M&A Announcement

May 25, 2021

Slides

Dear ladies and gentlemen, welcome to the Vonovia Analyst and Investor Call for the business combination of Vonovia and Deutsche Wohnen. 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 hosts today are CEO Rolf Buch and CFO Helene von Roeder, as you would expect. For anyone who has not seen the presentation yet, please go to our website and look at the section transactions. With that, let's get started, and I'll hand you over to Rolf. Thank you very much, Rene. Also a warm welcome from my side. I think you have the presentation in front of you. Let me give you a short summary. We are doing an all-cash consideration of 100% of the Deutsche Wohnen share as all cash. Why all cash? It was the most straightforward proposal with lowest risk. We are actually using the approved capital, which we got by the shareholders meeting in April. The offer is €53.03 per share, which includes actually the dividend of €1.03, which results in a 79% premium to last close of Deutsche Wohnen, which is actually in line with the premiums we have paid in the past. It's in the middle. The closing will be expected to the end of August. I think the most important and the most relevant part of this transaction is that this is a transaction we want to take off the political risk in Germany. It's a recommended transaction, not only by the Deutsche Wohnen 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, my concern and myself. Very positive, very good feedback. I think we have the chance to actually change the climate in Berlin, like we have done as a company in other cities before. I think there is a possibility that the political risk, or there's a high probability that the political risk will be reduced by this transaction. Of course, it's critical for all Vonovia shareholders meet all acquisition criteria. S&P expect to confirm the BBB+ rating. Helene will talk about this. Moody's will expect first coverage, which is an A3 rating. EBITDA synergies of EUR 105 will be expected. Why do we think the timing was right for this next logical step? I think the legal certainty in Berlin after the Federal Constitutional Court ruling on 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, I think this was the first moment. We have, at the moment, a very special situation because our shares are trading significant. There's a significant discount to the NTA on former times NAV, while at the same time, we can sell the assets for significantly higher premiums to NAV, as you can see in our disposal program, which is actually not the best assets. 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 two. First of all, the sector rotation, which just happens, but sector rotation will come to an end. The second argument which I hear is that this might be because of political uncertainty. 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. We will see with this transaction, a sustainable de-escalation in the Berlin situation. I already told you about the press conference with the mayor, which was, I consider, really a success. We will position Vonovia and Deutsche Wohnen as a reliable partner for all stakeholders, especially in governments, but also tenants. We will continue to have a construction benefit alternative for nationalization efforts, which was actually the feedback on all parties except Die Linke. Actually, this deal is welcomed by all relevant parties except Die Linke. This, I think, is also a signal that we will manage to get the political risk off the table. I think the spirit of cooperation in Berlin can be a blueprint for other markets where we probably in the future might see also political issues. As you know, and as we have always said, the industry itself actually has three mega trends. One is the CO2 reduction targets, which actually will be increased because of the new ruling here in Germany. You know that the shortened houses in urban areas is actually the second big challenge. The third one is the demographic change, the elderly senior-friendly establishments. All these three are actually megatrends Vonovia has following for a long time. Of course, all these megatrends can be better addressed in a joint company, in a bigger company. That's why for us it makes sense to actually help to this transaction or this transaction makes sense. I give you just one figure, and we are talking about the synergies later. We will in total, we will spend probably roughly EUR 2.5 billion in investments in new building and organic modernization, which actually only 5% purchasing savings would be EUR 100 million. 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. In the end, with this transaction, we will actually build a European champion with strong German roots. I think this is a very good base for further European expansion. On the next page you see the competing strategic rationale. What you have seen probably better than even me is that the strategy of Deutsche Wohnen and Vonovia have converged. If you look back in the last years, scale matters. I think we have proven in the last years that this is a scalable business model, that we have significant lower marginal costs than fully loaded costs. 