Vonovia SE (VNA) Earnings Call Transcript & Summary

Dear ladies and gentlemen, welcome to the 9 months 2020 results of Vonovia SE. At our customer's request, this conference will be recorded. [Operator Instructions] I may now hand you over to Rene, who will lead you through this conference. Please, go ahead.

Thank you, Alexandra, and welcome to our earnings call for the first 9 months of 2020. We're in different locations today, so bear with us in case we have slight delays, especially in the Q&A. I assume you have all had a chance to download the 9 months presentation. In case you have not, please go to our website, and you'll find it under Latest Publications. In case you're wondering, we have merged the earnings call presentation with a more general investor presentation to have one document for different events and situations over the next weeks when we engage. Relevant today is primarily Part 1. Rolf and Helene will lead you through this first part, the results presentation on the basis of the agenda on Page 3. And of course, we'll be happy to answer your questions afterwards. Let's get started then with the highlights. And for that, I'm handing it over to you, Rolf.

Thank you, Rene, and also a warm welcome from my side. You hopefully will be not surprised when I tell you that the 9 months results are a stable [indiscernible] of the first 6 months with clearly no big surprises. We keep running a very predictable business where things do not change very much from one quarter to the next. And while we are reporting these numbers as per the end of September, I can tell you that even in the light of the increasing COVID-19 concerns, this will not change. But now let's go on Page 4, over to highlights. Organic rent growth was up 3.6% year-on-year, which is a little bit down in comparison to last year's same period. EBITDA total was up by 7%. Group FFO increased by almost 9%. This is EUR 1.80 per share, which is almost up by 5% based on the higher numbers of shares because we had a capital increase in the period. No big changes in the adjusted NAV in Q3 because there was no valuation for Q3. We are now at EUR 55.41, but we also will give you a look ahead on the H2 valuation, and we expect an overall value growth for the full year between EUR 4.6 billion to EUR 5.2 billion, which is almost between 9% and 10%. So the adjusted NAV of the end of the year will be well above EUR 59 per share. The LTV is at the lower end of the range with 40.6%. If you include the perpetual hybrid, it is 42.4%. Net debt-to-EBITDA is 12.1x. We have been making good progress in sustainability, and part of this presentation will be to show you what we are being doing, but more on this later. Our final guidance for 2020 sees us in an unchanged EBITDA range like the guidance, and around the upper end of the group FFO range and the phrase is a little bit misleading. Helene will tell you that this upper end of -- range around the upper end can be even above the upper end. Keep in mind, in a period of COVID-19, we, as a company, are happy not to increase our guidance. So that's why this phase is done. And also, to show you our strong position, we will propose a dividend of EUR 1.69 over the next AGM, which is a little bit more than the 70% normal payout ratio if you put it on the corridor. And this will also make up a bit for the dilution of the capital increase in September. Our initial guidance for '21 is expect an EBITDA growth of around EUR 100 million. We estimate the group FFO growth rate in line with what we have Initially guided in prior years. So standard dividend payment will be, again, 70%. You will notice that we added to the guidance, total segment revenue. This number reflects the full growth across our 4 segments. More on that will come later by Helene from the guidance detail. And with this, I hand over to Helene.

So hi from me, and looking at Page 5. Primarily because of Hembla, our average portfolio during the reporting period was about 5% larger than last year. On that basis, we grew the total EBITDA by 7.6% and the FFO by 8.9%. Per end-of-period shares, which is our main view because that is the relevant number for the dividend, the group FFO grew by 4.7%, as the number of outstanding shares grew by more than 4% based on our scrip dividend and the capital increase in September. I know that a lot of you prefer to look at average shares on that definition, the group FFO was up almost 6%. So let's talk about individual segments and start with the Rental Segment on Page 6. Rental income increased by 11.8% or EUR 180 million, of which EUR 135 million came from Hembla and the remainder from organic growth by way of rent increase and vacancy loss reduction. Maintenance expense were EUR 234.9 million, very similar to last year. As I explained in previous calls, operating expenses were impacted largely by what I would call the Sweden effect because Sweden does not distinguish between net cold rent and ancillary expenses. Both the rental income and the operating expenses include ancillary costs. Rough math suggests it is about EUR 75 million for the 9 months 2020 and about EUR 30 million for the 9 months last year. Page 7 shows the main operating KPIs for the rental segment. Organic rent growth was 3.6% year-on-year, of which 0.8% came from the market, 2.2% from modernization and 0.6% from new construction. Given the low level of inflation, the Mietpreisbremse, various Mietspiegel coming out a bit lower and so on. We were not really surprised to see market rent growth on the softer side. Vacancy, however, is down 30 basis points, and that is the result of 3 things. Fluctuation has been trending down, demand for our product remains at elevated levels, and our team is performing extremely well, especially in the COVID-19 environment, where we often cannot do mass viewing, but have to show apartments individually and partially digitally. Maintenance expenses per square meter were basically in line with last year. Capitalized maintenance was higher than last year, as we've been carrying out some larger maintenance work that accounting-wise do not go through the P&L. And with that, back to Rolf.

