and remains low at 2.9%.
This number, as you know, is mostly the result of our actual investment activities. And then finally, maintenance per square meter is broadly on the same level as in the prior year period. I spent some time on our last call reminding us about the difference between maintenance expense and capitalized maintenance as EBITDA protecting on the one side and our investments that grow the EBITDA on the other. So I don't think there's a need to belabor this point again. Just a reminder, let's please keep maintenance, whether it's capitalized or not, separate from the investments that drive growth.
Page 7 is on our investment program. We are still well on track here with the majority of the investments completed or kicked off. This includes development to hold, upgrade building and optimize apartment, but it does not include development to sell investments. Our neighborhood development projects, which usually include all three types of investments, are allocated across these three categories. We continue to guide a total volume between €1,300,000,000 and €1,600,000,000 for this year and currently see us at about the middle of this range by year end.
But there's still some time to go, which may move this number a bit, so we want to keep the flexibility and the range for the time being. While yields and IRRs differ between the three investment types, we continue to expect the 9% to 10% average IRR across all investments in line with previous years. So there will always be cases and reasons for shifting capital from one investment bucket to another. But at the end of the day, we remain confident in our ability to invest the $1,300,000,000 to $1,600,000,000 at an average IRR of 9% to 10%. Page 8 shows the breakdown across the strategic clusters in our portfolio.
Most noteworthy is the fact that we have 60% of our portfolio still earmarked for investments, actually more than that because many units undergo investments twice, once for upgrade building and once for optimized apartment. So we have plenty opportunity for at least the next 10 years. The other thing I want to point out on this page is that we sold 7 54 non core units in H1 with a fair value step up of more than 20%. We see this as a good indicator that the dynamics of the German regime market remains strong. Page 9 and for those with good eyesight is the overview of our regional markets.
There are way too many numbers on this page to go through on this call, but I do want to point out a few interesting facts. One is the relation between rental levels and in place multiples on the one hand and purchasing power on the other. What is also noteworthy on this page is our reversionary potential. We've been reletting apartments during the last 12 months at a rental level 35% of previous rent. This is largely the result of our optimized apartment investment strategy, and the apartment we let after the modernization is fundamentally different than before.
Without these investments, you are bound by the 10% rent cap, of course. And finally, the rent growth of what is left in the noncore portfolio was only 1%, which confirms our view that these are noncore markets. With that, over to Rolf.
Thank you, Edena. So let me just shortly talk about Page 10, which is our Value add segment. The EBITDA from the segment is up by 39%, as you can see, which is largely the result of our organic growth in this business. Only a very small part of this growth comes from the addition of BUWOG and Victoria Park for the first half year. You know we are targeting around €20,000,000 EBITDA growth in this segment per year.
If you look on the figure and given where we are already on the half year mark, it is probably safe to say that we will likely overachieve this growth rate in 2019, but the €30,000,000 was always a yearly growth rate for the long term perspective. So I think it's a positive surprise. And on Page 11, I would like to show you also a little bit what we are contributing EBITDA from recurring sales. So this is only recurring sales. Page 11 shows the results.
We sold 234 individual apartments for cost proceeds of €170,000,000 The average sales price per apartment increased by 9% year on year. The fair value step up was up 40.5 percent on average and quite a bit higher than last year in spite of a higher basis. This is partly driven by recurring sales in Austria, where fair value step ups are considerably higher than in Germany. All in all, recurring sales contributed €42,400,000 of adjusted EBITDA, so higher than previous half year of twenty eighteen. With respect to you, Helena.
So finally, the last segment, the Development segment on Page 12. This segment includes all new constructions of apartments by way of building entirely new buildings. We distinguish between development to sell and development to hold for our own portfolio. The bottom line adjusted EBITDA was $30,700,000 in H1. But to state the obvious, this part of the business is less linear than the rental business, so 1 quarter or half year might be a bit different from another one.
