Dear, ladies and gentlemen, welcome to the Vonovia analyst and investor call for the business combination of Vonovia and Deutsche Wohn. At our customers' request, this conference will be recorded. 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 over to Rene, who will lead you through this conference.
Please go ahead.
Thank you, Martin, and thanks everyone for joining this call. Your host today are CEO, Rolf Buch and CFO, Helene van Roeder, as you would expect. For anyone who has not The presentation yet, please go to our website and look at the section transactions. And with that, let's get started and I'll hand you over to us.
Thank you very much, Rene. So also a warm welcome from my side. I think you have the presentation in front of you. Let me give you a short summary. So We are doing an all cash consideration of 100 percent of the Deutsche Wohn share in all cash.
It was the most straightforward proposal with lowest risk. We are actually using the approved capital, which we got Via the Shareholders Meeting in April. The offer is 53.03 per share, which Wohnen. Includes actually the dividend of €1.03 which results in a 79% premium to last Wohnen, which is actually in line with the premiums we have paid in the past. It's in the middle.
And Wohn. The closing will be expected to the end of August. I think the most important and the most relevant part of this transaction That business transaction, we want to take off the political risk in Germany. So it's a recommended transaction Not only by the Deutsche Wohn Management and Supervisory Board, so it's a friendly transaction, but also by the mayor And the government of Berlin, I just had a press conference together with the mayor and the finance minister of Berlin, so Michael Sahn and myself, very positive, very good feedback. So I think we have the chance to actually change the climate in Berlin Like we have done as a company in other cities before.
So I think there is a possibility that's a political risk or there's a Wohn. And of course, it's accretive for all Vonovia shareholders, meets all acquisition criteria. S and P expects to confirm the BBB plus rating. Helene will talk about this movie. We'll Wohn.
1st coverage of an A3 rating and EBITDA synergies of 105 where we expected. So why do we think the timing was right for this next logical step. I think the legal certainty in Vernon after the constitutional court ruling Wohn. The rent freeze is, of course, very important because before the ruling, there would have been too much uncertainty and too much risk for both sides. So I think Wohn.
We have in the moment a very special situation because our shares are trading significant with a significant discount to the NTA or Last four more times NAV. While in the same time, the assets are We can sell the assets for significant of higher premiums to NAV, as you can see in our Wohn. So obviously, there is a mismatch between share price and values of the underlying assets. With some of you, we had a lot of discussion why is this the case. I think The answers I got is actually 2.
1st, of course, is sector rotation, which just happens, but sector rotation will come to an end. And the second argument which I hear is that this might be because of political uncertainty. And that's why it is so important for us To get a better relation and to get the political uncertainty at least a little bit off the table. So we will See, this transaction is a sustainable de escalation in the Berlin situation. And I already told you about the press conference with the mayor, which I consider really a success.
So we will position Vonovia and Deutsche Wohnen as a committed partner or a reliable Wohn. We will continue to have a construction Wohn. Alternative for nationalization efforts, which was actually the feedback on all parties except the DeLinker. So This deal is welcomed by all relevant parties except DeLinker. So this, I think, Wohn.
It's also a signal that we will manage to get the political rest off the table. And I think the spirit of Wohn. Wohn. As you know and as we have always said, the industry itself is actually has 3 megatrends. So one is the CO2 reduction targets, which actually it will be increased because of the new ruling In Germany, you know that the shortened houses in urban areas is actually the 2nd big challenge.
And The third one is the demographic change, the elderly senior friendly refurbishments. All these 3 are actually Wohn. The megatrends Vonovia is following for a long time. But of course, all these megatrends can be better addressed in a joint company and a bigger Wohn. So that's why for us it makes sense to actually help to this transaction or this transaction makes sense.
So I give you just one figure, And we are talking about the synergies later. We will in total, we will spend probably roughly €2,500,000,000 in investments in newbuilding Wohn. And organic modernization, which actually only 5% purchasing savings would be €100,000,000 You will Later see in the slides that the synergies what we apply here looks much lower, But I think 5% is not really an issue. And in the end, with this transaction, We will actually build a European champion with strong German roots. So I think this is a very good base for further Wohn.
So on the next page, you see the competing strategic rationale. What you have seen probably better than even we is that the strategy of Deutsche Wohn and Vonovia have converged. If you look back on the last years, Scale matters. I think we have proven in the last year that this is a scalable business model, that we have significant lower marginal cost than fully loaded Wohnen. Of course, this is the case especially here because not only in Berlin, but in all other cities where Deutsche Wohnen is present.
Actually, Often, the categories of Deutsche Wohnen are close or in the neighborhood of our buildings. So of course, we expect Also outside Berlin, significant synergies. As I have mentioned, there is a possibility to as in the combined need to even better manage the megatrends. The portfolio has a very natural fit. And of course, in the end, which Also Michael Sainz always has said that in the long run, the Berlin fundamental are, of course, remain completely attractive.
So that's why we believe in the future of Berlin. So the Offer terms on Page 5, I probably don't have to go through to the whole. It's an all cash consideration, €53.05 It's a premium of Wohn. Including an above 50% acceptance threshold and the Deutsche Wohn convertible bond expected to be cash settled in case bondholders exercise their change of control option. As I have said, the EMEA Looks forward to the cooperation.
The tender offer is supported by Deutsche Wohn's Management Supervisory Board. We have signed a business combination agreement, and we have a new structure in the management board. Actually, Helena will assume responsibility for a very entrepreneurial and important Point, Phil, because we think that digitalization gives us a huge opportunity also for the future. So and we think we can do a lot More there, not only for our company, but also for others. And the same is with our ESG management, especially the ability to decarbonize the buildings, which both we think under the new lead of Helena will be developed To a very successful and probably fastest growing business than the original Vonovia business.