Okay. Thank you. Let's move to Page 8 to the value-add segment. As you can see, the EBITDA came out a little bit lower than last year, and there's a couple of reasons. On one hand, we are continuing to do well while expanding the value-add initiatives, more multimedia supply to tenants, more residential environmental service with our own staff and more smart metering for customers and energy will be supplied to deliver -- to the delivery points. However, this was not enough to compensate 3 other effects. First of all, COVID-19 slowed us down on the investment side and led to less internal revenues and therefore, less value creation through our own workforce. As we said in the H1 call, extremely mild winter means that there was basically no business in the residential environmental service in terms of shuffling snow and de-icing sidewalks. And the third reason is a technical one. We have reclassified EUR 5.3 million of external income to the rental segment because this makes it just more easy. The prior year numbers are not unadjusted for this effect because we decided that in the scheme of things, these numbers were too small to make a formal restatement that would have impacted almost the full set of numbers. I'm happy to repeat that for the full year, I'm very optimistic that the 2020 EBITDA for value-add will be higher than in 2019, clearly showing that this part of the business also continue to be a growth machine. And this is back to Helene -- no, sorry, I have to tell you about the sales segment as well on Page 9. We sold 1,803 individual apartments for a gross proceeds of EUR 296 million. The fair value step-up was 40.1% on average and well above our guidance and our new target of 30%. So similar volume, but higher proceeds and fair values. To us, this is evident of an unchanged positive market sentiment. The demand for condo units is unspoken and that is a strong indication for the overall underlying market fundamentals. You will see this trend more precisely when Helene shows you the valuation outlook for H2.