Page 13 has more color on the new construction activities. We completed 4 33 apartments to hold for our own portfolio and 397 apartments to sell. In development to hold, we have around 29,000 apartments in the overall long term pipeline based on the opportunities in our portfolio today, and we want to deliver between 15,021,000 this year. All of these units are built for our own portfolio, and we capture the spread between the construction cost and initial valuation in our EBITDA. The developmental cell part is a useful addition to the 2 hold developments.
On the one hand, it generates attractive margins, but what is maybe even more important is that you often need the higher margin from the Tussaud project to cross finance the lower margin to hold development in order to make an entire development project work. So often, you have onethree development at some form of subsidized rent, onethree at market rents and onethree for sale, and the for sale volume basically carries the land cost. The pipeline for to sell is approximately 6,700 apartments. Page 14 shows the H1 valuation result. As in prior years, we took a pragmatic approach to the H1 valuation and did not value the entire portfolio, but only about twothree.
This includes the 20 largest German cities, plus 6 additional cities in Germany, plus Vienna and Sweden. The rest of the portfolio was not revalued and only adjusted for the capitalization of our investments. On that basis, values are up by $2,600,000,000 or 7.9 percent. This compares to $1,800,000,000 or 6.9 percent for the first half of 2018. The new valuation puts the overall portfolio at 22.3x in place rent multiple and €1.759 fair value per square meter sorry, EUR 17.95 no, 59, not my number today.
Page 15 shows a bit more detail across 15 regional markets in Germany. As I said, we did a valuation of our 26 largest cities, but not for the rest. Translating this into the regional logic means that for some regional markets like Dresden, Berlin or Kiel, almost the entire regional market was revalued. For others, such as the Rhein Main area or the Stuttgart regional market, only a larger part was revalued. This is indicated by the small pie chart.
The table gives you the breakdown of the total value uplift between performance and yield compression on the one hand and investments on the other. The map on the right hand side shows the total value growth. Page 16 is a bit technical and deals with the goodwill impairment we saw in H1. Because of the fair value growth, the headroom between the cash generating units, book value and their earnings value became smaller, triggering an impairment test. This impairment test resulted $1,900,000,000 that impact the EPRA NAV but not the adjusted NAV.
Please bear in mind that we expect another $200,000,000 impairment in Q3 as a result of reorganization our regional operational footprint and therefore reallocating the remaining goodwill within the rental segment. Slide 17 details the NAV. The adjusted NAV increased by 13% in absolute terms and 8% on a per share basis in the first half of twenty nineteen. You saw the main contributors on the previous page to list ERC Equity raise, the scrip dividends as well as the portfolio valuation. To Page 18, and with that, the LTV.
Our LTV as of June 30 was at 40.4%, so 240 basis points down from the end of 2018 and at the lower end of our target corridor. As I have said in the past, different market participants have different LTV comfort zones. We continue to argue that even after yield compression we have seen, the in place value of our portfolio remains conservative if you not only look at transaction prices, but especially replacement values. And we really do not see a scenario in which these values would come under material pressure. So at this point, we believe our target range of 40% to 45% still gives investors enough of the security buffer while at the same time not putting an undue burden on our equity yields.
Many of you also look at debt to EBITDA in addition to LTV, and so do we. When you take our total EBITDA over the last 12 months and put it in relation to the average net debt over the same period, we are at 11.2x, which to us is a sensible level if you look at the stability of the cash flows. Page 19 gives you more color on the capital structure and debt instruments. Our weighted average maturity is 8.1 years, and the interest cover ratio is 4.7x and thus very healthy above the minimum levels required in some of our debt instruments. Our average cost of debt has come down by 10 basis points, so now it's at 1.7%.
Here, the repayment of the debt hybrid obviously helped. Our current incremental cost of debt is lower than this average, so upcoming refinancings are often more an opportunity than anything else. To remind you, almost all debt is fixed or hedged, and no more than 12% of the total outstanding debt becomes due in any given year. So all in all, we're happy with the maturity profile and the overall financing mix. As always, we potentially look at available sources of capital to finance our business and try to choose the most attractive type of capital at any given time.
And with that, back to Rolf.