Michael Sand will be appointed Deputy Chairman and Philip Crosse will be the appointed new CFO of Vonovia. 2 members of Deutsche Wohn will recommend 2 members of the newly appointed Supervisory Board to Vonovia. Michael Saan and Helena von Roeder will be appointed Wohnen. And at the moment, we get the majority of the shares. And then we commit to a purchase Wohn.
Order for the city of Berlin to acquire roughly 20,000 units after closing the transaction. These units are Wohn. Hand selected by Michael Sahn and our people. So we would probably call Wohn. A big part of this noncore today, and the disposal will be made on market value.
Then the next page, synergies will be in the magnitude of €105,000,000 This is a Wohn. We tend to over deliver. And I think here there might be even better synergies, but this is the way how we calculate the synergies, and that's why it's €105,000,000 Elinor will talk about the financial policy in a moment, and we will meet all Vonovia's acquisition criteria based on a 50% leverage. And the time line announcement was today. Mid June, there is a Filing, so first offer period will start in the middle of June, will go until the middle of July, and The second offer paid will end somewhere in the beginning of August, and we expect a tender offer Closing in August.
Business synergies, I think you know this presentation. It's nothing new. We have No financial synergies factored in. The synergies will be assumed to hold out in the end of 'twenty four, And the estimated synergy implementation cost is probably €200,000,000 You see there's an operation Wohn. This is always the same.
There's a value add. There's a craftsman and cost advantage. Keep in mind that the purchasing combined purchasing power of Wohn. The company is €2,500,000,000 so probably €33,000,000 seems modest. And with this, I hand over to Helena.
Hi, thanks, and good afternoon from my side. So let's quickly look at sources and users and the expected takeout of the bridge. Obviously, we have to pay the purchase price of the Deutsche Wohnen shares, and that is based on a 90% Acceptance rate, so you can see ordinarily a 90% acceptance rate in M and A transactions is pretty high. So We may have some room there. Then Deutsche Wohnen had net debt, which is subject to a change of control clause And we have the transaction costs.
How are we intending to finance that? Well, 1, we have signed the bridge finance of €22,400,000,000 of which €21,900,000,000 will go to the sources table. And then the rollover of debt, as you know, Deutsche Wohnen also has secured debt on its balance sheet. On the back of our due diligence and early Wohn. With my counterpart, we believe that there will be only very limited Large credit considerations that we may face.
And normally, we believe that we're absolutely certain that we can mitigate So how are we going to finance that? What is the takeout? Post closing, we're expecting to do a large Price issue of up to SEK 8,000,000,000, obviously subject to acceptance rates and pro form a LTV. There will be SEK 6,000,000,000 to SEK 8,000,000,000 of bonds, However, subject to exercise of change of control clauses, when we do an assessment of the liability side of Deutsche Wohnen, we think that roughly There will be SEK 1,000,000,000 which will actually be closely looked at by investors. And then the disposals that Rolf Talked about earlier, which are 20,000 units in Berlin and further 25,000 units and potential selective development projects in Wohn.
Let's look at Page 9, which is sort of very rudimentary LTV bridge. We are right now starting pro form a for the hybrid bond at 41.6%. Obviously, we have revaluations, which we already guided. We will then increase our LTV Above our target range with the cash offer, derisk it in part with the rights issue. We know that there's going to be an LTV effect coming from the Berlin disposal and the additional deleveraging measures which we have in place, which could be Coming from 1 or a combination of be it disposals, H2 revaluation And obviously, the acceptance ratio where we, I believe, have a bit of a buffer.
Brings us back into our target LTV range 40% to 45%. And as Rolf said earlier, rating agencies are expected. And I think I have quite a bit of conviction around the expectations based on recent messaging I received to affirm our rating. Hence, I think we are well within our acquisition criteria. Let's quickly look at Time line, obviously, today is the announcement.
Mid June, the offer document should be published and the beginning of the initial acceptance period With the mid July end of the acceptance period, clearly, there's going to be post publication of the results an additional acceptance Wohn. Which will bring us to mid August. And post the tender office closing tender offer closing, We will be looking at our rights issue. And with that, back to Rolf.
So thank you very much, Helene. So let's Summarize, so we are joining forces for the benefit of all stakeholders. I think for Deutsche Wohnen, it's a very attractive consideration, Which probably in the situation Deutsche Wohnen is just with a high volume in Berlin is probably a good Wohn. Because together with Vonovia, we can actually derisk the whole company. For Vonovia, it's a rocket solid foundation to continue the European expansion.
The transaction Wohn. And expected to deliver €105,000,000 EBITDA. And as you have seen, we have a clear pathway to return to the 40 to 45 TV target range, so and rating is not an issue. For the government and the tenants in Berlin and beyond, it's a great message Because the city of Berlin, where the policy is to buy actually more social housing, they can get 20 more 20,000 more apartments, which we will offer. And then there will be an agreement to limit regulated market rents for the tenants I think I have to put it in relation.
We are talking here about the normal, what I always call, bread and butter rental growth. So all the normal Brad and Buster Rental Growth, overall, the whole portfolio in Vonovia is 0.6%. So 1% actually has No impact on our margin at all. And I am very happy that with this, we can probably change The whole system to an inflation based system because if in the future with increasing inflation, rent is based on inflation, This will be a significant defense against higher inflation, which I think is also sometimes seems to be a threat for some investors. So here, we are actually opening the door to come to an inflation based or inflation linked system, which gives First opportunity, but I have to repeat, the agreement which we are doing to regulate the normal rent Wohn.
Growth is 1% per annum is actually not harming our rentability at all, but gives to the people security because debate about Rental control is actually a very emotional debate. In reality, there is no threat for somebody who is a sitting tenant. But people think they are threatened. And now Wohn. And then we are having a commitment to build at least 30,000 13,000 apartments Which is actually the volume Vonovia and Deutsche Wohnen have today in the pipeline.
