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Good afternoon, and welcome to the Analyst and Investor Presentation for the Quarter 3 2020 Results for the Adler Group. Our presenters today are Maximilian Rienecker, and Thierry Beaudemoulin, co-CEOs of the group.[Operator Instructions] The link to the webcast is available in the press release from yesterday. [Operator Instructions] This conference will be recorded and made available at the company's website after the call. I would now like to hand over to Maximilian Rienecker. Max, please go ahead.
Thank you all for joining us here today. Today marks the introduction of our new brand, the ADLER Group. The publication of our Q3 2020 results earlier today is also the first time in which we fully consolidate our stake in Consus Real Estate, bringing the combined total assets to EUR 14.6 billion. By joining forces, we have clearly embarked on a journey of realizing future growth, and we'll focus on a number of key objectives. First, we will continue to manage our core residential rental portfolio, grow our top line rental income, whilst being conscious of costs and continue to improve our margins. Second, we will optimize the portfolio and aim to recycle capital by selectively disposing nonstrategic assets and acquiring bolt-on core product. Third, we will add value and drive growth through development projects in Germany's top cities and focus on modernization of the existing core portfolio. Fourth and lastly, we will work for the simplified capital structure, further decreasing the group's weighted average cost of debt and target a 50% LTV in the midterm, clearly, with the objective to reach an investment-grade credit rating. Now please join me on Page 3. Here, please allow me to present a small summary of our third quarter achievements. Net interest income came out at EUR 203 million in Q3 2020 versus EUR 102 million in Q3 2019. Clearly, this effect is caused by the consolidation of ADLER into our accounts. Let's have a look at the underlying KPIs. The average rent per square meter increased by 9% -- or by EUR 0.09 year-on-year to EUR 6.25 and has further reversion potential. The like-for-like net rental growth has come out at 1.4% like-for-like, clearly affected by the impact of the Berlin rent freeze. Vacancy decreased marginally to 3.9%, down 20 basis points year-on-year. FFO 1 amounts to EUR 74.7 million, versus EUR 50.4 million in the first 9 months of the last year. As of today, rent deferrals relating to COVID-19 stand at merely 1.2% of our monthly rent, amounting to circa EUR 352,000, and are mainly related to the commercial parts of the portfolio. During the third quarter, we successfully divested circa 5,000 units to a major international real estate company, leading to a further streamlining of the portfolio as we discontinue our presence in 36 cities and saying goodbye to a 12% embedded vacancy. The net LTV impact of the disposal was a positive 130 basis points, and net rental income will be lowered by EUR 18.6 million per year, accordingly. Clearly, we continue to invest in our portfolio and have spent EUR 4.80 per square meter on maintenance and EUR 13.40 on CapEx. CapEx investments were lower compared to last year as we thoroughly reviewed the CapEx plans for our Berlin portfolio, in light of the Berlin rent fees legislation. The combined portfolio is now valued at EUR 11.4 billion with an NAV of EUR 4.7 billion at the end of the period. For more details on our EPRA NAV and EPRA NRV, I'd like to refer you to the appendix. Lastly, on financing. At the end of the period, the weighted average cost of debt stood at 3.2% as a result of the full consolidation of Consus. This despite representing an increase versus the half year number of 1.84%, the trend is a positive one as we were able to further lower the cost of debt at Consus level. We also successfully issued 2 EUR 400 million bonds. The first was placed in July, at a 3.25% fixed coupon and a 5-year maturity; the second was placed in November at a 2.75% fixed coupon and a 6-year maturity. The November issue was more than 4x oversubscribed, with a high-quality book of pan-European institutional investors. When accounting for the latter, pro forma weighted average cost of debt drops to 2.98%, and we expect to decrease this going forward. At the balance sheet date, LTV stood at 53.3%, excluding convertibles, and 51.9% pro forma for the disposal of Consus project to partners more being capital management. Now I'd like to hand over to Thierry who will run you through our operational performance year-to-date.