Thank you, Helene. So my role is now to give you a little bit of an overview of our European activities. Of course, you know this is a long term strategy, so there's not too much to be updated from 1 quarter to the next. So we exercised our Victoria Park call options in Q2 and delisted afterwards Victoria Park shares. Fees out proceedings have been kicked off and are underway without any problems.
With regards of our 4 more non German markets, let me remind you where we stand. And again, this is not a big change in comparison to Q1. In Austria, while we continue to look at acquisitions opportunities, the main and especially in Vienna, the main focus is to efficiently run our operating business while developing new units at the front end of the portfolio and selling individual units at the back end of the portfolio. In Sweden, we are actively pursuing growth opportunities and continue to see a healthy deal flow. We remain committed to our objective of demonstrated with our scalable business models works outside of Germany in similar environments, and we are very optimistic that we will play an instrumental role in consolidating the affordable housing sector in Sweden.
In the Netherlands, we are open for opportunities. So if we are offered an interesting deal, we would take a very good look at it. And in France, we are continuing to research and development efforts to remain first in line when opportunities arise. I still am very convinced that this is a very attractive and huge market. We are increasing our network and understanding of the social housing market and actively engage with the relevant players to seek opportunities for the next steps.
And with this, I think you see that our long term internationalization strategy in Europe is on good track. But there, of course, you cannot and you should not expect significant changes from 1 quarter to the next one. And with this, I think Helene will give you the confirmation of the guidance.
So finally, guidance on Page 1. We have decided to leave the guidance unchanged as we feel we are well on track to achieve the numbers shown on this page, but at the same time, do not want to get ahead of ourselves with 5 months still to go this year. Having said that, I would like to point out 2 things. 1st, we're confident about the 4.4% organic rent growth, but would like to remind you that it also depends on timely completion of the investment projects. With regards to Berlin, this number assumes that we pushed through the originally planned Mitsubiegel rent growth and see no impact in 2019 from the planned rent freeze legislation.
If we were unable to get that rent growth in Berlin, it would cost us about 10 basis points. So you do see that one way or another, we're not materially impacted by the Berlin specific regulation. We updated the group FFO per share to reflect the higher number of shares from the ABB and the scrip dividend. Of course, that number is a bit distorted because we have collected the equity and increased the share count, but we're not yet assuming any earnings impact from it. Obviously, once we put those funds to use, we will see a positive impact on the per share FFO numbers.
And over to Rene.
And I'll bounce it right back to Angela to please open up the Q and A, please.
Thank you. Ladies and gentlemen, we will now begin our question and answer We've received the first question. It is from Sander Bank of Barclays. Please go ahead. Your line is now open.
Hi, afternoon, everyone. Three questions for me, please. First one is on your new construction targets. Can you give an indication of how confident you are to deliver new construction in kind of your the time line you had in mind, your discussions with valuers and then particularly for your Berlin portfolio, your discussions with valuers and then particularly for your Berlin portfolio, can you give any indication on what their considerations are on potentially pushing through further capital value growth? What is it that they take into account?
Is it a desktop analysis in terms of an IRR analysis? Or is it transaction based? Or how are they looking at that? And the last one is, given the recent collapse in interest rates and your strong capital position, are you considering to break any debt ahead of its maturity to lock in potentially any financing savings? Thank you.
Okay. I think I'll do those. So new construction targets, as you know, I mean, we said investment targets are around 1.3 to 1.6 with a bit of flex across the bucket. So of the 3 potential ways to invest. What we are seeing is like we're pretty well aiming at this point in time in the middle of the range.
So I'm pretty confident that we're going to meet that guidance. But again, I consciously keep the range a bit wide because, as you rightly point out, construction is not quite as linear as we normally expect it to be. With this next question around values, factually, when we look at it, the values are predominantly looking at the transactions that are being done in Berlin. And our observation is that actual transaction values are still rising in Berlin. What we are seeing though is that there's a slight decrease in the number of transactions.
And ultimately, what values will be doing is they will be closely watching the market, look at what the transaction values in Berlin and other cities are. And then based on that, we'll take an assessment of where values go. So at this point in time, it's less mechanistic than we all expected. It's really based on what are the transactions that are happening at the point in time when these values make their assessment. Interest rates, yes, you rightly point out that interest rates are dropping.