And we will be a reliable partner for the to improve the housing market for the to And what I think is accretive will be after the elections that we will get a kind of round table together with the municipality Companies, they're actually one big company in Berlin, can also change a lot in favor of the whole people, but also Wohn. In favor of the regulation. So I'm looking forward for this roundtable, which we actually call in Germany the Hamburg model, It is very successful and it actually helps everybody. So the deal in itself, We are paying a premium, which is attractive for Deutsche Wohnen, which is in line with the premiums we have paid in the past. We are Wohn.
Our size and our portfolio and our strength to prepare also the further European expansion. And I think we can put off the political risk or we can put the political risk off the table at least partly, which I think should also help to have more confidence for the investors in the future. And this is thank you very much.
Okay. Let's go
Operator? Yes, just I'm sorry, I wasn't naming. Dear ladies and gentlemen, We will now start the question and answer session. Vonovia and Deutsche We have a first question. It's from Charles Baughlier, UBS.
Good afternoon. Thank you very much taking my questions. My first question is, you mentioned strict acquisition criteria and you mentioned the Christian, to pro form a EPRA NTA per share in the 1st year of full consolidation. And I think in the slide, it's without capitalization of Wohn. Given you mentioned Vonovia trading at significant discount to reported April MCA and given Vonovia is offering April MCA to Wohn.
Could you share how you look at the transaction accretion on April LTA? And related to it, How you would look at the growth in value in Berlin as you mentioned at the Q1 results that Berlin was generally growing slower on the evaluation? And if I may, second question. The Green Party program plans to apply pro rata tax On property ownership in company sale, I just was wondering to what extent did this influence today's timing? And to what extent is there any risk if at all that the merger potentially would be retroactive?
Thank you.
Shall I take the NTA? Yes. Okay. So the way we've Analyzed it, it's like obviously, we couldn't envisage how our share price would be trading today. And hence, we used the VWAP of the Vonovia share price over a certain period, which is at For the calculation €53,480 per share.
What we did then is we say like we take the Vonovia Q1 NTA Wohn. We add what we already guided around the H1 revaluation. We then assumed the 50% new equity, which we have on our acquisition criteria. However, adjusted for the Berlin portfolio per sale. And then what we did is we looked At the Berlin portfolio or at the Deutsche Wohnen portfolio, you may remember that they did not guide any H1 valuation.
Wohn. However, we obviously know what valuation uplift we would be seeing as the Vonovia on the back of a street by street analysis. That and together with
Hello? Hello?
Hello? Together with what?
It seems to be Helene is in a different location From Rolf and I, so it seems she dropped off. I'm sure she's going to dial back in. She was going to finish the sentence by saying the final adjustment We made is we made the NTAs comparable. You know that we add back purchases cost, Deutsche Wohn doesn't. To calculate an NTA accretion, you need to make sure you have comparable NTAs.
So we're adding back SEK 1,800,000,000 to the NTA to bring it in line with our definition. And on that number, you For the H2 valuation, yes, so if we assume that this is a year end view or as you said, Charles, the first full year of consolidation 2022, all this includes Wohn.
I'm glad to see, Rene, you stepped in seamlessly. Sorry for that.
Glad to see you're back.
Thank you very much. If I may, just a follow-up. What Berlin H1 revaluation did you assume for Deutsche Wohnen?
I have the number, the absolute number here. Rene, do you have the percentage?
I can follow-up with percentage, I only have the 1.5 absolute number. Again, we did it basically city by city, location by location, just assuming they see the same rent growth That we see in our portfolio, which is probably a fair assumption, right?
All right.
First, I think it was the other question was about the real estate transfer tax, The new law, it is definitely clear that the new law will be in place in the 1st July. It's passed. It's over. And it is explicitly said in the law, it's 1st July. So every transaction before 1st July will not be covered by this law.
And there's no chance to do it retroactive because then they have to kill the law and have to reopen the debate, which is de facto excluded.
Apologies if I misunderstand on this point. It may very well be the case. My understanding is that the law is about the 90%. And so I think your transaction is Fully compliant with this point. But I saw the Green Party in their program say, actually, we need to go Further, by applying a pro rata tax on property ownership in company sales.
Yes. But this is not This is no risk for this transaction. So I understood that your question was, is this transaction a risk? This is a Part of actually the Green Party's election program, which then will be happening before after 'twenty one, Most probably in 2022 or later. And it depends on the coalition partner.
So this is an election program. So this is not a law.
Thanks.
Our next question is by Andres Thummel, Green Street Advisors. The line is now open for you.
Hi, good afternoon. I just wanted to ask why is that that you just follow Wohn. With this deal right now in the midst of the election cycle and at a time when your share price is quite weak. And just coming back to your comments also about de escalating the tensions in Berlin and providing the solution. Couldn't you just have done it with the kind of agreement with Are there landlords that you would want to increase rents?
The same kind of notes that you point out in this presentation.
To be very clear, the Situation what we have we know already in situation like Tristan or Dortmund or Kiel, Well, actually, the situation is that you have municipality landlords and 1 big private landlord. This calms down the negotiation and the whole debates in comparison to a situation where you have Wohn. Several smaller or but important private companies. And We have seen in all these cities that we as the dominant not dominant, but the big one, I should not say dominant because of antitrust But the big private landlord actually can, together with the municipal companies, drive the market in a way that it Stay stable and is not becoming unstable. So I think together now, we have the chance To do exactly the same here in Berlin.
And this was also a clear factor why the mayor loves the deal because he's saying, Yes, I own 300,000 apartments for myself, and I will be close to 400,000. And then I have actually more than 100 Wohn. 150,000 owned by Vonovia, which in the end means that together with this, he and we together can Actually guides the market in a proper way where there is enough rent increase to pay for the rent For the investments. And on the other hand, it's not renting fees, which is actually over too much Wohn. So I think this is a great possibility and a great chance for all of us.