So with that, finally, on to the Development segment on Page 10. This segment includes all new constructions of apartments by way of entirely new buildings, but it does include additions of floors on existing business. Income from to sell developments was down 7%, which just demonstrates that this part of our business is a little bit more volatile than the rest, but it's no big deal. Especially when you look at development hold, where we had quite an increase, what you see here is a bit of a shift towards a higher share to hold, particularly in Austria, in order to ensure tomorrow's rental income. The bottom line adjusted EBITDA was EUR 68.8 million in 9 months 2020, which is up 11% year-on-year. Page 11 give you more color on our construction pipeline and our completion. We built 1,056 apartments to hold for our own portfolio in the first 9 months of 2020 and another 381 apartments to sell. In our construction to hold, we've currently identified potential for about 40,000 apartments based on the short, medium and long-term opportunities across our portfolio today. For 2020, we still expect to deliver around 1,300 apartments in total. The development to sell part is a useful addition for the to hold development. As I've explained before, we often rely on the higher margins from the to sell project to cross finance the land cost and make the to hold developments more economically feasible. The pipeline to sell includes approximately 9,000 apartments. Our target for this year is now to complete more than 500 apartments to sell. So let's move on to Page 12 for the net adjusted value. Without a variation in Q3, things did not change much compared to Q2. We did, however, pay the dividend, including the approximately 40% scrip element, and we had the capital increase in September, which we did at a more than 7% premium to adjusted now. Including all impacts, the adjusted NAV at the end of September was EUR 55.41 per share. This is up 6.7% since the end of last year and 1.3% since Q2. What is probably more interesting for you, though, is the first glance of what we expect in terms of valuation for the end of the year. For that, let's now go to the next page. After our H1 valuation with a 5.6% value growth on the 2/3 of the portfolio that we revalued, we are expecting for the full portfolio valuation at the end of the year and additional value growth between EUR 2.3 billion and EUR 2.9 billion. That would bring the total value growth for 2020 to between EUR 4.6 billion and EUR 5.2 billion. So the upper end will be pretty similar to 2019. Now for those that like to do math, it is well above approximately a net adjusted value of EUR 59 per share, unchanged from what we said in our H1 call in August. We continue to see no material negative impact from COVID-19, and our estimates for the year-end are based on the assumption that this will not change. And the value appreciation comes across all of our markets with the exception of Berlin, which keeps lagging for obvious reasons. But even in Berlin, we are currently seeing a small value growth. We've looked at value growth from yield compression for our German portfolio, excluding Berlin over time. That is actually the chart on the lower left-hand side. And that is quite interesting, we find. We've been seeing a clear trend of substantial yield compression, but with declining momentum since 2016. For 2020, however, this trend appears to reverse, and we estimate the value growth from yield compression for our German portfolio, excluding Berlin, will actually be higher than last year. I would not want to call this probably a reversal of the trend, but it is remarkable, nonetheless. And while we can make no statement for 2021 or beyond, it appears reasonable to believe that value growth from yield compression will not all of a sudden fall from a cliff. So with that to Page 14 and the LTV. Our LTV at the end of September was 40.6%, but the more relevant number by now is probably the LTV including the perpetual hybrid, and that number is 42.4%. We're in the middle of our target corridor. We continue to believe that the range between 40% and 45% is the right level for us, especially if we include the roundabout 8-year duration for debt, and the fact that 99% of our debt are hedged or fixed. The net debt-to-EBITDA multiple was 12.1x. Similar to H1, this is a bit elevated from the end of last year, but we still think it's at a reasonable level, especially if you consider that this number already includes the full debt, but not the full EBITDA potential, which is normal in a growing business. We continue to sleep well with this number. A bit more color on the debt instrument. The ratings are unchanged with BBB+ and an excellent business risk profile from S&P and an A- rating from Scope. Between the triangle of LTV, fixed or hedged debt ratio and the weighted average maturity, I think we're striking a good balance. And the 1.4% average cost of debt compares to a weighted average of a little of 0.8% for the 2 EUR 750 million bonds we issued in July. Looking at current financing costs, we think that refinancing conditions for secured as well as unsecured instruments are currently even more than -- attractive than what we saw in July. We've added the bond covenants to the page, and you see that there's ample room between where we're at and where we do not want to be. The red bar in the maturity profile on the bottom represents the perpetual or equity hybrid. After our ABB in September, we basically consider it as resolved. It is pretty safe to expect us to take it out with plain debt at the call date in Q4 2021. So that 1 billion piece we distributed one way or another nicely fit smoothly into the schedule. And with that, back over to Rolf.

We have made good progress on sustainability. And on Page 16, I want to use opportunity to give you an overview. There is much more detail in the second part of the presentation on Page 36 to 43. We are happy to see that the progress we have made is increasingly recognized in the different ESG ratings, where we have scored better than last sessions. Additional recognition come from our inclusion in most of the leading ESG indices. We have also identified 8 United Nations Sustainability Development Goals that we believe are material for our business and where our actions can have the most positive impact. We are particularly proud to be on the first -- to be one of the first real estate companies that has defined a binding climate pass, and I will explain it on the next page. Before we go there, however, I would like to act to the sustainability news flow that we have successfully hosted the Vonovia Climate Conference, where we all as lawmakers, scientists, and laid our view as to what is required to make residential real estate carbon neutral. We are also in the focus of developing sustainability performance index for Vonovia, which will be implemented in our management system alongside the financial and performance KPIs. This will be another big step in our commitment towards sustainability and also reporting about our sustainabilities efforts. And finally, I have mentioned on previous locations, we are moving along nicely in our energy innovation center in Bochum Weitmar, which we hope to show you at the next Capital Market Day, if the crisis is coming to a better situation. On Page 17, it is a climate path for Vonovia, which we have to define together with a well-known [indiscernible] institute. This is now the new guidelines for us, where we need to be at what point in time with regard of CO2 emissions in our portfolio. The top line of the chart is a path that Germany is currently based on, based on an average 1% national modernization rate. The second line is path based on Vonovia's modernization rate of around 3%. Quite a bit better, but clearly not good enough. To achieve the targets of Paris CO2 emissions, we are looking at 3 scenarios. The base case was continue to do what we are doing today, but with an increased modernization depths as demanded by the European Union. However, that alone will be not good enough, as you can see in this slide. The hybrid case includes a more modernization depth, as I have described before, plus gas condensating, plus solar thermal technology. But even that takes us to little more than 50% of where we are today, and it will not be sufficient. The only strategy we see to get into the target zone of the carbon neutral portfolio is to do intensified modernization as in the cases before and to establish a green district heating, including sector coupling and renewable energy via heat pumps and photovoltaic. Clearly, we are not ready to implement all of this yet today in the year 2020. Some regulation adjustments still needs to be made, and some technology concepts still has to develop further. But the target is now clear, and we know exactly what we have to work on and what we have to deliver. And while all of this has already made perfect sense in the context of climate protection, there's also financial reason to reduce the CO2 emissions in our portfolio. As you probably know, starting next year, Germany will collect CO2 tax of initially only EUR 25 per tonne of CO2. To put it in the context, our German portfolio emits around 1 million tonnes of CO2 per year. It is not yet clear how this tax will be split between landlords and tenants. But whatever the outcome is will be the less CO2 emissions are better. As an asset owner, we will be doing our part to reduce CO2 in our portfolio, and we believe that the energy efficiency of the buildings should be a further determination factor how to define who is paying how much. And with this, I hand over to Helene.