And as I pointed out, it's like we are very opportunistic in managing our capital structure. And if and when we see tactical opportunities to optimize that, we will definitely consider it and bring it forward.
That's great. Thank you. Just very quickly on the construction target. Can you say are you at the moment behind, in line or ahead of new construction?
Because of the amount
we're looking to spend.
No, no. We're totally as I said, it's like we're bang in the middle of the range at this point in time. Okay.
And that's also for the new construction. I know you can move around a bit how much you spend in every segment. But specifically for the new construction, you're in line with what you previously had in budget.
I would say it's neither here nor there, maybe a little bit muted, but nothing to write home about.
Cool. I won't write at home about it then. Thank you.
Thank you.
Thank you. The next question is from Thomas Neuhalt of Kepler Cheuvreux. Please go ahead. Your line is now open.
Good afternoon. Thank you very much for taking my questions. Also, I have 3, 2 on the Berlin situation and one regarding your guidance. Firstly, on the Berlin situation, I know your base case is the planned Berlin rental law will be considered unconstitutional. However, I was wondering if and how your strategy would change if Berlin would be allowed to implement and keep the currently planned rent legislation?
Can you do question by question because then I can better answer it?
Yes. That was actually the first question, yes.
To be very clear, we believe that the legislation will go through and it will happen. And between 2 5 years, depending on the way how it comes in terms of the constitutional court, it will be ruled out. But in between this time, it will be an active law, and we will or we all have to respect it because the penalty by case will be as long as they translate in the law, it was announced by €500,000 per case. So we will not increase rent by €20 to risk a penalty of €500,000 per case. And the question now is when it will come in front of the constitutional law court.
And there is one way which is more the longer one, which is if we took take one case and then we go from one court to the next, And then probably in 5 years, we will end up in front of the constitutional court in Germany, and then it will be ruled there. The other alternative, but this is not in our control, is that the Deutsche Bundestag can make an abstract Norman Kontrolklage and go directly in front of the constitutional court because their constitutional rights are effective. There have normally their right to define the rental regulation and not the right of the state. So that's why they have the opportunity, but we don't know this will happen. So that's why we will assume that the law will be passed.
Of course, to explicitly tell you what we are doing then, it's a little bit difficult because we only have some framework points, so no law. And there is a lot of details. That's why we have to wait for the law until September, and then we will define our strategy how we will react. But of course, I'm telling you not a secret, we are preparing all options.
Okay, understood. And
also to make clear for us, it's relatively easy. We have only a limited part of our portfolio in Berlin. The modernization volume, we can shift to other locations. So for us, it is probably too difficult to react.
Okay. Understood. Then the second question is also on Berlin. I was wondering what your view is, what the impact of this rent regulation in Berlin might have on the transaction market, both in terms of prices and volumes until it is clear basically if a federal state can implement its own rental or not, do you think prices will fall? And I was also wondering what you think how the supply side will react to the planned legislation.
So I think it is keep in mind that the information of this legislation and the framework points were coming up middle of June. So it's not a very long time ago, and it's summer. So probably it is very early, as Helene has pointed out, to say this the prices are going in this direction or in this direction. What you can see is that you see a little bit less volume in the moment on the market, which I think is rational. So nobody knows what is the outcome.
So to wait, I think, is a very good strategy. And then so everybody is waiting for September. And in September, if the law is coming out or the draft of the law is coming out, then I think we know better how to react. So this would be a rational reaction not to do anything at the moment. And that's, I think, a lot of people are doing.
Yes. But do you think that prices might come under pressure if the law is implemented as currently targeted that you have 5 years of rental freeze?
I'm sorry, I don't know. I just don't know because I can just explain you what we are doing. We would wait in the moment. We would with a very long term view, we would probably also buy in Berlin afterwards if the prices are coming down. So small portfolios.
