As a reminder, all participants will be in a listen only mode. 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, sir.
Thank you, Alexandra, and welcome to our earnings call for the first half of twenty twenty. Your hosts today are once again CEO, Rolf Buch and CFO, Helene van Roedder. We're in different locations today, so bear with us in case we have slight delays, especially in the Q and A. I assume you have all had a chance to download the H1 presentation. In case you not, please go to our website and you'll find it under Latest Publication.
Rolf and Helena will lead you through this results presentation on the basis of the agenda on Page 3. And of course, we'll be happy to answer your questions afterwards. So let's get right to it, and let me hand you over to Roy.
Thank you, Rene. And also from my side, a warm welcome. And the summer holidays, probably for some of you, I have already finished summer holidays around Bochum now. So I think you have seen in the H1 presentations that we have shown a robust performance, and actually we have seen no meaningful impact from COVID-nineteen. And we have not explicitly disclosed it, but our rent collection is in the normal corridor of above 99%.
It's a B2C business. And this is so risk to many. This is speciality that the customers are backed by a strong social security network. So that's why it's not a surprise that rent collection is in the normal corridor. So overall, the business is boring, and we are even more now more relaxed than after the Q1 because all processes in our company are adapted to COVID-nineteen.
Performance was more or less comparable to last year, 3.9 percent organic rental growth. EBITDA was up by 8%. Group FFO was up by 11%. So good results. Adjusted NAV is up by 5.4% in comparison to year end 2019.
This the main reason is €2,200,000,000 of value growth. But please keep in mind that we only have valued twothree of our portfolio. And we see constant value growth across all regions except Berlin, which, of course, is obvious because of the rental regulation there. There we only have seen a 0.9% growth from value growth. EPRA, we have disclosed the first time the new EPRA metrics, especially the EPRA NTA, which reflects more or less the value of the brick and mortar, which is €58.14 per share and then the EPRA NAV, which reflects more or less the value of the company, which is around €72 Capital structure, very solid.
LTV is back in the middle of our comfort zone at 42.7%, and net debt to EBITDA multiple is 12. We can fully can confirm our guidance 2020, which an EBITDA of roughly, let's say, EUR 1,900,000,000, so in the corridor, which you see on the slides. And we also confirm the corridor for FFO, but on the upper end of the corridor of EUR 2.75 billion to EUR 1.3 billion, EUR 2.5 billion. So this is relatively good news in this period. And probably not all companies are able to confirm the upper end of their original guidance before COVID 19.
And with this, I hand over to Helene.
So hi, thank you very much. So we had a slightly larger average portfolio base in H1. And together with performance improvements, this resulted in an 8% growth for EBITDA total and 11% But just as a reminder, as the end of July, that number went up by 6,600,000 shares as a result of the scrip which was chosen by 41% of our shareholders. That is an increase of 1.2% in the number of outstanding shares. So if you look at year end per share estimate, you want to be sure to account for this.
So let's talk about the individual segments and start with the rental segment on Page 6. Rental income increased by 11.6 percent EUR 118,000,000 in total, of which EUR 89,000,000 came from Hembla and the remainder from organic growth away of rent increase and vacancy loss reduction. Maintenance expenses were €100 and 54,700,000 slightly up in line with the increased portfolio volume. Similar to Q1 2020, operating expenses were impacted primarily by 2 things. The first thing is obviously Hembla.
As you know, we are in the process of putting the operations of Victoria Park and HEMBLA together. But at this point, the operating synergies are still to be realized. The second reason is the ancillary expenses included in the rental income and in the operating costs because of the concept of warm rents in Sweden. Rough math suggests it's about EUR 50,000,000 for H1 2020 and about EUR 20,000,000 for H1 last year. On to the next Page 7.
It shows the main operating KPIs for the rental segment. Organic rent growth was 3.9% year on year, of which 1% came from the market, 2.3% from modernization and 0.6% from new construction. Vacancy remains very uneventful at a low 2.8%. We're interest scale measures this year. And with that, back to Rob.
So let's move on, on Page 8 of the Value add segment. The adjusted EBITDA came out at roughly EUR 67,000,000 and was roughly 10% lower than last year. There are basically two reasons for this. First, the share of the work carried out by our own craftsmen was lower than last year and was compensated by higher volumes of order handling. So actually, it is clear in the COVID-nineteen crisis, we decided not to gear down facades and the building and roofs, which this is work which we are normally doing with internal resources.
Of course, we continued the new construction. So that's why the mix effect is a little slightly changed, and that's why we lost a little bit volume for our castman organization. This comes out as a little less contribution. But we are very optimistic that this will be kept catch up during the year, so we are not worried at all. But here, you will see really a small COVID-nineteen impact.
And second was, as we have said in the Q1, was the extreme wild winter, with winter with actually absence of snow. So that's why we had no external turnover from snow removal and de icing of sidewalks, which explains the slower the smaller external income. Overall, Value add Business is a long term business, and we will see long term growth. And while probably some quarter, especially this quarter, was negatively impacted mainly due to COVID-nineteen, we see good progress in all other sectors. We provide multimedia service to 10% more customers than 1 year ago.