And we will come in a situation where together With the government and together with the municipality companies, we can shape the market. And one last remaining word, our cost structure Our efficiency is much higher than the municipality companies. So with the solutions and the municipality companies need to survive, we have a nice life.
Thanks for that. And then I guess just to understand what Kind of prompted this change of heart about Berlin because I remember from your previous comments, you've been quite negative about the political situation that it's Still not all even with the constitutional court decision. And if there's going to be kind of top down regulation that would allow states to impose kind of rent to freeze Similar to rent freeze regulations again, then I think you said that Berlin would be the 1st quarter call for that. So at the same time, you're kind of going all in now with Berlin. What is just the thought?
So I think you see it in today's reaction. So before actually the left the Green Party, the Social Democrat Party and the Left Party We are more or less supporting for the social democratic half of the social democratic party, we're supporting the nationalization campaign. If you look on The feedback on these parties except the left, actually all other says this is a good solution. This will be a good alternative Wohn. So you can see it in today's reaction.
So does the nationalization campaign completely die? No. But the support of the nationalization Due to this transaction and due to the commitment we are giving to Berlin, we'll go down. So we have derisked the whole Berlin situation. And we have found a new a lot of new plans in the political arena here.
Unfortunately, all the Wohn. In German, but we can probably provide you with some on our website.
Okay. Thanks for these comments. Then my last question is about
Exactly what I'm telling you. It's not megacities here. So we have It's probably 2,000,000 rental apartment. Now we have actually 500,000, which is now if this is coordinated between the state and us, This can provide good solutions for the people, and then this can calm down the situation. The problem of this city was that there was a lot of players Doing different things and a lot of small players are doing crazy things.
And now we are actually getting to a way where we Together can give the people the feeling in the city that it turns to become better, and then nationalization is not an issue anymore.
Thanks for these comments. And then final question about the fact that the share price is pretty weak at this stage. What are you assuming for your right Tfuel price when you did your underwriting?
So we need to see how did times pan out. We're assuming customary Counter term for a size of for rights issue of that size.
And that will be what in your view?
Well, ordinarily, I mean, I don't have the thing in front of me, but it is a double digit Discount to Terp that you would ordinarily see in rights issues. So Yes, assume double digits.
But you keep in mind, this is a German rights issue. So this is actually the subscription rights. So the subscription rights at the same time shareholders get the subscription rights. So please, I had this in the last lifetime rights issue, which we did. After Sudebo, It is not comparable to an accelerated book building or to an American rights issue.
This It's a German way of rights issue. And please, if you need more explanation how this works, actually, it is important Wohn. You understand it because there's actually no dilution effect by the system.
Thank you. That's all from my side.
The next question is by Jaap Kuen Van Langstroth Kempen.
Wohn. And yes, I mean, I think most people agree with you that long term Berlin remains and retains its Wohn. Attractive your growth profile. To be honest, I think you were already the European champion. I don't think this deal will make you that.
But I'd like On the upside, we're coming 2, 3 years because obviously the synergies come at a cost as well and they will be phased in. You've explained that you can come to an accretive deal on NAV depending on the size of disposals. The accretion to FFO is also not that great. So how should investors look at this deal for kind of the mid The coming 2 years, which even for long term investors is a kind of a normal period. And what should investors expect to see in that term?
Yes. I think we have said so there will be an increase in EBITDA margins. So of course, we will take like in all other big transactions, it will take us a while to realize the synergies.
Okay.
But if we are able to actually put off, and I think we are, to put off the political risk, This is much more important. So to be very clear, this transaction has economical impact and all the scale and all the arguments which we have normally, But also have an impact that actually we are building here the undisputed German market dealer in the private sector.
Yes. Okay, understood. Maybe follow-up then. So you've offered a 100% cash deal. Would it have been possible to do a deal at At a 50% or even 25% share for share component, do you think a deal would have been possible?
The point was that the deal has to be Quick and safe. And a share deal Would have had a completely different time line.
Okay. And then maybe finally from my part, I saw that you are buying the treasury shares of Deutsche Wohnen, but also that Deutsche Wohnen will issue directly to you, I Think back of my mind, 3.5% of new shares. Could you maybe explain that?
Yes. Actually,
So actually, this is an option. So this is not a must. So the option to buy an additional 5%, 3.5 Wohn. The point is that related to the real estate transfer tax, actually, we have a change in regime after Wohn. 1st July, which means that we are well advised to have more than 10% before the 1st of
And why was it necessary to for Deutsche Wohn to issue new shares then? Or is that just the option?
It's just an option. It's just an option if we could theoretically not get shares on the market.
All right. And that will be from a tax perspective important?
Yes.
Okay. Understood. All right. Thanks.
Our next question is by Chris Fremantle, Morgan Stanley. The line is now open for you.
Hi, good afternoon. I wonder if you can just give a little bit more detail about the agreements To sell 20,000 apartments to the city of Berlin. Can you talk about how you have come to that number? Is it a function of financial constraint on their side? Would they like to have bought more?
Is it a certain Part of the portfolio that you have agreed, so some more color there, please. And also, I think you have said, and please correct me if I'm wrong, you've talked about selling those at book value. Which book Wun. Are you going to sell them out? Because clearly, valuations are moving quite quickly.
So just some detail on Berlin, please. And then secondly, could you also just talk about some of the Wohn. Just for full information, can you talk about any performance clauses within the combination agreement That might provide either party with the legal ability to withdraw and any other conditions, either minimum Acceptance levels that are part of that combination agreement, which could drive a breakup of the
So I think the second will be all published in the offer documents. So please don't force me now to read all of this, but it's a relatively standard BCA, so nothing special in it. So don't expect any surprise there. For the Berlin Portfolio, I think, is a very good question. Actually, it was Michael Tsang, who knows Berlin not better than me, which was building together with my people The portfolio which fits the different criteria.