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 cathedrals of Deutsche Wohnen are close or in the neighborhood of our buildings. Of course, we expect also outside Berlin, significant synergies. I mentioned, there is a possibility to, as in a combined unit, to even better manage the megatrends. The portfolio has a very natural fit. Of course, in the end, which also Michael Zahn always has said, that in the long run, the Berlin fundamentals, of course, remain completely attractive. That's why we believe in the future of Berlin. The offer terms on page five, I probably don't have to go through to the whole. It's an all-cash consideration, EUR 53.05. It's a premium of 17.9% to last close. The tender offer of Deutsche shareholder will include conditions, including an above 50% acceptance threshold, and the Deutsche Wohnen convertible bonds expected to be cash settled in case bondholders exercise their change-of-control option. I have said, the mayor looks forward to the cooperation, and the tender offer is supported by Deutsche Wohnen's management supervisory board. We have signed a business combination agreement, and we have a new structure in the management board. Actually, Helene von Roeder will assume responsibility for a very entrepreneurial and important point here, because we think that digitalization gives us a huge opportunity for the future. We think we can do a lot more there, not only for our company, but also for others. The same is with our ESG management, especially the ability to decarbonize the buildings, which both we think under the new lead of Helene von Roeder will be developed to a very successful and probably faster growing business than the original Vonovia business. Michael Zahn will be appointed Deputy Chairman, and Philip Grosse will be the appointed new CFO of Vonovia. Deutsche Wohnen will recommend two members of the newly appointed Supervisory Board to Vonovia. Michael Zahn and Helene von Roeder will be appointed at the Supervisory Board of Deutsche Wohnen in the moment we get the majority of the shares. Then we commit to a purchasing order for the City of Berlin to acquire roughly 20,000 units after closing the transaction. These units are actually hand selected by Michael Zahn and our people. We would probably call a big part of this non-core today, and the disposal will be made on market value. The next page. Synergies will be in the magnitude of EUR 105 million. This is a relative standardized synergy calculation. I would like to remind you that we always do the same calculation. We tend to over-deliver, I think here there might be even better synergies. This is the way how we calculate the synergies, and that's why it's EUR 105 million. Helene von Roeder will talk about the financial policy in a moment, and we will meet all Vonovia's acquisition criteria based on the 50% leverage and the timeline. The announcement was today. Mid-June, there is a BaFin filing. The first offer period will start in the middle of June, will go until the middle of July, and then the second offer period will end somewhere in the beginning of August. We expect a tender offer closing in August. This is synergies. I think you know this presentation, it's nothing new. We have no financial synergies factored in. The synergies will be assumed to roll out in the end of 2024, and the estimated synergy implementation cost is probably EUR 200 million. You see there's an operational overhead. This is always the same. There's a value add, and there's a customer and cost advantage. Keep in mind that the combined purchasing power of the company is EUR 2.5 billion, probably EUR 33 million seems modest. With this, I hand over to Helene. Hi, thanks, and good afternoon from my side. Let's quickly look at sources and uses 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. You can see ordinarily, a 90% acceptance rate in M&A transactions is pretty high, so we may have some room there. Deutsche Wohnen has net debt, which is subject to a change of control clause, and we have the transaction cost. How are we intending to finance that? Well, one, we have signed the bridge finance of EUR 22.4 billion, of which EUR 21.9 billion 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 discussions with my counterpart, we believe that there will be only very limited large credit considerations that we may face. Normally, we're absolutely certain that we can mitigate those. How are we going to finance that? What is the takeout? Post-closing, we're expecting to do a large rights issue of up to EUR 8 billion, obviously subject to acceptance rate and pro forma LTV. There will be EUR 6 billion-EUR 8 billion 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 EUR 1 billion, which will actually be closely looked at by investors. Then the disposals that Rolf talked about earlier, which are 20,000 units in Berlin and further 25,000 units and potential selected development projects in other markets. Let's look at page nine, which is a very rudimentary LTV bridge. We are right now striking pro forma 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, de-risk it in part with the rights issues. We know that there's going to be an LTV effect coming from the Berlin disposals and the additional de-leveraging measures which we have in place, which could be coming from one or a combination of be it disposals, H2 revaluation, and obviously the acceptance ratio, where we, I believe, have a bit of buffer. Brings us back into our target LTV range of 40%-45%. As Rolf Buch 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. I think we are well within our acquisition criteria. Let's quickly look at the timeline. 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. There's going to be, in post-publication of the results, an additional acceptance period, which will bring us to mid-August. Post the tender offer closing, we will be looking at our rights issue. With that, back to Rolf Buch. Thank you very much, Helene. Let's summarize. 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 the high volume in Berlin is probably a good situation because together with Vonovia, we can actually de-risk the whole company. For Vonovia, it's a rock-solid foundation to continue the European expansion. As the transaction meets all acquisition criteria and is expected to deliver EUR 105 million EBITDA. As you have seen, we have a clear pathway to return to the 40%-45% LTV target range. 