We provide 85% of the residential environment service with our own people. This is up 15% year on year. With the smart metering, we are covering 200 70,000 customers, 10% year on year, and
we are supplying energy to 68
delivery points in our
portfolio, which is a relatively new business for us, which is 27% more than a ago. So because I expect that we will catch up, especially with the modernization in the end of the year, I'm very optimistic the EBITDA or the EBITDA of fair value add will be higher than 2019. Let's move on, on Page 9, which shows the results on the recurring sales segment. We sold roughly 1300 individual apartments for a gross proceed of €195,000,000 The fair value step up was surprisingly high with 38 point 8%, and this is significant above the guidance of 30%. So we are well underway and actually see the potential to finish the year with a fair value step up that might be a little bit above the 30% threshold.
In terms of market sentiment, demand for condo units is unbroken, and we do not even see any COVID-nineteen effect. The overall underlying market is the fundamentals are healthy, and I think this also gives a strong support for the valuation results, which Helene will show you a few slides later. And this is back to you, Helene.
So finally, our Development segment on Page 10. This segment includes all new We distinguish between development to sales and development to hold for our own portfolio. The bottom line adjusted EBITDA was €45,100,000 in H1 2020, driven by a higher gross profit and lower costs, which were partly due to the reversal of provisions that are no longer required. Page 11 has more color on our new construction pipeline. We completed 5 34 apartments to hold for our own portfolio in the first half and eighty 3 apartments to sell.
In our construction to hold, we now have identified potential for around 41,000 apartments based on the short, medium and long term opportunities across our portfolio today. For 2020, we expect to deliver around 1300 apartments. The development to sell part is a useful addition to the 2 home development. As I've explained before, we often rely on the higher margins from the Sussal project to cross finance the land finance the land costs and labor to hold the redevelopments more economically feasible. The pipeline to sell is approximately 9,000 apartments.
Our target for this year is to complete more than 300 apartments to sell. Page 12 shows the H1 valuation results. As in prior years, we took a pragmatic approach to the H1 valuation and did not value the entire portfolio, but only about 2 thirds. This includes the 26 largest cities in Germany, plus Vienna, plus Sweden. The rest of the portfolio is not revalued and only adjusted for the capitalization of our investments.
On this basis, values are up by a total of EUR 2,300,000,000. Of that amount, EUR 1,800,000,000 came from performance and yield compression and around EUR 500,000,000 from investments in both the revalued part of the portfolio and in the left. In the table on the bottom right of this page, we're showing the actual valuation result with 5.6% for H1 2020 and on the right hand side, the comparable for H1 Life view, where we had 7.9%. The shaded columns in in the middle are a back of an envelope scenario what the valuation would have been for H1 this year if Berlin had performed similar to last year. As you can see, the absolute value growth would have been a bit higher and the relative growth at 7.2% a bit lower due to the larger portfolio base.
The new valuation puts the overall portfolio at a 23.4 times in place rent multiple and €1954 fair value per square meter. Page 13 shows a bit more detail across our 15 regional markets in Germany. As I said, we did evaluation of our 26 largest cities in Germany, but not for the rest. How much of a regional market was revalued is indicated by the pie chart. So for some regional markets like Dresden, Berlin or Kiel, almost the entire asset base is resilient.
For others, such as the Rhine Mine area or Stuttgart regional market, only a cartridge we valued. This is particularly relevant for the Northern Ruhr area where we only included Guseburg, much of which is probably the extent northern part of Dussidos. The table gives you the breakdown of the total value outlook between performance and yield compression and on one hand and investments on the other. The map on the right hand side shows the total value growth. Let's move on to Page 14 for the NAV.
Supported by the NH1 valuation, the adjusted NAV was up 5.4% to now 54 point to EUR 72 per practice recommendations, including 3 new NAV DISPERS submissions. While the new metrics are mandatory, starting with the reporting of the full year 2020 results, we have decided to already publish 2 of them with the half year results. In light of the H1 valuation, we think that makes sense. So let's go to Page 15. Page 15 shows the reconciliation between equity including deferred taxes and the new metrics net tangible assets, NTA and net reinsequipment value, NRE.
We consider the NTA on the left hand side to be broadly similar to the current adjusted NAV that we report as it's a proxy for the portfolio value. The main differences are that for the MTA only looks at the long term holding portfolio and ignores disposal portfolio. In this context and logic, the second difference to the adjusted NAV is that purchases costs such as real estate transfer tax are no longer subtracted from the value, which makes sense if you're looking at a holding portfolio on a growing concern basis. The other metric, the NOV on the right hand side goes a step further and for the first time also accounts for value that lies outside of the portfolio to determine a proxy for the value of the entire company. We have been arguing for a long time that Vonovia is more than a collection of stones.