Thank you. Thank you, Max. On Page 6, you can see the operational highlights year-to-date. I would like to point out a number of items, in particular, successful sales of noncore assets. As announced in September, we successfully sold 5,000 units to an international real estate investor at a premium-to-latest book value. On the back of the Consus transaction, 17 non-strategic development project, with a GDV of EUR 600 million, were sold to Gröner Group. 8 nonstrategic development projects, with a gross asset value of EUR 400 billion will be disposed to Partners Immobilien Capital Management before the end of the year. Moreover, I think we can be proud of our ADLER team with operational vacancy being reduced further to a mere 2.5% on the top 13 portfolio, whilst also generating plus 2% rental growth outside of Berlin.Please join me now on Page 7. On the left-hand side, you see the development of the Consus -- of the development of a gross asset value of our rental portfolio, including ADLER [ build-to-hold ] project, but excluding any project from Consus. At the end of the period, the portfolio reflect a fair value of EUR 9.4 billion with approximately 71,000 units in the operational portfolio. The value per square meters increased by EUR 117 per square meter, mainly on the back of the disposal of 5,000 units as well at a lower value per square meter than our core portfolio.Now let's turn to Page 8. This page clearly shows how well the rental portfolio is performing and that we continue to get the benefit of our integrated asset management platform. Average rent per square meters increased by EUR 0.11 year-on-year and EUR 0.06 versus year-end 2019 as a result of general rent increase. As we have indicated before, like-for-like rental growth is affected by the Berlin rent freeze legislation, which has an impact on 50% of our rental portfolio. In the other half of the portfolio, we have been able to generate rental growth of 2% and are able to post a 1.4% like-for-like increase in the first 9 months of 2010. As we dispose 5,000 units with an embedded vacancy of 12%, operational vacancy decreased further to 3.9% at the end of the third quarter.Moving on to Page 9. Clearly, one of the key pillar of our integrated asset management strategy is to continue investing in our portfolio. On the left-hand side of the page, you do notice that we have spent about EUR 25 million less from CapEx and have now combined. With the Berlin rent freeze legislation entering into effect, we have become more selective on the CapEx program of the Berlin portfolio. As a result, refurbishment and capitalized maintenance dropped from circa EUR 88.6 million in the first 9 months last year to a mere EUR 65.3 million this year. Maintenance expenses decreased marginally by 1.9% to EUR 4.8 per square meters versus EUR 4.9 per square meter in the same period last year.Slide 10, as always, you could find a detailed overview of our portfolio metrics. Berlin continued to account for almost EUR 4 billion of fair value of our portfolio, which is more than half of the EUR 7.8 billion fair value of the German residential rental portfolio in operation. Together with other metropolitan area, the top 13 city accounts for about 80% of the residential rental portfolio. Occupancy has improved marginally year-on-year by 0.4% in the top 13 cities and decrease in the other city by 0.1%, bringing the total operational vacancy to 3.9% at the end of the period. The average rental income in the top 13 cities, shown on average, like-for-like net rental growth of 1.3%. As expected, LFL growth in Berlin has come down to 0.4%, had the impact of the Berlin rent increase crystallized, but still result in a solid 1.4% LFL rental growth year-on-year as the rest of the portfolio continued to generate solid results.Now I would like to hand you back over to Max for an update of our financial structure on Page 12.
Thank you, Terry. And please allow me to give you a short recap on what we have achieved in optimizing our financial structure year-to-date. In addition to the successful rights issue in July, we also have been able, as I mentioned earlier, to place 2 bonds on July 29. We placed a 5-year EUR 400 million bond, fixed coupon of 3.25%. November 9, we placed another EUR 400 million with a 6-year maturity and 2.7% fixed coupon. We continue to see support for attracting secured financing at compelling rates. We have been able to attract close to EUR 700 million of secured instruments at 2.1% cost of debt. The average maturity of these instruments is about 4.7 years and extends our maturity profile on group level. Overall, we managed to refinance more than EUR 1.9 billion so far in 2020, which is a big success for us and given the sale win upcoming maturities in 2021 and 2022, where we can realize further synergies and reduce our cost of debt.As a result of the first-time consolidation of Consus, the weighted average cost of debt increased from 1.8% to 3.2%. However, accounting for the 2.7% coupon of the 6-year bond, today, we stand at 2.98% in terms of weighted average cost of debt. One of the most important achievements has been the repayment of EUR 479 million mezzanine debt as that part of the mezzanine financing had a 12% interest obligation. We were able to lock in circa EUR 41 million of financial synergies as of today.Now please follow me on to Page 13. At the end of the period, our LTV stood at 54.1% or 51.3% when adjusting for the outstanding convertibles. Once the disposal of nonstrategic projects to Partners Immobilien Capital Management is closed, our LTV will decrease by another 110 basis points to 53% or 50.1% adjusted for the converts. Our weight average cost of debt, as I mentioned, stands at 3.2% at the end of the period and 2.98% as of today, considering the upcoming maturities, this provides further potential to reduce our cost of debt. This is underpinned by the fact that our recently in November 2020 issued 6-year bond trades at around 2.5% as of today. Further strengthening the KPIs on this slide remains a top priority, and we foresee ample opportunity to realize these improvements going forward.Moving on to Page 14. Over the last months, we have focused on refinancing and repayments of short-term debt maturing in a total amount of EUR 422 million. As such, we can report that in total, EUR 227 million either have been repaid or have been extended, and EUR 195 million worth of facilities are in advanced stages of prolongation as of today. We continue to be in an ongoing dialogue with our financing banks and building on the successes achieved so far and are also discussing bank debt expirations in 2021, for now a total of EUR 325 million. After closing the books for the quarter, on November 9, 2020, we've successfully placed a 6-year tranche, of which we used part of the proceeds to refinance part of the 2020 to Bridge facility. With Consus being included in the group reporting, we would like to stress that only a mere 16% of the debt outstanding is related to ongoing development projects.Now I would like to hand back to Thierry for a view on where we see the portfolio in the future.