So Bernd intends to buy the social Wohn. So there's a problem social problems. Berlin tends to buy Actually, probably also apartments which we would probably call from the building substance, the noncore. So this is a portfolio which I think actually fits in both interests. Berlin is just a better owner.
They are not owning these apartments to make money but to calm down social conflicts. And That's why this is a very intelligent selection by Cartier's more in the West of Berlin, where we Wohn. So it's more driven by the demand of the city because they have located special buildings Wohn. And by the sense what they are looking for. And to be very clear, the sale This will be the real market the book value after H1 regulation.
Wun. And just one follow-up, if I may. How do you see the can you just elaborate A bit further on the potential further political threat. I know I appreciate you have been very clear about having the support of the mayor. Do you which parties is this from which parties are is there still a threat of not supporting this transaction?
It's only the left party. All other party already have put their position out. And the left party actually was not very offensive. They say we have to look on antitrust issues.
Okay. Thank you. The question is by Rob Jones, the floor is now open for you.
Yes, thanks very much. Some of my questions have already been asked by Chris And it's another analyst, but just a couple. 1 on the nursing homes portfolio in the Deutsche Wun and obviously owns and you'll be acquiring. Is that something that you also deemed to be on call that you would look to sell? The second question is around those Kind of antitrust concerns that the Belinker party has.
Do you share any of their concerns? Or it's not an issue at all? And then just going back to the synergy point, to me the
Can we do the trust because if you ask me too many questions, I forget the question. So just to the IT Trust, This was exactly the same announcement by the left party as we did the Deutsche Ennig and Gagwa. Okay. So exactly the same At this time, they wanted to give the order to antitrust commission to stop it. And this is more or less the same reaction.
So it's not passing anything realistic because we are so far away Any antitrust regulation, this is not a real issue.
And nothing home,
The nursing home, I think what we have to do in the moment, if the transaction is finished, we have to sit together And the whole new board and then to discuss the portfolio and what we are doing. So in the moment, I think it is fair to say to Wohn. Assume that the nursing homes is part of the company, but of course, we have a regular review On our portfolio and our activities, and this will be also part of our next strategic dialogue.
And then just finally on synergies. Obviously, we're not going to get any benefit in relation to some of those operating synergies until 2024, FY 2024, to me that feels like longer than a number of your previous deals.
No, no, no.
We are not saying all the synergies are Coming in 2024 only, so there's a normal flow, but you have just most recently seen in Sweden. There's Part of the synergies which come in the 1st year, so in 2022. So in 2021, there will not be a lot of synergies because closing will be then relatively But there will be a part of the synergies coming in 2022, others will come in 2023. So this is a normal way How we work with the synergies. And we will give you a detailed update if we have finished the integration plan.
We will give you a detailed update when We will expect how much synergies.
Okay. Thanks very much.
The next question?
I To be very clear, I understand that you would like to know more. But I think the synergies, we had a lot of debate in the last transactions, And we always overdelivered. So this should not be too critical because this It's a relatively easy calculation. And it was for us much more difficult to calculate the synergies in Sweden because it's the first time.
Yes.
The next
Wohn. A question on Wohn. Actually, on Deutsche Wohn Management, it's always been reluctant to be Taken over, what do you think has changed their mind? I know it's more a question to Michael Sand, but maybe you can Provide some comments on that.
I think we had sometimes good things Neither while. And but I think we had good understanding. And what I can You can see is if you look on the strategies and the communications, especially on the communication Wohn. And policy about tenant treatment, this company are coming closer and closer together. To be very clear, if you look on our external communication and you if you put the logo away, this looks very similar.
And we became more and more the same. While a few years ago, it was actually also hostile, It was a mistake made by me. So I admit to this mistake a few years ago. This time, it was Good and constructive discussion about strategy, about synergies, about visions. And it took us a while, but now we are there.
Okay. I don't know if
the first time 5 or 6 years ago was a different scenario. So Actually, this was an attempt to combine Deutsche Wohn and with LNG, and then we stepped in. So it's a completely different scenario. We were forced actually in this situation. Today, it could be prepared.
It was a building of trust. Actually, I have seen the 2 teams here in the last 3 days working significantly together. So this Actually, you cannot do only 2 CEOs, but the whole teams, and this was a very smooth cooperation. So I think We have done this time, we have done it the right way. But please ask Michael, and I hope he will explain you the same thing.
That will do. Thank you. Another question. I mean, scale benefits seem a major driver, including the cost synergies. What stake you need minimum to get to full realization of this synergy potential and scale benefit?
50.0.1
percent, so we need the control.
That's enough.
Yes. Because this is always the same debate. You as a purchasing, you can always a big part is purchasing
Wohn.
Okay. And just a follow-up on your pro form a Enough calculation. I understand this is before goodwill and before transaction Wohn. And just a last one on I mean, is it possible to get any rough idea about FFO accretion or dilution?
We have the FFO is more difficult We have different sources for FFO. So that's why we have changed the acquisition criteria a longer time ago to EBITDA
Wohn.
Okay. Thank you.
The next question is from Thomas Kepler Cheuvreux, the line is now open for you.
Good afternoon. Thank you very much for taking my questions. Mr. Buch, I have a question regarding something you said on the press conference today regarding the voluntary rent restrictions. You said that you can only work successfully in big cities Wohn.
And then apart from Berlin also in Frankfurt, you have already put in place a voluntary rent growth restriction. Can you tell us which portion of your portfolio is or will be under voluntary rent growth restriction After the deal and do you think more cities or places could follow in the future?