The NLV takes this into account and includes the value for intangibles. In our case, that is the value add and the development segments. The fair value of the intangibles is a result of an external independent valuation, which uses our internal 5 year business plan to calculate an enterprise value via DECT ECS. Similar to the NTA, the NRV also includes purchases costs, in this case for the full portfolio because the underlying assumption here too is a growing concern basis. To Page 16 and the LTV.
Our LTV at the end of H1 was 41.8%, but the more relevant number is probably the LTV including the dividend and scope ratio, and that number is 42.7%, so well within our target quarter. We do continue to believe that a range between 40% 45% is the right level for us, especially if we include the roundabout 8 year duration of our debt and the fact that 90 6% of our debt are fixed or hedged. The net debt to EBITDA multiple was 12 times. While this is a little bit elevated from the end of last year, we think it's still at a reasonable level, especially if you consider that this number already imputes the full debt, but not the full EBITDA potential, is normally in a growing business. So we're not concerned.
Page 17. A bit more color on the capital structure and debt instruments. We received an upgrade of our business risk profile from S and P from strong to now excellent, which is the highest possible category. Evidence for a successful strategy to keep the risk profile low by broadening the business in terms of strategy and geography. On balance and in combination with our financial risk rating, S and P has however left the company rating at the 2% E plus so you can imagine that we have ample headroom.
We've added the bond covenant to the upper right hand side of this page and it's no surprise that there's plenty of headroom for Allot. Almost all debt is fixed to hedge, so at any interest rate increase would affect our numbers only slowly as no more than 12% of the total debt becomes due in any given year because of the full maturity profile. You also saw the 2 bonds we issued a few weeks ago. After paying an elevated coupon for these bonds that we issued at the peak of the corona crisis in April, the recent bonds were issued in a much calmer environment and you see this reflected in the new coupon levels. By issuing these bonds, we were able to lock in the financial synergies for Sweden.
On Page 18, you see our guidance for 2020, which is entirely unchanged from Q1. We still expect rental income of approximately EUR 2,300,000,000 and we're fully on track. Organic rent growth guidance remains at approximately 3.3% to approximately 3.8%, percent. And the main determining factor is the one off rent reduction expected for November in Berlin. Apart from that fluctuation, guidance could become a bit of a stretch.
For recurring sales, we're well underway in terms of volume and fair value step up. And Overall, Overall then, in terms of adjusted EBITDA, total, we're very happy with the range and see no reason why we should not reach it. And finally, the group FFO, we're also confident and even see a reasonable chance to end the year towards the upper end of the guidance range. This, of course, is relevant for the dividend as we once again intend to pay out 70% of the growth FFO. And with that, back to Rolf.
Yes. You see the results and the guidance is pretty straightforward. So let me briefly summarize. Our business continues to perform very stable and is fully in line with the expectation we have set before COVID-nineteen. We have proven the robustness of our business model and are only marginally impacted by COVID-nineteen.
So I think this is what we have said over the last years. It's a stable B2C business backed by a Social Security network in all three countries, Germany, Sweden and Austria. So this should I think is now proven in difficult times. The underlying market fundamentals are completely intact, and the environment in which we operate remains very favorable. We remain very confident ability to deliver growth as guided in our 2020 guidance and beyond.
And last, Vonovia is more than brick and mortar. And I think the new EPRA metrics are good proxy to show the value of portfolio, so the brick and mortar and the full value of the company. And with this, thank you for your attention and back to Rene.
Yes. Thank you very much, Rolf and Helena. I will pass it directly to Alexandra for
the Q and A please.
So now we'll begin the question and answer session. The first question is from Thomas Neuhold of Kepler Cheuvreux. Your line is now open.
Good afternoon. Thank you very much the calculation of the NOV. Can you please provide more details on the composition of the EUR 3,900,000,000 in fair value intangibles, which portion is due to the value add segment and which portion to the development business? And can you maybe also elaborate on key valuation assumptions there? Then I have more questions.
Helena, you will do. This is your slide.
Yes. So as you can imagine, this is all very new. And at this point in time, I'm not sure we will going forward disclose the differential between the two things. So Zwad, I would like to come back to you from the lead one. What we have done is we used our 5 year business plan as audited and decided by the supervisory board.
We then gave it to a financial accountant, which we asked to do the valuation. He's using the valuation, doing using the WACC that we actually published in our financial report in order to come up with the DCF method. So in a way, what we've tried to do with the new NAVs is to make sure that everything can be tied back to the audited financial report. So at some point, I'm pretty sure you're going to grill Rene on that. And I'm really looking forward to it.
He will be able to point to every single number, which is used
to calculate. The one problem I'm having is the fact
that we don't the EP the EPRA and Eternally to sort of like find a way to get that solution because that indeed is something I'm sure you will want to follow.
Okay. And then I have 2 more really general, more or less philosophical questions, maybe for Mr. Buch. Firstly, I was wondering what is your view on the work from home trend? And what implications, chances at risk could this trend have for our Norwegian strategy?