Slide 16. Thanks, Max. In order to provide a bit more color on where we intend to bring the portfolio, we have broken down both the portfolio and the development to our pipeline in a geographical as well as a sector split. As you can see on the left-hand side, the current rental portfolio has a strong focus on Berlin and only limited exposure to the other top 7 cities. One of the strategic driver behind going after Consus has always been to gain access to a high-quality development in Germany's top cities. With the whole development pipeline being in exactly the city, the future portfolio will have a more balanced profile, with 75% of the asset being located in the top 8 German cities. On the bottom of the graph, we show the composition of our current EUR 11.4 billion fair value of investment property, where we still have a large part of forward and condo sell projects and some nonstrategic asset today. With the completion of the development pipeline, we have this large portfolio to have transformed to a fully operational pan-German residential rental portfolio in the future.So let's have a look what the pipeline look like in more detail in Page 17. Looking at the map, this is exactly where you like to have your development pipeline located, to a project in Düsseldorf, Stuttgart and Hamburg, will hank towards the strategic pipeline and balance the current Berlin exposure within the top 7 city, as I illustrated on the previous page. In the table on the left, we give you a detailed overview of the 12 project in the pipeline. So now it's going too far to discuss all of them, but we have highlighted 6 of them in more detail in the appendix. The total book value of the pipeline is circa EUR 1.2 billion and exhibit a GDV of around EUR 5.2 billion, on which we expect to realize a EUR 4.5% yield on cost.Now I would like to give you some more detail on how the CapEx for the development look like on Page 18. I will reference on going into detail on each and every year individually. But in general, you can imagine that in order to produce a EUR 5.2 billion investment, we will have to make [indiscernible] next year. In the coming 5 year, we expect to invest about EUR 380 million of CapEx per annum on average. For the coming year, we have decent visibility on our CapEx requirement, which are ramping up to EUR 0.5 billion per year toward 2014 to 2020. The associated CapEx is expected to be funded on a project level with a 65%, 70% loan-to-cost and will bank on our active capital recycling strategy.Now Max will provide you some more insight on the synergy we have been able to achieve on Page 20.
Thank you, Thierry. The key pillar, enabling synergy realization is a post-merger integration process, where we, in a step-by-step approach, combined with 3 individual platforms to one fully integrated platform. More details will be provided in the presentation of the financial year 2020 numbers. For now, we're happy to announce that during 2020, we expect to be able to meet all synergy targets as communicated, and we'll continue to work on the realization of the 2021 targets. As you can see, the total operational synergies of EUR 21 million exceed our EUR 13 million to EUR 18 million target, and the run rate financial synergies will amount to EUR 50 million year-end. Overall, you can see that we are with close to EUR 71 million in expected synergies by the end of 2020 at the upper end of our guidance range of between EUR 62 million and EUR 72 million 2020. On the next slide, we would like to end with a guidance and the outlook for 2020. We feel confident to reiterate our previous outlook in which we anticipate realizing between EUR 280 million and EUR 300 million of reported net rental income, which should result in EUR 105 million to EUR 125 million for FFO 1.To summarize our achievements year-to-date, the acquisition of ADLER has been successfully completed, and Consus has been consolidated. Synergies realized at the end of the year are at the upper end of the guidance, namely EUR 71 million. And we successfully refinanced EUR 479 million of mezzanine debt, with an average cost of debt of 12%, leading to run rate interest savings of EUR 41 million as of now. We placed 2 EUR 400 million bonds to refinance existing facilities, thereby, extending maturities and lowering weighted average cost of debt. And finally, our outlook for 2020 is reiterated.Thank you all for joining us today, and I would like now to start answering the questions that have been submitted.
[Operator Instructions] So our first question is from [ Markus Schmitt ] from Prisma Investments. "One, could please provide an overview of what and when we will receive cash from asset sales and other receivables, e.g., essential claim, in the next 12 months, and what liabilities you have to address in the same period? And two, the EUR 195 million debt prolongations in 2020 will be assumingly concluded until year-end '20, correct?"
Thank you, Markus, for that question. I will answer it. So relating to your first part of the questions, the assets held for sale mainly relate to the disposal of the 5,000 units that we sold in September 2020, and we're expecting the net proceeds of around EUR 237 million. And after debt repayment, taxes and fees to be coming in by the end of December 2020, so this year. On the second part of your question, the EUR 195 million. That -- yes, correct. These maturities are in advanced stages of prolongation, and we are expecting to conclude those by year-end. We are very confident here.