To be very clear, it is not Wohn. We are giving a cap of 1% while our rental growth is 0.6. It has no impact at all on our figures because Since a longer time, we have shifted our rent growth from the away from the bread and butter rent because we know that this is under discussion and we are generating rent growth Wohn. So with 0.6, with an average commitment of 1, I have a big headroom. It's a Pure physiological issue because the people sitting in apartments are afraid that the rent will grow so significant that Wohn.
In Vonovia, it was never the case. So what we put off the table is a physiological problem Our tenants have. It has no impact on our figures, not at all. And in the moment, If we get a linkage of this bread and butter rental growth to inflation, which is not the case today, but we are preparing Wohn. This will have a very positive impact on our top line growth.
Okay. Understood. As soon as inflation is bigger than 1%.
And the next question is regarding the plans deleveraging The 25,000 units you plan to sell in total, what kind of FFO contributions Do you get currently from this 25,000 units?
So we don't even No, exactly what we want to sell. So we cannot give you the FFO. And this is a commitment that we delever. And this is you have to make
Wohn. Okay, understood. And my last question is on the rating. How long will you have time to move back to the 40%, 45% NTV Target without losing your current rating.
Well, as I said, it's like at this point in time, the rating agencies are Looking are we expecting to confirm the rating? There's no Actual time line in respect to deleveraging, we presented our plan in terms of the rights issues and the sequencing. We were not given a prescriptive timeline. Remember, the rating agencies don't look at LTV. They look at debt To debt plus equity.
And that ratio would be at a 60% level.
Okay.
Yes. So there's translation effects in there.
Thanks.
The next question is by Sander Bunck, Barclays. The floor is now open for you.
Hi, good afternoon, everyone. I had two questions, and I'll do them 1 by 1. The first one is because obviously the business is likely to quite materially change on the back of this given Much more exposure to Berlin and a slightly different balance sheet. Are you planning to ask the Vonovia shareholders for approval as well?
No. It's a poor cash offer, so there is no possibility for approval. Excuse me.
No, I understand there is
It was approved by the EGM in April.
Yes. No, I understand there is no approval officially there is no approval needed. It's just more a sense from Do you feel, given the kind of transformational nature of the transaction, that it would be prudent to ask the shareholders if they Agree with the proposed transaction.
But how should this work?
Well, you're hosting EGM. And if there was a majority or 75% they paid, but then you go through it, but otherwise not.
But this is we are not doing exceptional Wohn. And for things which is actually not has not so it would even not be binding, right?
No, but maybe not, but I guess it gives an indication of this indication of the strategy and Probably potentially a slight change.
But to be sorry, it's not a change in strategy. We have actually always had since 2013 is the same strategy in saying actually our slide in 2013 said the consolidation of the German market was born. This was Our IPO slide in 2013 and what we are doing here is consolidating the market. So it's no change of all in the And also to come back to your portfolio, actually, we were completely under Berlin is, of course, a big market. So now we probably have a size in Berlin, which is equivalent to the size in other big Wohn.
Our market share in Berlin is probably smaller than in some other cities like Dresden, Kiel or Dortmund.
Okay. Okay. That's fair. And the other question I had is, When you kind of look at how shares certainly trade for both companies, did you also consider to instead of Taking out a competitor to initiate a large buyback a large share buyback of Vonovia shares given that Share screen attractive here and are trading at a material discount to NAV. Implied yields appear higher.
Have you considered that at all? Or was it driven on the table?
No, Elena always to Sebastian probably can add, Elena always to It's a calculation about share buybacks, but this acquisition is more accretive for our
Wohn. Remember, like obviously, the other share also trades at a discount. And hence, sort of like the accretion still very much works here, yes?
So to be very clear to explain the deal in very short words for real estate people, we are buying actually a portfolio For more or less NTA, where the individual assets are trading today if you want to buy them with a significant premium To NTA. So this is a summary of what we are doing in a very short version.
Okay. So a buyback, so acquiring a Deutsche loan at NCA is more accretive And buying back shares, your shares that are trading at a material discount because of the wider benefits That you're seeing. Is that the way to look at it?
Yes. So we are buying Actually, we are buying business. The problem is at the moment, which is of course also impacting our stock price, but there is an obvious mismatch between what we Wohn. See on the real estate market and the listed real estate markets. So we see that there's a high demand for resi buildings.
There is a high willingness to pay a significant premium on the valuation. And on the same time, obviously, because of sector rotation or whatever, the capital market gives a discount to the real estate shares. But as a pure real estate investor, actually buying this portfolio or paying for the portfolio the NTA Of the end of last year, this is probably not a bad deal. Every direct Wohn.
Okay. Okay. No, that's understood. And actually one very last one. At what kind of level do you is there a need or can you implement a domination agreement?
Is that on the table? Or how does it Exactly what
No, this is not on the table. This I think it's a little bit too early. We have to wait how many shares if we get the acceptance ratio, and then we will go from there.
Okay. There is not a fixed criteria for that to implement that. It's just that I honestly don't know how it works.
No, but to realize the synergies, we don't need a domination agreement. So but we need 50% and the rest is
Wohn. It's probably more
tax driven than anything else.
Okay. Very clear. Thanks very much for that.
The next question is by Simon Stipek, Wartburg Research. The line is now open for you.
Hi, Jean. I appreciate your time for the call and taking my questions. My First question would be regarding the development pipeline and especially development pipeline of Deutsche Wohn. Do you believe it Will it be possible to roll off your modular construction until the around 18,000 units of the Deutsche Wohn pipeline?
So to be very clear, this has to be confirmed in detail. But I think what is very clear is that together, we are by far the biggest development company In Germany, and we have strong development in Austria as well. I personally believe that the next Generation of buildings will be made of wood. And wood means that actually this is modular construction. So we are not building you cannot Wohn.