So I think what we have experienced here was a cash cost in digitalization. So I was surprised because my original was call centers, my original business, how fast we were able to transfer the full business in the call center, which actually took us one day because we have a very good technical backbone. So and we learned here all that it is obviously possible to work from home and to manage the company. It was even challenging times to manage the company because we have changed processes, and we all did it literally from home. So I don't think that we will come back to a situation where everybody has to do 5 days a week in the office.
What I also have experienced here in our company and talking to other CEOs, I think the same experiences, you need the people from time to time to meet in person because you get some effects, which you probably don't get on the digital format. So I think we will come to a solution where we have a mixture of home office and in presence. And that's why we will need our headquarter building, but probably we have more room for expansion in this building before we need to expand the building. So the usage of office space from my point of view will be reduced in the future.
And in terms of impact on your operations, do you see any risks or chances there that maybe tenants demand bigger apartments because they need an office room, so to speak? Or do you see that there's a risk that organization trend might stop and people use the opportunity to move outside of the bigger cities because it's cheaper there if they have to commute only 2 or 3 days per week?
No, I think one of the big driver to choose a location is actually the school system for everybody who has children. And this is literally better in the cities. But we are talking about the cities in our regions. We are not only talking about the city center. And if you look know the German cities, actually, it's still very single family houses, it's still part of the city.
So we are not talking about countryside. So nobody will move to Mecklenburg proper because he has to work in Berlin and then is commuting to ours. So he's probably moving to Brandenburg, very close to Berlin to move in Berlin, but this is for us the same business. And actually, we are literally not in the city center, but a little bit on the outside where the people will move to. So we don't think that actually there will be a demand for bigger apartments in general.
I think the people have managed to do it. I think the biggest problem was the children were at home at the same time. And the moment as long as the children and childcare will go on with kindergarten, the schooling, I think the people are able to work from their home even with the existing apartment. So we don't think that there will be a massive change, and I also don't think that people will have the affordability to rent an 80 square meter apartment instead of a 60 square meter apartment. So I think this will have no major impact.
But of course, what is important, and I am so happy that we have done since 2013 modernization always with balconies. I think it now makes a big difference to have an apartment without balcony or this balcony. And I personally think that to rent out apartments without a balcony will be more difficult in the
future. Okay. Last question I have is, if you could also maybe share your view on how investment demand for residential assets and residential prices could develop in light of high macroeconomic uncertainties, high unemployment rates on the one hand. But on the other hand, clearly, negative interest rates will most likely will persist for much longer?
So we had actually, in our last Board meeting, we had a long debate because we always looked, of course, on the long term history of our valuation. And it's now you have to help me with the word linear. What is the English word for linear?
Like a ruler.
It's like a ruler. So it's like a ruler. There is no trend broken. If you look on the valuation, especially of individual apartments, it's like a ruler. It has no change in trend.
It's very astonishing. Of course, for the block sales, you see sometimes a little bit more volatility, but this is because there's less transactions. So this is a very, very stable trend, and there's no reason why anything should change there. And this is probably partly driven by interest rate, but I think more important, it is driven by demand and supply. So you know my famous example of my 21 year old daughter.
Actually, if she wants to move to Munich and she calls me saying, I need an apartment and I don't find a rental apartment, I will buy an apartment for her and rent it out to her independent on rates. So it's a supply demand issue, and supply and demand issue is not changing due to COVID-nineteen, it's not changing due to economic cycles. It's just people have to live in the cities, and there's no alternative to the normal product. So that's why it's a very long term trend. The long term trend will only be broken at the moment if Germany would be able to deliver much more construction volumes.
And then if then vacancy goes up, then I think we will see a change in rent. But as long as vacancy is low and as long as we have so much construction permission issues, I don't see any change in that.
Okay. Thanks a lot.
The next question is from Sander Bunck of Barclays. Your line is now open.
Hi. Good afternoon, team. Thanks very much for that. I have a couple of questions. And I'd first like to go to Page 15, which I guess indeed is going to be the most favorite slide for you in the next couple of weeks or months.
But rather than focusing on intangibles, I'm actually a bit more interested in the impacts of the real estate transfer taxes. And can you just confirm that indeed the full €3,500,000,000 that you're effectively adding back that it is that is solely due to the add back of real estate transfer taxes. Is that correct?
Helena?
Yes. So let's talk a little bit about the transfer taxes or taxes in general. So what we have done is sort of bucketed our portfolio, 1 according to a portfolio which we know we will hold forever and a portfolio out of which we could potentially be selling apartments. So for example, that means that like our entire Austrian portfolio, where you know the business model is slightly different than in Germany, is classified as a potential to sell a portfolio. And the portfolio where we have singled out into individual flats where we've created individual land registers, out of which we do the recurring sales is classified as a 2 portfolio.
For that portfolios for those portfolios, we deducted the entire deferred tax and we also didn't make an adjustment for the real estate transfer tax. So we were very, very clean around looking at portfolios where there might be at any point in and it is only in 50 years, the intention to sell the flat. On the other hand, there is a portfolio like Sweden and our normal to hold portfolio with absolutely no intention to sell the flat. We are looking at the valuation as a going concern basis. And there, we feel that, a, we keep the deferred tax and the real estate transfer tax is simply not relevant because those are the portfolios we're simply running at the planned business model in eternity.