So because some landlords might think especially private people might think it is a long too long term perspective for them for the next 5 or 10 years because you never know if the rent free is limited for 5 years. But actually, realistically, it is very difficult to imagine that the government will get off the rent freeze after 5 years. So there might be private owners which say it's just to a high risk class, and that's why we are selling. But it's too early. So and we are just waiting.
So and we have no rush. We would also, in the moment, definitely not sell our portfolio down in because we have to wait until the lower there.
Okay, understood. And my last question is on your guidance. You roughly sold 50% of the targeted 2,500 units with a fair value step of more than 40% in the first half year, yet you maintained your fair value step up guidance of 30% for the full year. I was wondering, is there any specific reason for that? Or did you just simply not update this part of your guidance
at the
current point of time?
No. It's actually mathematical because we increased the value of the portfolio with the revaluation. The step up by definition needs to drop a bit.
Okay.
So it
is sort of like put the numbers back in line.
Okay, understood. Thanks.
Thank you. The next question is from Jaap Kuin of ING. Please go ahead. Your line is now
open. Yes. Hi, good afternoon. I've got one question. I think this morning in your email statement, it was quite an important statement about splitting of units and the, let's say, eviction of tenants.
Could you kind of detail the impact of Innovia of your position regarding the splitting of buildings into combos and what this means for the sector?
So I think you can see that that's I think especially in the press calls, we also have to anticipate a little bit the political environment, and that's why you pointed it out so explicitly. Because you can see that the next debate starting in especially in Berlin again is that they are talking about the privatization of condos. And we and Vonovia, we were built in the beginning by private equity to split all existing buildings into condos. So that's why we show in our portfolio still a significant part of already compromised apartments, which, of course, we will continue to sell. What we are not doing and what we have not done in the last years was to split new buildings into condos.
And I think this business model will come under much more pressure than anything else. And that's why we were very actively declaring that we are not doing it because this would be actually fire putting oil in the fire. So this will be the next topic, and that's why we want to make sure from the beginning that we are not doing it because anyway it was not planned in our company.
And did you already receive any indication of any movements by the Berlin government or any other government to put in place regulations or
The separation of condos is the last exit from a rent freeze. If you cannot rent increase rent, if you cannot do investment, actually if you want to exit it, the only way how to exit it is to privatize individual apartments. And that's why you have to split the building into individual apartments first. So it is definitely clear and it's well understood from the government that this will reduce the number of rental apartments. And they have a lot of action possibilities to reduce the separation of buildings into condos.
And that's why I will see that this will come up. But because I don't want to be part of this debate, we have explicitly declared that this is not our business model, which is also it was not our business model in the last year. So that's why it's not changing our strategy. All right. Thanks a lot.
Thank you. The next question is from Robert Wertheimer of Kempen. Please go ahead. Your line is now open.
Good afternoon. This is Robert. Hi. On Page number 9 of your presentation, if I look into the footnote, it actually states a EUR 1,100,000,000 development land. And if I compare that to the Q1 2019, that was EUR 1 point 4,000,000,000.
I'm not sure what it was at the end of 2018, but where is the delta coming from quarter on quarter? And as a follow-up, what can we expect, let's say, going forward, where this will move to?
Hi there. I'm actually wearing my glasses, but I have a problem even reading the footnote on the printout that I have in front of me. So I
have very good eyes.
Yes, indeed. You must be younger than I am. No, joking aside, is it okay if we come back to you? Because indeed, it sounds odd because we actually have been actively buying new development plots, and hence let us please look at that and come back to you if that's okay.
That's definitely okay. I just wonder how much is accounted for in the value growth, but looking forward to the answer there. Now also pretty nitty gritty, and I didn't get the answer right now. But for model purposes, if we will see that rental freeze coming through for 5 years, which pretty much is the case, what will you do with your maintenance? Let's assume that Berlin is on average at €8 like the rest of your portfolio.
What should we pencil in, in order to get a better view of the 2020, 2021 numbers?