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 their policy is to buy actually more social housing, they can get 20,000 more apartments, which we will offer. There will be an agreement to limit regulated market rents for the tenants to 1% average on the next three year per annum, and later a fixation binding on inflation. I think here I have to put it in relation. We are talking here about the normal, what I always call bread and butter rental growth. All the normal bread and butter rental growth over all the whole portfolio in Vonovia is 0.6%. 1% actually has no impact on our margin at all. 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 also sometimes seems to be a threat for some investors. Here we are actually opening the door to come to an inflation-based or inflation-linked system, which gives a first opportunity. I have to repeat, the agreement which we are doing to regulate the normal rent clause with 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's no threat for somebody who is a sitting tenant, but people think they are threatened, and now with this message, they know that they are not threatened. We are having a commitment to build at least 13,000 apartments in Berlin, which is actually the volume Vonovia and Deutsche Wohnen have today in the pipeline. We will be a reliable partner to boost the housing market to benefit of all shareholders. What I think is agreed, it will be after the election, that we will get a kind of round table together with the municipality companies, where actually one big company in Berlin can also change a lot in favor of the whole people, but also in favor of the regulation. I'm looking forward for this round table, which we actually call in Germany the Hamburg Model. It is very successful and actually helps everybody. 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 increasing our size and our portfolio and our strengths to prepare also the further European expansion. 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. Thank you very much. Okay, let's go to the Q&A then, please. Operator? Yes. I'm sorry, I wasn't naming. Dear ladies and gentlemen, we will now start the question and answer session. One moment please, for the first question. We have a first question. It's from Charles, UBS. The line is now open for you. Good afternoon. Thank you very much for taking my questions. My first question is, you mentioned strict acquisition criteria, and you mentioned the accretion to pro forma EPRA NTA per share in the first year of full consolidation. I think in the slide, it's without capitalization of scenario. You mentioned Vonovia trading at significant discount to reported EPRA NTA, and given Vonovia offering EPRA NTA to Deutsche Wohnen, could you share how you look at the transaction accretion on EPRA NTA, 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 valuation. If I may, second question. The Green Party program plans to apply a pro rata tax on property ownership and 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 their measure potentially would be retroactive? Thank you. Shall I take the NPA? Yeah. Okay. The way we've analyzed it is, 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 it for the calculation, EUR 53.48 per share. What we did then is we say, we take the Vonovia Q1 NTA, dividend adjusted. 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. 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. 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. Together with what? 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. To calculate an NTA accretion, we need to make sure we have comparable NTAs. We're adding back EUR 1.8 billion to the NTA to bring it in line with our definition. On that number, you can run it and come to actually non-dilution. Mind you, this excludes any assumptions for the H2 valuation. If we assume that this is a year-end view or as you said, Charles, the first full year consolidation 2022, all this includes is the H1 valuations to bring it to non-dilutive. No, I'm glad to see, Rene, you stepped in seamlessly. Sorry for that. I'm glad to see you back. Thank you very much. If I may just a follow-up. What Berlin H1 revaluation did you assume for Berlin? I have the absolute number here. Rene, do you have the percentage? I can follow up with the percentage. I only have the 1.5 absolute number. Yeah. 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. The first, I think 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 of July. It's passed, it's over, and it is explicitly said in the law it's 1st of July, so every transaction before 1st of July will not be covered by this law. There's no chance to go it, retract it, 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. 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. Yeah, this is no risk for this transaction. I understood that your question was, is this transaction in a risk? This is a part of actually the Green Party's election program, which then will be happening after 2021, so most probably in 2022 or later. Thank you. It depends on the coalition partner. This is an election program. This is not a law. Thanks. Our next question is by Andres Toome, Green Street Advisors. The line is now open for you. Hi, good afternoon. I just wanted to ask why is that you just followed through with this deal right now in the midst of the election cycle and at a time when your share price is quite weak. 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 an agreement with other landlords that you won't increase rents, the same kind of notes that you pointed out in this presentation? To be very clear, the situation, what we know already in situations like Dresden or Dortmund or Kiel, where actually the situation is that you have municipality landlords and one big private landlord. This calms down the negotiation and the whole debate in comparison to a situation where you have actually several smaller but important private companies. 