Okay. That is clear. And the net but the net impact is still positive SEK 3,500,000,000 and just like and I understand the rationale, but more in terms of how appropriate do you think this is to do, given that there's a lot of debate at the moment about real estate transfer focus in general. I think I also have always believed that effectively, if you were to sell it if you were to sell down your portfolio, and I understand you don't want to do that, but you always need to keep sort of the 5% in order to keep the rents in place. But particularly because of the first point, like how appropriate is it to kind of make that adjustment now given that there's a lot of political discussion around that?
So I think probably I can answer this in my still existing role of EPO chairman. So we had this debate for a long time because this is not really a one no issue. I think it is the old system said actually there is a value of the building and you are selling it, the buyer has to pay real estate transfer tax and he will deduct this real estate transfer tax from the selling from the buying price. And that's why it was reduced or it's reduced in the valuation. In reality, if we sell buildings in blocks, we often do share deals.
There's actually no real estate transfer tax. So you can argue actually real estate transfer tax doesn't happen. And what you have seen in our past history is that we the buyer was never able to deduct real estate transfer tax, but he had actually, in reality, pay a premium on the valuation. So I think this is really doubtful if it was the right concept for the valuation to deduct real estate transfer tax. So and I think that's why now it's more fair.
And especially these buildings, we are not selling, that's why real estate transfer tax will never happen. So that's why it doesn't make sense to deduct it. And that's why it is added back because the value has deducted
Sure. But if the real estate transfer tax was to be abolished that rule in Germany, you would effectively lose that benefit. Is that correct?
No. Then the value will not deduct it, and then we cannot add it back.
Sure. So but in that case, your NTA goes down, right, if you can't add it back?
No. Because the value will go up because there's nothing deducted, and then there will nothing be added on. So it's the NTA will be the same. So
if you want to
think about the EUR 29,000,000
in our EUR 29,600,000,000 there was actually in the valuation, there was a deduction made of real estate transfer tax. And it is just add back. So but if there is no real estate transfer tax, the valuer does not have to deduct the real estate transfer tax.
Yes. But I mean not necessarily that the real estate transfer taxes get deducted. What I mean is that at the moment, you can do share deals and you can do asset deals. Your value your portfolio size on an asset deal basis, which means that the real estate taxes get deducted. But there was a discussion now where the share deals get abolished and basically you always have to pay transfer taxes on it.
So in that case, your starting point remains the same, but isn't it true that you cannot add back to the remaining SEK 3,500,000,000?
No, but in the end, the main argument is what Helene has said is we are not selling it. So that's why I know real estate transfer tax will happen.
Okay.
And just kind of for my understanding that I understand the bridge correctly. So basically, the impact is €3,500,000,000 which is approximately €6,500,000,000 per share basis. I'm trying to get the bridge between the adjusted NAV of €54,700,000 and translate that to €58,100,000 which is effectively €3,500,000 but the added benefit of the add back is circa €7,000,000 So what is the delta between the €3,500,000,000 and €6,500,000
Can we do this later with Rene because this is number crunching? Is this fine for you?
Yes, but I think yes, okay, that's fine.
I think it's important number crunching, but okay. Yes, we can do it later. The other question I had is on the EBITDA from services business. And I understood that there was some impact from COVID and I understand there was some impact from snow removal. But if I just look at the numbers, then Q2 was actually lower than the contribution was lower in Q2 than it was in Q1.
And I assume usually in May June, we don't have that much snow. So I'm just trying to understand what because you've been quite bullish on it in the past and it's a small number, but just trying to get a feeling for what the impact effectively was in Q2.
So but the Q2 is a COVID effect. We don't have a COVID effect in Q1. So this is a major snow removal is a small part. The big part is the COVID-nineteen effect, which actually where we decided to stop work, which we are doing with internal resources. We normally would have dispensed more, but you can also see that we are lacking a little bit behind in modernization at the moment, which was by intention because we are not removing walls and not removing roofs during the lockdown.
So that's why our people has a little bit less to do. So overall revenue of the value add business is the same because we have more external work. So for example, we have not stopped at construction places for new buildings because there is no tenant in it. So that's why there was no reason to stop it. So that's why we actually the mixture between internal, so what we are providing ourselves, and external work was changed.
So even if we have the same revenue, we have less internal revenue in the Craftsman organization, loosed a little bit of contribution, which is the effect actually of our own decision. So we decided this our own. We would have been legally possible to continue the modernization, but we thought for the reputation and for the in the interest of our tenants that we had to stop it. And that's why you see the impact. And this, of course, you see only in Q2 because in Q1, there was no COVID-nineteen.
Okay. Okay. Sorry. And then very last one is on your rating. I mean, basically S and P has notched up another one to kind of an excellent rating.
What is it that they're expecting from you before you get to an A rating? Like what is the requirement to become A rated?