Robert, we have to be also very clearly here, it's a public call, and we have not taken any decision how we react on the law. One potential reaction, this is probably not necessarily the reaction of Innovia, but of the market is, of course, because if you cannot increase rent, if you actually don't have to compete for tenants because the rent is artificially low, strategy of a lot of players could be to reduce the maintenance spending to a minimum. We have seen this in our first from our private equity times. So we know that we could spend much less maintenance without actually losing the substance quickly. So this is an option, but we have not taken a decision yet.
And we definitely will not announce this decision before. We have not seen the law.
Okay. I can fully imagine that. Thanks for that. Just out of curiosity, also because you mentioned that you will very much look into the transaction market. After the 7th June when it actually came into the newspaper and the 18th June that it was voted through, have you actually seen, let's say, meaningful transactions in the Berlin market, I.
E, do you already have it because you mentioned there is still some activity, but is there really already data points that we can basically look into?
No. It's just a no. It's early. It's a little. It doesn't happen.
I think my feeling is that a lot of people are frustrating in the moment.
Okay. Then more strategic question. Let's go forward 3 to 5 years when likely the imbalance of supply demand in housing stock is even greater than it currently is. Would you envisage yourself taking a very prominent role in basically supporting the market with significant amounts of new units. And I'm not talking about the 29,000 development pipeline, but what you have, but like really stepping up in a very, very meaningful way.
Would that fit your, let's say, very long strategy?
I think it's a very theoretical question. Of course, if it would be feasible, if we get the construction permissions and if it makes sense economically for us, why should we buy existing portfolio if we can do for the same metrics build new construction? So actually, this is an alternative, which we would do. But I don't see in the moment any chance to get enough construction permission to get a very significant portfolio. So significant means more than the 29,000 units in the foreseeable time frame.
So and you have to buy land. So this is a long term process. I don't see that this will come. But of course, we would be willing to do it because as long as the KPIs are, it is also interesting to have more newly built buildings.
Okay, great. This is all very helpful. Many thanks.
Thank you. The next question we've received is from Mark Mozzi of Bank of America Merrill Lynch. Please go ahead. Your line is now open.
Thank you. Very good afternoon, gentlemen and Helena. Can I have your understanding Rolf and Helena of what means upper limit for the Berlin rent freeze low, what you're calling rent ceiling? How should we read that? Because it seems to me that the law would like for us to go down.
But is that your reading as well? And is that the case by what should be that ceiling? Should we consider it as being the MiFID goal because this is an already existing benchmark?
So what, Marc, what is happening, if the law really comes through and we only know the framework, we don't know the lawn. We don't know the text. The framework says that there is no rental cost at all, so 0%, for the next 5 years because from re letting and from existing. And you're also not allowed if you have under rented a building, you are not allowed to live to the mitigbigger. So actually, the mitigbigger is more or less out of function.
What Helene has mentioned, I think, is also an interesting point. So 0.1 percentage points, there was a new mitigbigger coming out 1 month before the announcement of the rent freeze, so in May. We have not yet realized this much bigger increase. If this will not happen, it will have an impact of 0.1% of our rental costs, so not meaningful. And the next mix figure then, which comes out then in 2021, of course, will technically, if I understand the concept correct, show a rental growth of 0%.
Yes. I'm with you. I just wanted to know what was your understanding of this ceiling things, which you cannot pass or be above and if you thought it was below enough, but okay. That's about Vale's attitude regarding Berlin asset. Historically, I understood that they were more using the DCF model to value asset on looking at transactions to find out the exit yield or the cap rate for the terminal value.
So if I understand well your answer to Sander question, you're telling us that all the absence of rental growth will be captured into a compression of the cap rate in the end. That's the way I should read your answer and that's the way I think you think that we're going to still see some capital value growth in Berlin?
Well, the first answer is yes. That's exactly how it is done. You basically start to move the cap rate. It's actually, interestingly enough, an output and not an input parameter on your DCF. Whether you will still NAV growth or value growth in Berlin, I don't know.
I mean, that remains to be seen.
Okay. On your modernization program, can you give us a slight idea what is the blend between new construction, building modernization and apartment optimization because from what we understood from your Capital Market Day, there is a massive yield on cost difference between the 3 type of investment. And can you have a kind of a blend for this year at least for your EUR 1,500,000,000 of modernization?