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 regulation, but the big private landlord actually can, together with the municipality companies, guide the market in a way that it stays stable and is not becoming unstable. I think together now we have the chance to do exactly the same here in Berlin. This was also a key factor why the mayor loves the deal, because he's saying, actually, I own 300,000 apartments for myself, and I will be close to 400,000. Then I have actually more than 100,000, 150,000 owned by Vonovia, which in the end means that together with this, he and we together can actually guide the market in a proper way where there is enough rent increase to pay for the investment. On the other hand, it's not a rent increase which is actually over too much for the people. So I think this is a great possibility and a great chance for all of us. We will come in a situation where together with the government and together with the municipality companies, we can shape the market. One last remaining word, our cost structure and our efficiency is much higher than the municipality companies. With the solutions and those municipality companies need to survive, we have a nice life. Thanks for that. 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. If there's going to be kind of top-down regulation that would allow states to impose kind of rent freeze similar to rent freeze regulations again, then I think you said that Berlin would be the first port of call for that. At the same time, you're kind of going all in now with Berlin. I think you can see it in today's reaction. before actually the Green Party, the Social Democratic Party, and the Left Party, were more or less supporting, for the Social Democratic half of the Social Democratic, the party were 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 to the nationalization campaign. You can see it in today's reaction. Will the nationalization campaign completely die? No. The support for the nationalization campaign due to this transaction and due to the commitment we are giving to Berlin will go down. We have de-risked the whole Berlin situation, and we have found a lot of new friends in the political arena here. Unfortunately, all the quotes are in German, but we can probably provide you with some on our website. Okay, thanks for these comments. My last question is about- Exactly what I'm telling you. It's not mega cities here. We have actually probably 2 million rental apartments. 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 the city was that there was a lot of players doing different things, and a lot of small players are doing crazy things. 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, then nationalization is not an issue anymore. Thanks for your comments. Final question about the fact that the share price is pretty weak at this stage. What are you assuming for your rights issue price when you did your underwriting? Look, we need to see how times pan out. We're assuming customary discount to TERP for rights issue of that size. That would be what, in your view? Well, ordinarily, 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. Assume double digits. You keep in mind, this is a German rights issue, so this is actually the subscription rights. The subscription rights, at the same time, shareholders get the subscription rights. Please, I had this in the last time rights issue, which we did after Südewo. It is not comparable to an accelerated book building or to an American rights issue. This is a German way of rights issue. Please, if you need more explanation how this works, actually, it is important that 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 Kuin Van Lanschot Kempen. The line is now open for you. Hi, good afternoon. Thanks for your presentation. I think most people agree with you that long-term Berlin remains and retains its attractive 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 to focus on the upside for coming two or three 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 a creative deal on NAV depending on the size of disposals. The accretion to FFO is also not that great. How should investors look at this deal for the midterm, the coming two years, which even for long-term investors is a kind of normal period, and what should investors expect to see in that term? Yeah, I think we have said there will be an increase in EBITDA margins. Of course, we will take, like in all other big transactions, it will take us a while to realize the synergies. Okay. If we are able to actually put off, and I think we are, to put off the political risk, I think this is much more important. To be very clear, this transaction has economic 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 leader in the private sector. Yeah. Okay. Understood. Maybe follow up. You've offered 100% cash deal. Would it have been possible to do a deal at 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. A share deal would have had a completely different timeline. Okay. 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? Actually, this is an option. This is not a must. The option to buy an additional 3.5%. The point is that related to the real estate transfer tax, actually we have a change in regime after the 1st of July, which means that we are well advised to have more than 10% before the 1st of July. Why was it necessary for Deutsche Wohnen to issue new shares then? That's 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. That will be from a tax perspective important. Yeah. Okay. Understood. All right. Thanks. Our next question is by Christopher 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 agreement 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? Some more color there, please. 