Yes. I think ultimately, they want us to have a hard commitment on our financial policy. And to be perfectly honest, we don't feel that it's the right thing to do to sort of lock ourselves in the respect that they are asking for us. It's an ongoing debate. Let's see.
I mean, as you all know, I get a bit emotional about it, especially the way that you go around the crisis. I think constantly showing resilience and strength compared also to other companies with a higher rating. So yes, let's say it's an ongoing friendly discussion between the 2 of us.
Fine. Okay. And just curious, like what kind of hard financial target is it that they're looking for? Is it a net debt to EBITDA? Or is this an LTV?
Or what is it exactly that they're currently not quite happy with?
Well, it's not really that they're not quite happy with the current situation. It's just sort of like they want to have a firm commitment from us. And as you know, they look at debt to equity ratios. No, debt to debt plus equity ratios. That's how they calculate it.
So again, it's not yet another number which they are calculating, which is again slightly different from what we show in these presentations.
Okay, fine.
Once again, I think this debate is all about we always we always are prepared also to do acquisitions. And sometimes we are doing acquisitions without raising equity even if it's smaller acquisitions. So that's why I think we need a little bit of headroom. So that's why we stick still with the corridor of in LTV term from 40 to 45. It's a pretty comfortable corridor, right?
It's a few billions. But I think this is good in our business model, and we are not ready to tighten our jacket. So that's why we stick with this because we think you can run this company even with a 45% LTV easily. We have seen it, and I since there's a lot of arguments, so why that's why I don't see any need to straighten our attack. And in addition to it, A- and BBB plus I have learned is not a big
difference. Okay. That's great. That's appreciated. Thanks very much.
The next question
First question regarding the developed business sorry, the developed to sell business and how do you expect profit also
in
also development to sell business, if you're going on the very high end apartments, which is not meaningful for us, but there you might see a slower turnover. So we are just building a skyscraper in Vienna. And on the top three floors is very expensive apartments, beautiful view perfectly, which has their price. And this probably might take a little bit longer if a recession will actually start. So today, we don't see any impact, but if it comes.
This has but this is probably a few apartments, probably a handful of apartments, which will take a little bit longer. So you will not see us this in our business. So this will be the 3rd decimal after the so we will not see it. But there might be an impact. For the normal part in better apartment, where people need to live in the cities, and they need to spot an apartment because they have no alternative, there will be no impact on the price.
Fair enough. And second point, in your press release, you put a lot of focus on senior friendly modernization in the communication. Just wondering, does that in any way allude to potentially Vonovia pivoting into the senior housing segment in the future? Is that something you've been thinking about?
No. I think this is something which is specifically in Germany. We and this is more for my responsibility role as a CEO of a German resi company. It's not so much it's also business, but it's also more for society. Now in Germany, we have an issue.
We demographic is given. We cannot change it. In 10 years from now, we need 3,000,000 apartments. Today, we have 700,000 apartments in Germany, which are suitable for older people. The main reason is that today apartments have showers and the bathroom bath tubes in the bathroom.
And for older people, you need showers. And you have a little bit wider doors that they can go with, how do you call it, with a walker. So that's why some changes have to be made in the apartment. If we are not doing this as a society, we will send people earlier to nursing houses than they need to. And I have not met any person here in Germany who prefers to live in the nursing home.
So it's more expensive for society to have people in nursing homes than if they are still independent in the apartments. It's less quality for the people. And so and we don't have enough nursing homes as well. So this is actually something which goes beyond EBITDA and FFO. If we don't manage this as an industry, and 10 years from now, we will have voters who will be very unsatisfied because they have to be forced to go into a nursing home.
This doesn't mean that we are investing into nursing homes for a very simple reason. Nursing homes is a different nature. It's a B2B business because your customer is not the old person, but it's somebody who's operating the nursing home. And that's why it's a completely different risk profile as long as you send it out to operators. If you are going into the business of operation, you have an issue because people are going into your houses to die there.
And this is the business which has a reputational risk. And also, you can see in the COVID-nineteen crisis that we had some issues, nursing, not Vonovia, but in general. The high death rate came from nursing homes. So it's a totally business and we have no experience in this. That's why I don't think that we should be in this business.
The
much. The next question is from Mark Marci of Bank of America. Your line is now open.
Good afternoon, everyone. Thanks for taking my questions. I have 3 questions. And I'm sorry, I have as well to look at your Page 15 once again. Can I just understand what is the difference between the starting point between the NTA and the NRV because one start at €29,600,000,000 and the other one at €31,100,000,000 percent, and it seems it has exactly the same definition?
So I'd like to understand this. And can we have the €58,400,000,000 comparable for December 2019, just to see how much growth you've been capable to generate here. And definitely, I'll ask if we can have a breakdown of how your €3,500,000,000 works between terms of tax on the rest would be much appreciated because I have to admit, I'm completely lost here with your bridge. So that's my first question.
Helena, so I think the first two questions are in the presentation, but can you go a little bit more in detail there?