Wooden houses, the way how you build solid houses, just by the definition. So this means that this will be a pretty industrialized Process just because of the material. And if you combine the point industrialized process and size, actually this fits. So I think, yes, on the longer term, but this is not in any synergy calculation. We believe that as the biggest developer, by far biggest developer in Germany, we can generate actually A way how these factories are built in the best sense of our company for our together So is this relevant for the construction already ongoing?
No. Is this relevant for the construction Which are in the construction pipeline. For both developers, yes. But we have to work on this. So today, we have an announcement that we want to work together.
And a lot of work will be done in the next half year on year where we also will find all the potential of this transaction. So what we are giving you today is actually a bread or butter synergy calculation. So this is just normal. And we are giving you our normal accretion dilution calculation. So it's a negative, and we are giving you a rating.
But there is enormous Wohn. Potential in this combination, but it's very difficult to measure. It's in euros today. But we will Come with you to you back, and of course, then you will see in the following years what will happen. And just I give you the example of GAPFA.
As we did the merger of Deutsche Einiggen and Gagwa, we announced synergies. If you look on our development on FFO and EBITDA and NAV and whatever you are looking on, this was significant Wohn. Above what we have announced because also in this combination, we realized a lot of additional potential because of size. And this transaction is comparable to actually this gives us a new step. And that's why I think there's a lot of more to come in the next years.
But Wohn. Unfortunately, I cannot give you Euro numbers, and that's why I cannot give you guidance for this.
Okay. Sure. And maybe you can just I remember very well your acquisition of BUWOG and the application of In place costs by or in place cost reduction by the application of modular construction. But what is your current cost Wohn. Excluding land prices for this modular construction, roughly?
It's difficult. Helena, do we have Sifya in mind?
I think it's somewhere between EUR 2,200 and EUR 2,400 roughly.
Okay. Great. And my second question would be, just looking into portfolio locations, surely there's Berlin, but then Dresden, Frankfurt, Hannover, Cologne. I mean all of them, literally 100% almost of Deutsche Wohn. Overlapping with your portfolio, with your portfolio locations.
Is there is that right? That assumption right? Or would you say it's actually less than that?
No, no, it's right. It's completely right. So for the locations Outside Berlin, actually, sometimes the buildings are standing close to each other.
Okay. And maybe just one last Question, I mean, looking even in your Q1 2021 presentation, I don't recall right now what slide it is. But if I look into your Wun. And set free synergies, then literally, I mean, EUR 105,000,000 of synergies kicking in starting from 2020 It seems for me a bit low.
No, but it's also again, it's not kicking in 2024.
Sure. No, it's fading in. It's trading in, but the full amount.
They are kicking in, in 2022. Yes, but this It's a standard calculation. So if you're now looking back on our standard and on reality, you have found out or you have seen That we over delivered actually, I think, in all cases. So there is an assumption Wohn. We will over deliver also this time, but every transaction also have a risk and has a complexity.
So that's why it does Makes sense to promise too high synergies. It is probably better to have a solid conservative calculation. And if we can generate more synergies, I think it's Wohn. And if we can generate more synergies, I think it's good.
Okay, great. Thank you very much.
Our next question is by Yonatan Knoewatowa, Goldman Sachs, the line is now open for you.
Good afternoon. Thank you for taking my question. I'll start on the question of modernization work in Berlin. I have several questions. I'll do them 1 by 1.
In the past, Mr. Zahn has alluded to not necessarily a regulatory, but also a limited social acceptance for modernization in Berlin. Do you think like the change of scale will help you actually Increased the pace of investments from Deutsche Wohnen into renovation and will help in terms of acceptance From local tenants in terms of paying higher rents, or do you think, as Mr. Dan had said in the past that you will potentially need also subsidies for tenants for them to better accept And the fact that you stepped up the pace of investments in the Berlin portfolio.
So I think it So early, I can just explain you what we are doing today in Berlin and in other cities. We have no issue at all. Our average modernization Wohn. It's EUR 1.30 something with EUR 1.13, EUR 1.40 which is related to the fact that we are efficient and standardized. And with this, we do not see any pushback because we also have developed a good partnership clause, which is the same in Deutsche Wohnen.
So what I think we are not Seeing in the even though it's in our portfolio in Berlin, no pushback from modernization anymore. This was in the past where we had modernization
Wohn. Okay. So does that mean that you think you'll be able to substantially increase the investment volume In burning from the Deutsche Wohnen side of the portfolio?
Yes, but this I think have to be discussed with the Deutsche Wohnen. So but we hope that we can use the best Of both efficiency and to improve the performance.
Okay. Second question, you've mentioned Quite a number of times this would be a solid foundation for international buildup. I mean given the number of times you've You mentioned that. I'm just wondering if there was any development from that perspective. Do you think that deal helped you better from an international perspective?
Or do you see Anything different or any specific country where you want to focus on your attention?
No. What we believe is Actually, that the CO2 topic is probably very hot in the moment in Germany, which is related a little bit to German Nature. So I am sure that the CO2 reduction targets will be and the debate about CO2 reductions It will be a pan European problem or pan European challenge. And this definitely It will lead to probably a more European market because this is now dominated by the European Community, so this is now all this taxation and probably Helene can talk a little bit about this, also Wohn. A lot of rules, even the standard that we have to apply in the buildings are getting more and more European.
So that's Probably will be even more ridiculous to talk about the German market. Today, it's still a very German market. But on the longer run, it will be Wohn. European market. And because scale matters, we have to make sure that we are the biggest scale operator in this market.
This seems probably for you a little bit ridiculous because some of you have mentioned that we are already the number 1 scale operator. I can tell you that Kestel depot in the moment is operating roughly 700,000 apartments, but not fully integrated.