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 value are you going to sell them at? Clearly, valuations are moving quite quickly. Just some detail on Berlin, please. Sure. Secondly, could you also just talk about some of the technicalities of the deal, 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 deal, please? I think the second will be all published in the offer documents, please don't force me now to read all through, but it's a relatively standard BCA, nothing special in it. Don't expect any surprise there. For the Berlin portfolio, I think this is a very good question. Actually, it was Michael Zahn, who knows Berlin much better than me which we're building together with my people actually a portfolio which fits the different criteria. Berlin tends to buy the social critical areas. Where there's social problems. Berlin tends to buy actually probably also apartments which we would probably call from the building substance a non-core. This is a portfolio which I think actually fits in both interests. Berlin is just a better owner. They are not owning those apartments to make money, but to calm down social conflicts. That's why this is a very intelligent selection by categories, more in the west of Berlin, where we actually solving issues for the city because there's a lot of political pressure to buy those categories. It's more driven by the demand of the city because they have located special buildings or special categories and by the standard they are looking for. To be very clear, the sale price will be the book value after H1 revaluation. Just one follow-up, if I may. Can you just elaborate a bit further on the potential further political threat? I appreciate you have been very clear about having the support of the mayor. From which parties is there still a threat of not supporting this transaction? It's only the Left Party. All other parties already have put their position out. The Left Party actually was not very offensive. They say we have to look on antitrust issues. Okay. Thank you. Question is by Rob Jones. The floor is now open for you. Yeah, thanks so much. Some of my questions have already been asked by Chris and some of the analysts, but just a couple. One on the nursing homes portfolio that Deutsche Wohnen obviously owns and you'll be acquiring. Is that something that you also deem to be non-core that you would look to sell? The second question is, around those kind of antitrust concerns that the Linke Party has. Do you share any of their concerns, or if it's not an issue at all? Just going back to synergies point, to me. Let me do the first, because if you ask me too many questions, I forget the question. Sure antitrust, this was exactly the same announcement by the Left Party as we did the Deutsche Wohnen and Gagfah case, exactly the same reaction. At this time, they wanted to give the order to antitrust commission to stop it, and this is more or less the same reaction. It's not anything realistic because we are so far away from any antitrust regulation. This is not a real issue. Nursing homes, though? The nursing home, I think what we have to do in the moment, if the transaction is finished, we have to sit together in the whole new board and then to discuss the portfolio and what we are doing. In the moment, I think it is fair to say, to 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. Just finally on synergies, obviously, we're not going to get any benefit in relation to some of those operational synergies until 2024, FY 2024. To me, that feels like longer than a number of your previous deals. No, we are not saying all the synergies are coming in 2024 only. There's a normal flow, what you have just most recently seen in Sweden. There is a part of the synergies which come in the first year, in 2022. Yeah. In 2021, there will not be a lot of synergies because closing will be then relatively end to end. There will be a part of the synergies coming in 2022, others will come in 2023. This is a normal way how we work with the synergies. 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 think 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 over-delivered, so this should not be too critical because this is a relatively easy calculation. It was, for us, much more difficult to calculate the synergies in Sweden because it's the first time. Yeah. The next question is by Thomas Rothaeusler, Jefferies. The line is now open for you. Hi, good afternoon, everybody. A question on, actually, on Deutsche Wohnen management has always been reluctant to be taken over. What do you think has changed their mind? I know it's more a question to Michael Zahn, but maybe you can provide some comments on that. I think we had sometimes good things need a while. I think we had a good understanding. What you can see is if you look on the strategies and the communication, especially on the communication strategy and policy about tenant treatment, these company are coming closer and closer together. To be very clear, if you look on our external communication, and if you put the logo away, this looks very similar. 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 a good and constructive discussion about strategy, about synergies, about visions, and it took us a while, but now we are there. Mm-hmm. Okay. Another question. To be honest, the first time, five or six years ago, was a different scenario. Actually, this was an attempt to combine Deutsche Wohnen and SNG, and then we stepped in, so it's 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 two teams here in the last three days working significant together. This transaction, you cannot do only two CEOs, but the whole teams, and this was a very smooth cooperation. I think this time we have done it the right way. Please ask Michael, and I hope he will explain you the same thing. That will do. Thank you. Another question, scale benefits seem a major driver into the cost synergies. What stake you need minimum to get to full realization of this synergy potential and scale benefits? 