What is the difference between starting simply with what is the difference between the €29,600,000,000 €31,100,000,000 as IFRS shareholder equity deferred tax on investment properties and 1 is on holding properties. I'm not sure exactly to understand the difference.
Yes. Let me maybe sorry about that.
Elena, can I quickly start
this one by saying that one is the holding portfolio only, I? E, it includes the deferred taxes of the holding portfolio only, not of the selling portfolio to the point that you made and the other is the entire portfolio. So the difference lies in the deferred taxes, the amount of deferred taxes added back. And the second question, Mark, is on Page 48, where you have the development of the NTA and the NRV from December 31 to June 30.
Okay, great. Okay. Thank you.
And then the third question, Mark sorry,
go ahead.
No, no, sorry, please. The breakdown of the 3.5, I think.
You asked of the breakdown of the 3.5, percent, that again, so you're referring to the real estate transfer tax, the green thing on Page 15?
Yes, exactly.
438, yes.
438, exactly. Yes. So as I said, so the way you need to think about it is like when Seabury evaluates our buildings, they will say it's worth EUR 100, yes, all in. And then what they do is they deduct the real estate transfer tax from the value of that building, which, depending on the federal country you're in Germany, is somewhere between 2.5% and 6.5%, I think. So ultimately, in our balance sheet, the value of the building, let's say it would be 5%, just a weak number, will show up as 95%.
That is what the CBRE valuation of our buildings is in our balance sheet. Now for the holding portfolio, what we have done is we've added back those 5 euros because we are never intending to sell it. These buildings to us are worth €100,000,000 For those portfolios where we have individual landrages, which are classified as to sell for our recurring sales portfolio and for the Austrian portfolio, we have not added back those €5,000,000 because we felt we couldn't make the claim of us never touching these portfolios. Does that make sense?
Yes, it makes sense. So the EUR 3,400,000,000 it's entirely linked to transfer tax, nothing to do with deferred tax?
No, the deferred tax is not in there.
Okay. Okay. Okay. So I just thought you understand now. Okay.
So Levitt, I'm sure we are going to have this conversation again outside of this call. My only question would be, can we have an update on the bill in expect something to come out before the end of this year? And maybe more importantly, how do you think that the departure of Mrs. Longchure may influence the viability of the Berlin Wallen Freight?
So I think Constitution Court, nothing has changed. I think they have now sent out 10 requests. Actually, to be very clear, there is 2 courts now in the constitutional courts, which are taking care about the same subject. 1, which is the first chamber, actually has sent out a questionnaire to 10 organization, including ZEA, where I'm Vice President. So we have answered the questions.
They have got the answers back. You never know, but I think everybody is still saying in the summer late summer next year, we can expect a ruling. So but this is we are it's out of my range. So I'm not a lawyer. I'm not a part.
Nobody knows it. And then the question is which chamber will rule 1st and then the second chamber can overrule the first one. It's a very complex process. But nothing has changed in the while. This is now the process working.
And we, as Vonovia, we expect to have to reduce our rents in the end of because we don't think that we have a ruling before November. And it's definitely not a firm final ruling before the number. Mrs. Lambschar, I think it was possible to talk to Mrs. Lambschar, so this was nothing you can talk to her.
She was hearing. She was acting. So we were able to cooperate with her. I think we will have the same with the successor. But the problem is not was and is not Mrs.
Lamscha. It's a left party in Berlin, and it's a fundamental of a big part of the Berlin population, which thinks that private companies should be abolished. We're very clear. This is probably I don't know what's the percentage, but this is a significant percentage of Berliners believing that this we should not exist. And the outcome is a strong vote for the left party and Mrs.
Longscher is just speaking for this group. So it doesn't change if you only change a spokesperson.
Okay. Makes sense. And the final one would be on your admin cost for your rental business. So we still have to see the synergies of the acquisition of Edbla. When do you think that should occur?
And what sort of amount should we think about?
I think I cannot give you an amount because we're not disclosing it more than what we have disclosed at the acquisition of Hemla. And this was around €30,000,000 synergies for the operation and financial synergies. So this will come. In Hamburg, to be very precise, we actually plan to merge the systems in late autumn. This year, we now have decided due to COVID-nineteen to merge it in the beginning of January.
So this means that we will do the closing in reason The reason for this is you are not merging a system closely to before the closure because then if you see that you have issues, you have no time to react and then you cannot close your box. So that's why it's a security decision because we don't want to do the merger of the 2 systems too late in the
year. Brilliant. Thank you very much.
But nothing actually, this is nothing to worry about. It will be delivered. It's up and running. No issues.
The next question is from Veronique Mertens of ABN AMRO. Your line is now open.
Thank you. Good afternoon all. Thank you for the presentation. Just one last question from my side. You mentioned that around 1% of your tenants have taken you up on the offer to find a solution for the financial difficulties due to COVID 19.
First of all, is it still mainly commercial tenants or is the residential tenants also picking up? And how will this work in the future with the macroeconomic uncertainty? I think 1st wave of layoffs has started. What's your view towards the future on that?