Okay. So before we get to the guidance for 2020 and 2021, I would like to explain you on Page 18, one addition we have made. We have been guiding top line growth on the basis of organic rent growth, in line with traditional real estate owners, and we will keep doing that. However, just like we've gone from FFO I to group FFO, we've seen that organic rent growth alone is not sufficient to reflect the full top line growth across all segments that we manage. As a result, we will start to guide total segment revenue to capture Vonovia's full growth potential. Surely, that growth is relevant as it reflects the full value creation potential of the company and at the end of the day, it's the full top line growth that covers costs and delivers EBITDA, FFO and ultimately, dividend growth. And finally, you now also have a starting point in addition to the EBITDA total and group FFO. So on Page 19, you see our final guidance for 2020. The new line item here is the total segment revenue I explained on the last page. Here, we expect to see around EUR 300 million more than last year. Rental income guidance is unchanged from Q2, and we had to take organic rent growth down a notch to now approximately 3.1% to reflect the fact that some Mietspiegel have come out softer than anticipated and fluctuation is still rather low. With certainty now that rents in Berlin will have to be reduced in November, we're no longer showing the range that -- as we know that we will reach the lower end of it. For recurring sales, we're well underway in terms of volume, and we have increased fair value step-up expectations to now more than 35%. As Rolf said earlier, the condo market continues to perform really strongly. We've kept the guidance for the adjusted EBITDA total unchanged with a EUR 1.875 billion to EUR 1.925 billion range, and the group FFO is now estimated to be around the upper end of the range, which is still EUR 1.275 billion to EUR 1.325 billion. And as Rene just pointed out, the range around the upper end of the guidance could be above or below as it is a range. We've decided to set the dividend already now, and we intend to propose EUR 1.69 to next year's AGM. You may have already noticed that this is slightly above the 70% payout ratio, which is on purpose to compensate for -- a bit for the dilution from the capital increase. And finally, the total investment in modernization and new construction to hold is expected to be around EUR 1.5 billion. On Page 20, we have the initial guidance for 2021. I guess not everybody in the space is doing this so early, but we believe it is helpful to you. So we're keeping with our tradition here. Total segment revenue will grow from approximately EUR 4.4 billion to between EUR 4.9 billion and EUR 5.1 billion, and rental income will grow to between EUR 2.3 billion and EUR 2.4 billion. We estimate organic rental growth to be approximately between 3% and 3.8%. Here, we have a range to reflect the affiliation. A ruling from the Federal Constitutional Court is now widely expected for Q2 next year. If the law is ruled constitutional contrary to our expectation, we see ourselves at the lower end because there would be no rent growth again in Berlin. But if the rent freeze is ruled unconstitutional, as widely anticipated, we expect to come out at the higher end of the range. For recurring sales, our guidance is in line with initial guidances of previous years, with approximately 2,500 units to be sold at an approximate fair value step-up of 30%. Obviously, this will come on the basis of higher fair value. Adjusted EBITDA total is estimated to grow EUR 100 million in the midpoint to EUR 1.975 billion to EUR 2.025 billion. Group FFO is expected to grow EUR 140 million, in the midpoint to between EUR 1.415 billion and EUR 1.465 billion. Now you may have noticed that group FFO is growing stronger than the EBITDA, at least if you look at the midpoint to midpoint observation. So the first thing is that you need to look at that we're guiding stronger FFO than EBITDA also for this year. The other thing is that like we had the capital increase and we have raised a bond in order to replace some of the Swedish loans, which means that we have a positive effect coming through next year on the interest rate. And the last one, we feel that it's a nice way to demonstrate again how we think about development to hold versus development to sell. As you have seen, we had stronger development to sell this year -- stronger development to hold this year compared to sell. We're expecting a slightly larger development to sell next year. Now as you know, in our EBITDA number, we include EBITDA from development to hold and EBITDA from development to sell. In our FFO, we are excluding the results coming from development to hold. Why? Because the FFO number is a cash number. And if we have development to hold step up flowing through the EBITDA, that doesn't generate cash for Vonovia, and hence, is not flowing into the FFO. So by just adjusting the mix between to sell and to hold, you can now have variations between the growth and EBITDA and the growth in FFO, which is what you're seeing through in our planning here. Our dividend policy is unchanged at approximately 70% of group FFO per share. And finally, we are going into 2021 with an unchanged expectation from last year for our investments to EUR 1.3 billion to EUR 1.6 billion. And with that, back to Rolf.