50.1%. We need the control. Mm-hmm. That's enough. Yeah. Because this is always the same debate. You as a purchasing, big part is purchasing or value-add services, and this you can do as soon as you have simple control. Okay. Just to follow up on your pro forma NAV calculation, I understand this is before goodwill and before transaction cost consideration, is that right? Yep. Okay. Just the last one. Is it possible to get any rough idea about FFO creation or dilution? The FFO is more difficult because we have different sources for FFO. That's why we have changed the acquisition criteria a longer time ago to EBITDA and to accretion. Okay, thank you. The next question is from Thomas Neuhold, 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 if you are widely accepted. 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? Do you think more cities or places could follow in the future? To be very clear, it is not a restriction. 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 away from the bread and butter rent, because we know that this is under discussion, and we are generating rent growth by modernization. With 0.6, with an average commitment of one, I have a big headroom. It's a pure psychological issue because the people sitting in apartments are afraid that the rent will grow so significant that they have to leave the apartment. In Vonovia, it was never the case. What we put off the table is a psychological problem our tenants have. It has no impact on our figures. Not at all. 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 for this will have a very positive impact on our top line growth. Okay. As soon as inflation is bigger than 1%. The next question is regarding the blends deleveraging. The 25,000 units you plan to sell in total. What kind of FFO contributions do you get currently from the 25,000 units? We don't even know exactly what we want to sell. We cannot give you the FFO. This is a commitment that we deliver, and we have to make assumptions. Okay, understood. My last question is on the rating. How long will you have time to move back to the 40, 45% LTV target without losing your current rating? As I said, it's like at this point in time, the rating agencies are looking or expecting to confirm the rating. There's no actual timeline 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. That ratio would be at a 60% level. Okay. 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 one by one. 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. It was approved by the AGM in April. Yeah. No, I understand officially there is no approval needed. It is 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? How should this work? Well, you host an AGM, and if there is a majority or 75% in favor, then you go through with it, but otherwise not. We are not doing an exceptional AGM for things which it would even not be binding, right? No. Maybe not, but I guess it gives an indication of the vindication of the strategy, and probably to potentially strengthen. Sorry, it's not a change of strategy. We've actually always had since 2013, the same strategy in saying actually our slide in 2013 said the consolidation of the German market was one. This was our IPO slide in 2013. What we are doing here is consolidation of the market. It's no change at all in the strategy. Also to come back to your portfolio, actually, Berlin is, of course, a big market. Now we probably have a size in Berlin, which is equivalent to the size in other big cities. Okay. Our market share in Berlin is probably smaller than in some other cities like Dresden, Kiel, or Dortmund. Okay. That's fair. The other question I had is, when you look at how shares currently trade for both companies, did you also consider to, instead of taking on a competitor, to initiate a large share buyback of Vonovia shares, given that shares seem attractive here and are trading at a material discount to NAV, implied yields appear higher. Have you considered that at all, or was it never on the table? No, Lena always, especially before we can add, always does a calculation about share buybacks, but this acquisition is more accretive for our shareholders than share buybacks on the long term. Yeah, remember, obviously, the other share also trades at a discount, and hence, the accretion still very much works here, yeah. 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, there's a significant premium to NTA. This is a summary of what we are doing in a very short version. Acquiring Deutsche Wohnen at NTA is more accretive than 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. Okay. The problem is, at the moment, which is of course also impacting our stock price, but there is an obvious mismatch between what we see on the real estate market and the listed real estate market. We see that there's a high demand for ready buildings. There is a high willingness to pay a significant premium on the valuation. At the same time, obviously, because of sector rotation or whatever, the capital market gives a discount to the real estate shares. 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 investor would have done it. Okay. No, that's understood. Actually, one very last one. What kind of level is there need, or can you implement a domination agreement? Is that on the table, or how does it exactly work? No, this is not on the table. This, I think, it's a little bit too early. We have to wait for many shares. If we get the acceptance ratio, then we go from there. Okay. There's not a fixed criteria for that to implement that. It's just that I honestly don't know how it works. No, to realize the synergies, we don't need a domination agreement. We need 50%, and the rest is actually more technical. Okay. It's probably more tax-driven than anything else. Okay. Thank you. Thanks very much for that. The next question is by Simon Stippig, Warburg Research. The line is now open for you. Hi, team. I appreciate your time for the call and taking my questions. My first question would be regarding the development pipeline, especially development pipeline of Deutsche Wohnen. Do you believe it will be possible to roll out your modular construction onto the around 18,000 units of the Deutsche Wohnen pipeline? To be very clear, this has to be confirmed in detail. I think what is fairly clear is that together, we are by far the biggest development company in Germany, and we are a strong developer in Austria as well. I personally believe that the next generation of buildings will be made of wood. Wood means that actually this is modular construction. You cannot build wooden houses the way how you build solid houses, just by the definition. This means that this will be a pretty industrialized process just because of the material. If you combine the point industrialized process and size, actually, this fits. 