So the 1% is actually the people of tenants which contacted us. This is not this not necessary people which cannot pay their rent. They were paid and a lot of them you can find that we could help them to find their way through the Social Security, and that's why they can pay the rent. So and this is again what I said in the beginning of the presentation. It's not only a B2C business, but the 2C part is backed by Social Security Network.
If you are getting unemployed in Germany, actually, you don't have any issue with your rent because the rent is paid by the state. So and I think the vast majority of our buildings are suitable for social welfare. So that's why it's actually this is not an impact. So unemployment rate and rent collection has no correlation. And it's good that it has no correlation because otherwise we would have in Germany social problems.
And at the moment, we are relatively proud as Germans that we can manage the crisis without any
social impact for the people.
Okay. That's good.
Next
The next question is from Chris Fremantle of Morgan Stanley. Your line is now open.
Hi, good afternoon. Just two quick housekeeping questions, please. You talked about the one off reduction in rents in Berlin that's possible in November and the impact on the 2020 FFO. Can you just clarify what that figure is on an annualized basis, please, so that we can calculate how that might or might not impact the 2021 FFO as well, please? So it's
roughly as disclosed, it's roughly €10,000,000
€10,000,000 on an annualized basis? Okay.
Thank you. And then secondly, you've been clear about your acquisition criteria. Just on the new NAV reporting, how will that new NAV reporting alter your acquisition criteria, especially around the NAV accretion?
Should we assume dilution of the EPRA NTA is the decision because we we have not taken a clear decision because we still this is the first time that we as a service we report the new EPRA metrics. So you will be have the formal EPRA metrics as EPRA decided in the end of the year. And I, as a Chairman of EPRA, should stick to the rules of EPRA. So that's why we are sticking exactly to the rules. If you want to know my personal opinion, I think the NTA is probably the best.
If you are buying brick and then the NTA accretion is probably the best criteria. But this will come we will take this decision later, and we will discuss it with our Supervisory Board before we will disclose it.
Okay. Thank you.
But then of course, the sense of this acquisition criteria is to make sure that the management board is not pushing too hard for acquisitions. So to protect actually shareholders for too expensive acquisitions, and that's why we will use it accordingly to fit to this purpose.
The next question is from Chris Benoit Davies of NewReign. Your line is now open.
Hi, good afternoon. I just have a quick question on the external value add business. You've set out very clearly where you've seen growth in multimedia, smart metering, energy supply. So how is the external revenue in the value add segment down year on year, even slightly, if all the KPIs of delivery are up meaningfully?
But the external was actually the snow removal. This was the explanation for this. Actually, it was in the Q1, which is, I think, an effect which is not meaningful for the long term. It's a relatively high rent availability business. It's non mobile because you actually take the risk if there's no falling or not.
So that's why, of course, in a year where it's no small, you have no revenue and you still have some cost related. But this is how it is rewarded, and that's when the other years it will be better. The external revenue will grow, of course, significant because we will grow in the energy providing. We have to call it energy providing anyway because we have to manage our CO2 emission targets. So it's actually the only solution to get a CO2 neutral housing stock if that we also provide energy and electricity mainly to the tenants.
And that's why this will be an external avenue, and this will go in the next years. I have to admit that we have to work on the lobbying because some of these, which is good for environment, which is good for the CO2 emission footprint of Germany, is still in the regulatory environment in Germany not allowed. So there is some processes being done. I think I always will we only expect actually some more legislation where we allowed to sell directly electricity to the tenants before the end of the government. So this is ongoing.
And but we think we have to do it because otherwise, you will not get CO2 emission neutral burning. So this is linked. And probably, you have seen our example what we are doing in Buchenwaldtmar, where we are doing research, where we actually are learning how we can produce from solar panels, heating and electricity and store it and then sell it to the tenants. This is widely respected, and a lot of politicians are traveling at the moment to Bochum Weitner to look what we are doing. We will have a conference in the beginning of October.
We are very prestigious people. And I think we will use this as a showcase to show what has to be changed to protect our environment. And so this is a huge potential. And economically, of course, if we are able to sell to our tenants electricity, this is a very big basket of additional revenue and additional EBITDA. But this, of course, again, as you know, we are prudent, we are slow, we are doing step by step.
This will not come immediately step by step.
Thank you. Just can you just confirm that then the residential environment bucket of the value add EBITDA, how much of that comes from snow removal in a typical year?
We are not disclosing the detailed figures, but actually it's not a meaningful, but it came to 0 this year.
Yes. Okay. That's understood. Thank you.
As there are no further questions, I hand back to the speakers.
Thank you, Alexandra, and thanks everyone for dialing in. That concludes today's call. As a reminder, our 9 months 2020 results will come out on November 4. We'll be engaging with you guys quite a bit until then. And obviously, as always, me and the colleagues are readily available.
If you have questions, please do reach out and let us know. And until we speak again and one day hopefully see each other again, So long, have a good day and thanks for joining.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect now.