Thank you, Helene. And I just want to do a small wrap-up. Our business continues to perform very stable and fully in line with our expectations. Impact from COVID-19 remain marginal. The underlying market fundamentals are intact and the environment in which we operate remains very favorable for us. We have made further progress on sustainability, including improved sustainability rankings and index inclusions. We have now a climate path, our climate conference and a commitment of 8 out of 17 SDGs. On the basis of all of this, we remain confident in our ability to continue to deliver growth as per our guidance for 2020 and '21 as well as beyond. And with this, I hand over back to Rene.

Thank you, Helene. Thank you, Rolf. And I will give it right back to Alexandra to open up the Q&A, please.

[Operator Instructions] The first question is from Charles Boissier of UBS.

I have 3 questions. The first one is given that the Constitutional Court has rejected the complaint to suspend the rent reduction in Berlin last week, I just was wondering what's your reading of this announcement? Is do you interpret it as a ruling on the formality, so rent reductions can go ahead on 23rd of November, but without [Technical Difficulty] substance? And on a related point, are you hearing that if the rent freeze is invalidated, it could be only potentially a partial invalidation?

So to be very clear, I think I would see this as a formality. I don't want to go in legal impact here -- discussions here, but it is a formality. If you go very much in detail, it's just -- I think this has no prediction for the ruling in the next year. But I keep in -- but please keep in mind, there's different reasons for people. I know that now the whole market appreciate -- anticipated that the full legislation in Berlin will be tiered down. There is a lot of lawyers which are saying it partly can be also existing. There's also very few lawyers who are saying it's completely constitutional. But so that's why there is still some room for surprises coming in the H1 next year. I just wanted to add this. And for the values, I think what the market is doing today is more or less the market is looking through the whole rental regulation in Berlin, and that's why they keep the market value stable.

Okay. And then on the like-for-like in 2021, you said the range is for Berlin. The way I calculate the 80 basis points range is accounting maybe 50 basis points for the rent reduction component of the Mietendeckel reversing, and then possibly in terms of the rent freeze aspect, if it's ruled in Q2, it would be roughly maybe 3% like-for-like on roughly 10% of the portfolio. Time weighted would be perhaps 15 basis points. So I just was wondering if there is another 15, 20 basis points for some other news either Mietspiegel or anything else justifying this wider than usual range?

So Helene, should I do it or... so actually, to be very clear, part of it is commercial, and second part is that we, of course, will continue to do modernizations in Berlin. And there's also a catch-up for the rent -- Mietspiegel because you know we have not increased rent after the next -- rent Mietspiegel and then, of course, after the law, this will be reduced or will be gone. Of course, we will use the rent increase, which we have not done in 2018 -- 2019. Does this answer your question?