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 combined company. 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. We have to work on this. Today we have an announcement that we want to work together, and a lot of work will be done in the next half year or years, where we also will find all the potential of this transaction. What we are giving you today is actually a bread-and-butter synergy calculation. This is just the normal. We are giving you our normal efficient dilution calculation. It's a negative, we are giving you a rating. There is enormous entrepreneurial potential in this combination, but it's very difficult to measure it in EUR today. We will come to you back, and of course, then you will see in the following years what will happen. Just, I give you the example of Gagfah. As we did the merger of Deutsche Annington and Gagfah, we announced synergies. If you look on our development on FFO and EBITDA and NAV and whatever you are looking on, this was significant above what we have announced. Because also in this combination, we realized a lot of additional potential because of size. This transaction is comparable to actually, this gives us a new step. That's why I think there's a lot more to come in the next years. Unfortunately, I cannot give you EUR numbers, and that's why I cannot give you a guidance for this. Okay, sure. I remember very well your acquisition of Buwog and the application of in-place cost by, or in-place cost reduction by the application of modular construction. What is your current cost per square meter, excluding land prices for this modular construction, roughly? It's difficult. Helene, do you have the figure in mind? I think it's somewhere between EUR 2,200 and EUR 2,400, roughly. Okay, great. Thank you. My second question would be, just looking into portfolio locations, surely there's Berlin, but then Dresden, Frankfurt, Hanover, Cologne. All of them, literally 100% almost of Deutsche Wohnen portfolio is overlapping with your portfolio locations. Is that right? Is that assumption right, or would you say it's actually less than that? No, it's right. It's completely right. For the locations outside Berlin, actually, sometimes the buildings are standing close to each other. Okay, maybe just one last question. Looking even at your 121 presentation, I don't recall right now what it is, but if I look into your track record and set free synergies, literally, EUR 105 million of synergies kicking in starting from 2024 seems, for me, a bit low. No, also again, it's not kicking in 2024. Sure, no, it's trading in at full amount. They are kicking in in 2022. Yeah, this is a standard calculation. 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. There is an assumption that we will over-deliver also this time. Every transaction also has a risk and has a complex activity. That's why it does not make 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 good. Okay, great. Thank you very much. Our next question is by Jonathan Kownator, 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 one by one. 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 that change of scale will help you actually increase the pace of investment from Deutsche Wohnen into renovations and will help in terms of acceptance from local tenants in terms of paying higher rents? Do you think, as Mr. Zahn has said in the past, that you will potentially need also subsidies for tenants for them to better accept and effectively step up the pace of investment in the Berlin portfolio? I think generally, 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 cost is something between €1.13 and €1.14, which is related to the fact that we are efficient and standardized. With this, we do not see any pushback because we also have developed a good heartmanship clause, which is the same in Deutsche Wohnen. What I think we are not seeing in the city, even also in our portfolio in Berlin, no pushback from modernization anymore. This was in the past where we had modernization costs of above €2 per square meter, but this is over. Does that mean that you think you'll be able to substantially increase the investment volume in Berlin from the Deutsche Wohnen side of the portfolio? Yeah, this I think have to be discussed with the Deutsche Wohnen. We hope that we can use the best of both efficiency to improve the performance. Okay. Second question, you've mentioned quite a number of times that this would be a solid foundation for international buildup. Given the number of times you've mentioned that, I'm just wondering if there was any development from that perspective. Do you think that deal helps you better from the international perspective, though, or do you see anything different for any specific country where you want to focus more attention? What we believe is actually that the CO2 topic is probably very hot at the moment in Germany, which is related a little bit to German nature. I am sure that the CO2 reduction targets will be, and the debate about CO2 reductions will be a pan-European problem or pan-European challenge. This definitely will lead to probably a more European market because this is now dominated by the European community. This is now all this taxation, and probably Helene von Roeder can talk a little bit about this, all the taxation, a lot of rules, even the standard that