So Marc, same question, same answer. We are not giving that plan. Having said that, if you look at sort of the stacks on the presentation, you can sort of deduct pretty easily of where it is.
So it's
not completely out of range.
Keep in mind that we are shifting a little bit during the year from one to the other. That's why it doesn't make sense to give you a detailed figure because this is actually the optimization process we are doing during the year.
Okay. Makes sense. And the last final one, a purely technical one. Shall we expect your goodwill to be fully write down by the end of the year if we assume $200,000,000 plus another capital value growth?
On the rental business, we sort of have marginal values left, but nothing exciting. We continue to have goodwill on value add. We continue to have goodwill on development, and we have continued to have goodwill in Sweden, and I don't see a change there. That's a different dynamic. Makes sense, right?
Okay.
Thank you very much. That's it for me.
Thank you. The next question is from Kai Klose of Berenberg. Please go ahead. Your line is now open.
Yes. Hello, very good afternoon. I have Kai first question on Page 19 of the H1 report. We have in the group FFO €25,000,000 of non recurring items €24,000,000 of intra group profits. You maybe just indicate how much you expect this to be for the full year?
And second question would be on the new construction targets, the 1900 units completion targets for 2019. What would be sorry, 1500 to 2000 units. What would this translate in annual rents for 2020, if you already have maybe a number in mind? The last question would be on the current discussions about the shared deal structures and potentially to be changed. Just to get a feeling and do you have any previous transaction which might be affected by the potentially upcoming change in the share deal structure?
Sorry. On the second one, I sort of like will need a bit of help. So on the one offs, ultimately, it's hard to predict because we like let's assume we were to do they usually stem from M and A or capital increase or something like that. And as a result, given I don't know what I'm going to be doing for the next month, it's hard to sort of predict what could be coming in there. But at this point in time, the way I'm answering this means is like I don't have a lot of visibility, which means like I'm not planning anything.
So I hope that sort of answers your question right. Your next question was the sort of expected rental levels from the development.
No, I was talking about the completion targets of developed to hold units in 2019, the 1500 to 2000 units. Could you maybe could you guess how much it could generate in rent for in 2020?
I think ultimately, it's another way of asking Mark Moxie's question because basically yes, but think about it. It's like basically we are basically saying we're investing our 1.3% to 1.6% and have an IRR of 9% to 10%. So I'm not going to break out the rent in my mind because that would be just sort of like deducting it the other way around.
So to be very clear, just to help out, if you are building an apartment in Munich, you get a new rent of €15 If you are building the same apartment in Northern Westphalia, you are probably getting a new rent of €10 So also there is a big difference between the 2. So that's why this depends also on the mixture of the buildings we are doing.
And then your last question was on the transaction tax, which is what Bernie said. So I mean, ultimately, the consequence is that we will look at and assess potential M and A in Germany on the basis of the changed regulations. The truth is, if you look at the current proposal, that there's a clause in there, which basically means that if the number of owners changes too often, you need to pay transaction tax on your entire portfolio. So any listed company at this point in time, if the draft would come through, So that could be BASF, Merck or whoever would need to pay transaction tax on their own properties, which is why I do think there's going to be big changes in that proposal at this point in time.
All right. Perfect. Thanks so much.
As you know, in the process, it was carved out. I think this is also a very strong indication. It was carved out of the normal tax legislation. So it's now became a separate law. It was planned to be a part of the overall tax legislation law, which is coming every year.
So it was carved out. So this is a very clear indication that parliament thinks that it has to be revisited. But please don't quote me. So it's just a feeling that I have got the
politics right. Thank you.
Thank you. As there are no further questions at this time, I would hand back to Rene.
Thanks, Angela, and thanks, everyone, for joining. As a reminder, our 9 months 2019 results will come out on November 5. We'll be on the road quite a bit in September October, so we hope to see many of you before the Q3 results. As always, please do reach out to me and the team with any questions or comments you may have. That's it from us for today.
Have a great day, and enjoy the rest of the summer. Thank you very much.
Ladies and
gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.