Yes. I have a final question. You mentioned the addition of another new KPI that looks beyond rental segment. But looking at your acquisition target, they are still on EBITDA rental yield. So I was wondering if you would align your acquisition targets as well on these new KPIs that look beyond rental aspect?

No, no, no. This is too much interpretation. We keep acquisition targets as they are. This is just to give you a little bit more information, as Helene has explained. Because we think that just the like-for-like rental growth is showing the success of 1 segment out of 4 segments. And that's why we see the overall -- the new figure actually reflects that costs are in all 4 segments. This is the only reason. It has nothing to do with acquisition.

The next question is from Sander Bunck of Barclays.

I got 2 questions, please. The first one is something that Helen mentioned on the like-for-like rental growth for this year in which she said that Mietspiegel impacts have been lower than anticipated. Is it true that the Mietspiegel increases have been lower in 2020, not just from yourselves by not increasing rents, but just more as a market development? So what is the market development for Mietspiegel? And how do you expect that going forward? And the other one is on Page 17, in which you obviously make some very impressive targets with regards to ESG. Basically, the way I read into it is that quite a lot more CapEx needs to be spent on the portfolio in order to get to your -- in order to get to your target? How should we read into that? And what kind of CapEx programs are you thinking about basically over the next years? Or is it just a difference in mix in what you're currently spending?

So probably to the last one. We are happy, and you have seen us now investing EUR 1.3 billion to EUR 1.6 billion, which is more or less the money, which we can afford year by year from our cash flow profile. And I think we are happy to continue to invest exactly this. And with this, we can deliver the [indiscernible] and do additional investments. So I think there is no change in the capital need. We just have to proceed the investment, and we have to shift a little bit investment towards more energy production. So that's why there is no impact. On your first question about Mietspiegel, you see that we are living in a very low inflation environment. And of course, as you know, rent increase in Germany is not directly linked to inflation, of course, low inflation also impacted more or less the negotiation or the path which is definable by the politician. So it is much easier to come out with a strong Mietspiegel in an environment of high inflation than to come out with a Mietspiegel in an environment of low inflation. So this probably is an explanation that the Mietspiegel are a little bit weaker in the moment. And I think this is also correct. I repeat myself. You cannot build a sustainable business on the sample that on the long run, you are well above -- in your rental growth, you're well above your inflation. I -- precisely, on the organic rental growth for existing apartments, I exclude some modernization cost there. We are changing the product. But the normal bread and butter rental, of course, for the long run, cannot be massively besides inflation because the sitting tenants would have to spend more money every year, a higher percentage of their income for housing, and this is not sustainable.

Okay. That is very clear. It's -- on the Mietspiegel, especially. Just one quick follow-up on that investment plan. You say that basically, you can live with the EUR 1.3 billion, EUR 1.6 billion going forward. What about the return mix? Do you expect as a result of shifting that CapEx mix a change to your return profile that you're receiving on that CapEx? Or do you expect that to remain broadly similar compared to what it is now?

For assumption for your model broadly similar is, I think, a good assumption. What actually happens is what we call fuel switch. Actually, we are replacing traditional gas by more clean heating, which comes in with these high subsidies, but it's relatively low investment because it's heating system only. It's not a massive investment, which we have to do in the buildings. This is more or less unchanged.

The next question is from Jaap Kuin of Kempen.

First one on the valuation gains and leverage and the way you think about things going forward. So obviously, gains are above expectation for this year. You already hinted on likely -- I'm not sure what your words were there, that this should probably continue into next year. Then looking at your LTV and your net debt to EBITDA, I think you already started posting both numbers next to each other, signaling a higher importance for net debt to EBITDA. So with a declining LTV and faster than your net to debt EBITDA, based on these valuations, are you going to prioritize net debt to EBITDA in your decision making and in your spending. How should we view that strategy, let's say, into the next 2, 3 years?

Helene, this is for you.

Sorry, I was on mute. So you're indeed right with a rising yield compression, you also need to look at the cash conversion of the assets. And at some point, and I'm not saying that in the next 2 to 3 years, but at some point, LTV becomes a tricky measure because you simply don't have enough revenue generation to cover your debt levels. At the moment, I'm sort of looking at the sort of like range around net debt to EBITDA, and I'm sort of looking at both numbers equally. It's not sort of like trending too far apart yet, but it's something that we have a watchful eye out. I think that's the way to think about it.