we have to apply in the buildings are getting more and more European. It probably will be even more ridiculous to talk about a German market. Today it's still a very German market, but in the longer run it will be a European market. Because scale matters, and 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 one scale operator. I can tell you that Kaserdepot at the moment is operating roughly GBP 700,000, but not fully integrated. Yeah. No, that's fair. Obviously, you haven't seen any immediate change, in terms of regulation or all the things we've discussed in the past, I guess. No, it's nothing immediate. If we are talking about Europe, we are not talking about the year 2022. Sure. Yes. We are talking about a long-term plan, but our business is long-term because. Sure our buildings are there for the next 100 years. Fair enough. A couple of very quick questions related, more technical. Just to go back to your acquisitions criteria, I'm sorry, there was something that was a bit unclear to me is when do they actually get tested? 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 the 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. I just wanted to understand how that works more specifically, perhaps. 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'd be helpful. Yeah, look, when you plan a transaction, that obviously isn't done overnight. That's months-long work, and 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 you can't really take a decision on the basis of a spot moment in terms of share prices. I think that explains the VWAP. Yep, we have the hybrids in there. We will use it, and I think that's very coherent with the point we always said before, is if we need it for the rating model, before everybody gasps, I have understood that hybrids are not part of the LTV diminishing instruments for the EPRA world. Yeah. If I need it for the rating in order to have a plug- I will issue hybrids. Yeah, that's fair. Okay. It's more from a rating agency perspective, it's really 50/50, and it is a variable depending on ultimately your revaluation gains in H2 compared on V1. Look, you just need to look, we have so many moving pieces in our capital model as a result of potential revaluation gains. The question, what acceptance rate do we have? How quickly are the disposals coming? Unfortunately, I do need to retain a bit of flexibility around sequencing and exactly instruments. Sure. By the way, once you mentioned it, the focus in the years is right on almost the entirety of these disposals. I think the midpoint of the disposal is quite significant in the presentation. Does that mean that we should expect transaction very soon in terms of disposal, and 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? To be very clear, the first 20,000 we did today, more or less. Of course, not formally binding, but the mayor committed to buy the 20,000 in front of the press. Okay. It will be very difficult for him to step back. The other 20, we are not saying it's necessary. We are saying it's disposal, it's H2 revaluation and acceptance ratio I'm very happy that Helene is pushing us to the most secure model she can imagine, which is saying we are calculating on a 90% acceptance ratio. If you're doing the math and if the acceptance ratio is going down, then probably this additional deleveraging measures will get smaller. I completely agree with Helene, even as an entrepreneurial CEO, I completely agree with Helene that it is not acceptable that we do a model without the worst case. The worst case, this case is acceptance ratio of 90%. It's not the worst case, you understand what I mean. That's why this is the slide. Okay, fair enough. Thank you. The next question is by Marios Panou, Societe Generale. The line is now open for you. Oh, hi, good afternoon. Just a couple of final questions from me. Just firstly on the potential synergies really from the development program. Just out of interest, what are the plans for the selected 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? Are these taking a view of combining the two programs together? That's the first question. I think it's dirty. We're just saying we have so many liquid assets. What we are saying is actually if we have to bridge a gap, there's liquid assets where a lot of people are calling us every day, but we are not selling it. This is buildings where people are desperate. Every insurance company in the moment in Germany and probably worldwide is looking for ready. This is not an issue. That's why we will look on the acceptance ratio, and then we can sell it. I got a few calls from other colleagues which are already asking me because they have seen disposals can be buy tomorrow. This is not the issue. Okay, great. Thank you. Then just finally on the newly 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? I'm impatient. Amazing how impatient you are. 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 seen this at the Capital Markets Day. They have seen the elevator toolbox. You have seen what we've done around our apps. The fact, for example, we can provide people with the booking function for a craftsman. We can have rental contracts online. We have solutions for heatings. In a way, the Vonovia business and the Vonovia buildings are a huge breeding ground for solutions that can be sold and marketed externally. 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. I'm super excited about the opportunity, but you will need to leave me a bit of time to sort 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. As a reminder, if you have a question for our speakers, please dial zero and one on your telephone now to enter the queue. There are no further questions. 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. 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 to engage. Have a great day, everyone. Thank you. Thanks. Thanks. Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.