No, no, no. That's fair. But obviously, you haven't seen any immediate change in terms of regulation or the things we've discussed in the past, I guess?
No, it's nothing immediately. So this is if we are talking about Europe, we are not talking about the year 2022. So we are talking about Wohn. A long term trend, but our business is long term because our buildings are good for the next
Fair enough. A couple of very quick questions related more technical. So To go back to your acquisition strategy, I'm sorry there was something a little bit unclear to me, is when do they actually get tested? Wohn. And maybe I got it wrong, but obviously, you've used the VWAP in your NTA accretion calculation, which is above the current share price or even Share price before the closing price at which the transaction was announced.
Obviously, The capital increase we look to in the future granted, but if you use today's share price, for instance, it's not accretive. So I just wanted to Understand how that works more specifically perhaps. And then for the Are you planning to use hybrid also in the mix? I think you mentioned that in the presentation very briefly, but if you have an idea of size or anything like that, that would be helpful.
Yes. I mean, look, when you plan a transaction, that obviously isn't done overnight. That's Months long work and I actually the way we look at it is like at the point in time when we take the decision, We look at the share price metrics and we can't you can't really take a decision on the basis of a spot moment In terms of share prices, I think that explains the Vivo. Yes, we have the hybrids in there. We will use it and I think that's very coherent With the points we always said before, if we needed for the rating model Before everybody gasps, I have understood that hybrids are not part of the LTV Diminishing instruments for the aircraft world.
But if I need it for the rating in order to Sort of like have a plug, I will issue I would.
Yes, that's fair. Okay. So it's more from a rating agency perspective, 3,000,000 50, and it is a viable depending on ultimately your revaluation gains in H2 or something along B point?
Look, you just need to look. I mean, we have so many new moving pieces in our capital model as a result of potential revaluation gains, The question, what acceptance rate do we have? How tricky are the disposals coming? So I need to unfortunately, I do need to sort of like Retain a bit of flexibility around sequencing and exactly instruments.
Sure. By the way, you Once you mentioned it, I mean, the total year is dry on almost the entirety of these disposals. So I think the midpoint of the disposal is quite significant in the presentation. So does that mean that we should expect Transaction very soon in terms of disposal. I mean, you're talking about 45,000 units.
What should we think about the timing of these Transactions, is it several years or is it several months?
No. To be very clear, the disposal is so 1st 20,000 we did today more or less, of course, not formally binding, but the mayor commits to buy the 20,000 Wohn. So it will be very difficult for him to step back. And the other 20, we are not saying it's necessary. So we are saying Disposal, its H2 valuation and the exception acceptance ratio.
I'm very happy that Helene is pushing us to the most Wohn. Secure model, she can imagine, which is saying we are calculating on a 90% acceptance ratio. If you are doing the math and if the acceptance ratio Wohn. Going down, then probably this additional delevering measures will get smaller. But I completely agree, miss Helene, As an entrepreneurial CEO, I completely agree with Helene that it is not acceptable that we do Wohn.
And the worst case this case is acceptance ratio of 90. So it's not a worst case, but if you Wohn. So this is the slide.
Okay, fair enough. Thank you.
The next question is by Mario Pastou, Sois Gennarell, the line is now open for you.
Hi, good afternoon. Just a couple of final questions from me. Just firstly on your The potential synergies really from the development program. Just out of interest, what are the plans for the selected Wohnen. Development projects which you're planning to dispose of, are these likely within Deutsche Wohnen's Development program that maybe don't meet your criteria?
Or are these taking your view of combining the 2 programs together? First question.
So, I think it's early. We are just saying we have so many liquid assets. So, what we are saying is actually if we have to bridge Again, there's liquid assets where a lot of people are calling us every day why you are not selling it. So This is buildings where people are desperate. So every insurance company in the moment in Germany and probably worldwide is looking for resi.
So this is not an issue. So that's why we are we will look on the acceptance ratio and then we can sell it. So I got a few calls from other colleagues, which are already asking me because they have seen disposals can be buy tomorrow. So this is not the issue.
Okay. Very clear. And then just finally, on the the newly new board function of the innovation and digitalization. I see you're looking to expand your services business externally. I just wondered if you could provide any high level guidance of how significant you could see this growing and how many external companies or units you plan to expand this over?
How impatient. Yes. No, but amazing how impatient You are. So look, this is very early stage. I think it's pretty obvious that within Vonovia, we have a number of Exciting developments, which at this point in time we're using for ourselves.
Many people have been looking at the Capital Markets Today they have seen the elevator toolbox. You have seen what we've done around our app. The fact, For example, we can provide people with the booking function for craftsman. We can have rental contracts Online, we have solutions for heatings. And in a way, the Vonovia business And the Vonovia buildings are a futile breeding ground for solutions that can be sold and marketed external.
Frankly, I think the biggest opportunity there is if we can find a solution to the question of how we can have CO2 neutral buildings or CO2 neutral quarters. In my mind, if we can come up with a scalable Solution to a problem that ultimately I think the world has. This is a globally scalable business. So I'm super excited about your opportunity, but you will need to leave me a bit of time to sort of like So through expansion plans, exactly what to do first, what to do next. It's, in my opinion, Massive.
And it's super exciting. Otherwise, I wouldn't have taken the role, frankly. Okay.
Thank you very much.
There are no further questions. So I hand back to the speakers.
All right. Thanks, Martin. That concludes our call for today. This was obviously not the only time that we will be speaking about this transaction. We'll be doing quite a bit of investor outreach over the next weeks.
And I have also quite a remarkable list of people I still need to call back. So apologies if I haven't done so yet. I will call you back, I promise. That's it from us for today. If you have questions, do let us know.
And we're looking forward to continue
Wohn. Ladies and gentlemen,
Thank
you for your attendance. This call has been concluded. You may disconnect.