All right. Sure. And then on the CO2 tax. If I listen correctly, then your potential maximum hit is EUR 25 million if you have to pay for all of it. Is that already in your guidance? Or did you outcome -- gone through that already?

No -- sorry, Rolf, go ahead.

No, no. No is right. I could not say better. To be very -- give you a little bit more explanation and more flavor on it. Normally, the CO2 tax is something which we will pass on to the tenants. So with the existing law, it will be passed 100% to the tenants. There is some debates in the moment in the Germany, if a part of this should be paid by the landlord. But this is completely open, and that's why we do not have any estimate how it is distributed. Anyhow, and this is our remark, to reduce CO2 is a good thing because even if the tenant pays directly and 100%, actually, if we help him to reduce CO2, the value of the building is increasing. So I think it's open, and that's why we cannot include it in the guidance. What is probably more important of this fact is the EUR 25 is the starting point. There will be an increase in the CO2 tax in the next years, which is predefined, I think, under '25, so 2025. After '25, the system will be an open system like the CO2 emission trading model, which can have actually a massive impact on the cost of CO2 for the buildings. And so the EUR 25 for us is probably an amount of money, which is still in the guidance corridor. And by '25, this can be much more important. And that's why we think it is now time to reduce CO2 emissions. And that's why we are so happy that we are well in advance in comparison also to some of our peers of the CO2 emission targets and what we have achieved in the last years because we have efficient buildings, it is something which is helpful in the future.

Great. And then maybe my final question. I think it's like you indicated, pretty helpful politically not to hike your guidance. And so I can see basically the FFO probably comfortably around or even at the high end, over the high end of your range. But actually, the organic growth is at the low end. So -- or even just undershooting a bit what you said at the start of the year. So in that kind of bifurcation, did the kind of surprise come from finance only? Or were there other positive one-offs?

No, I think that's why we show you the overall revenues, new figures. If you are looking on the like-for-like, you are excluding completely our development business, you're completely excluding our recurring sales business. So that's why we include -- we, I think, gave you the overall revenue figure because this gives you a good feeling what the company is really going on. So thank you very much for the question. It's a very good question. And the reason is, of course, as Helene explained, there are some positive impact from financing. But there is definitely a positive impact from growth of the whole business, which is not like-for-like rental growth.

The next question is from Jonathan Kownator of Goldman Sachs.

Two questions, if I may. One, on acquisitions, if you can give us an update. I mean, you mentioned you were looking at small scale acquisitions in the past. Any evolution there? Second question is to go back to your investments. So you're still guiding to 1.3 to 1.6 going forward. And obviously, arguably your leverage is going to come down, at least from an LTV perspective, thanks to those revaluation gains you're pointing to this year and next year as well. Does that mean that ultimately, you could probably potentially do more than 1.6, particularly in light of the fact you've done 1.5 this year with COVID, which has been a slowing factor? And are you perhaps having a bit more visibility at this stage on any subsidies coming from either Germany or EU on your sustainability investments and energy in particular?

So for the subsidies, actually, I answer the third question. For the subsidies, we are fighting hard. Actually, there's a lot of subsidies out already for this type of business, but there is still a problem for us to get these subsidies because this is unfair competition trading in the EU, and we are loving in the moment. So the EU cannot push on one hand a subsidy system forward and then say, we cannot give it to companies because unfair trading subsidies. So I think there's a high willingness in the commission to change it, but this has to be changed. And of course, this would help us in the moment, for example, finding new modern energy providing systems, which are highly subsidized. The second was investment. I think it is fine to assume that 1.3 to 1.6 is a good corridor. I would not go to speculate of spending of more than 1.6. Keep in mind that this is not only a question of availability of funds, but also availability of customer, availability of management, and we are fine with our climate path. It doesn't help us if we go too fast because we also have to wait probably for some technology development, which occur in the next 5 or 10 years. So that's why I think we are now on a clear path, and this is a good path for us.

Sorry, if I may interrupt you. On this 1.3 to 1.6, will that be enough to meet your accelerated path? Or does this mean that there's other investments that you won't be able to make effectively?

No, we are happy. As I said before, we are happy with our investment capacity to deliver the path.

Okay. Very clear.