Our next question is from Thomas Neuhold of Kepler Chevron. Yes. "Can you please elaborate in more detail on your capital recycling strategy? What amount of nonstrategic assets do you still have on the balance sheet? Do you plan to reinvest proceeds into the acquisition of existing assets or in your development of whole portfolio?" "Regarding the development to whole portfolio, thanks a lot for the Chart 18. This is very helpful. Just 2 questions related to the chart, when will your current development of the whole pipeline be fully executed? What could a similar chart showing the ramp-up of rental income from new developments will all look like? Some of your peers have provided a good guidance for likely portfolio reevaluation this year. Any views you want or can share on potential reevaluation of your portfolio?"
So let's answer the different questions. So first, we have earmarked less than 4% of our portfolio as nonstrategic and actively working on that, and we anticipate disposal in the first part of the year, 2021. But we are also continually reviewing and monitoring our entire portfolio as part of the combination between the different companies. Clearly, our focus to recycle disposal will be to fund ongoing development because this is our focus in the coming year, and this generates the more attractive return.In the timing of the build-to-hold pipeline, we have provided you with the schedule. So you see that 25% of the project could be delivered in the next 6 years. You have more than 50% of larger projects, which will need 7 to 8 years, and you have 25% where we have delivery of more than 8 years on that. In regard to portfolio revaluation this year, it's a combination of, for sure, the rent increase, but also yield compression because the real estate market has been very active in all segments of the market. And we have benefited outside Berlin of significant yield compression.
So our next question comes from [ Agu Alderon from Westport Capital. ] "Could you please give us color on timing of the potential domination agreement between ADLER Group and Consus?"
Thank you for the question, Agu. As you know, our Board has authorized us to initiate the process of entering into a domination agreement for the ADLER Group in April 2020 and which was then subsequently approved by our shareholders. The process is ongoing as planned. For Consus, we already own 65%, and we plan to initiate the takeout of the minorities in due course as communicated, and we would further evaluate the implementation of the domination agreement thereafter.
Our next question comes from [ Nitin Derra ] of Deutsche Bank. "One, what is the total amount receivable from Mr. Christoph Gruner, proceeds from the sale in May 2020, has it been fully received as of today? And two, what is the total portfolio uplift in quarter 3 on an LFL basis? Where is it coming from?"
So on the first part of the question, let me take this. So on the total receivable from Mr. Gruner, we had EUR 339 million as per Q3. In the meantime, we have closed this transaction, and we are settling in this December, so there will be no outstanding receivables towards -- by the end of the year as expected. On the second part, Thierry may give you some light.
On the valuation increase, it's mainly outside Berlin, where we have significant yield compression in our portfolio in Live 6, the whole Gottingen [indiscernible]. It's also linked to the investment we have made so far.
Our next question comes from [ Yago Espinosa de los Monteros from ICAMAP Advisory. ] "Can you please walk us through how the EPRA NAV is calculated? You include any Consus in there? Is there any transfer duties?"
Yago, let me take that question on the EPRA NAV. So that's obviously in our report -- is a more detailed breakdown as well as in the presentation. So we started a total equity that is attributable to the shareholders at EUR 3.8 billion, roughly, it includes the Consus part. There is a PPA section of Consus in our Q3 report also that shows you how Consus has been consolidated into our numbers, so it's part. And then we add some line items according to a product methodology like fair value of derivatives, deferred taxes and revaluation of trading properties to arrive to EUR 4.7 billion. We've taken our number of shares outstanding, that gets us to EUR 45.27 on a basic nondiluted level. In terms of NRV, then obviously you know there have been changes that adds just real estate transfer tax in line with the new APRA guidelines and to which we comply. That's hopefully answers your question.
Our next question comes from [ Alejandro Osman from Caladium Asset Management. ] "Yes. Could you give us an update on when we will get the IG rating?
Yes, Alejandro, thank you for that question. That is also something that we are very focused on. As you know, we are improving our key performance indicators to be in line with an investment-grade rating. If you look at the S&P note that was issued, you can see that there is an anchor rating that shows that we're BBB-. So the business risk profile and financial risk profile both derive that already. However, there are other modifiers that bring us to below investment grading. What I want to say here is, fundamentally, we are where we want to be, and we can improve from here. There are obviously certain measures that we will conclude this year that will bring us further to investment-grade. In our view, it is, however, for the rating agencies to opine on. We have open and good dialogue with the rating agencies, S&P and Moody's. And we remain, let's say, we will keep you updated on any process here, but difficult to put a timing on.
Our next questions are from [ Jousef Humana from Helicon. ]They are, "Could you elaborate on the path to improve the profitability, EBITDA margin from rental activities, 65.8% versus 5% to 10% higher at peers? When will you provide the FFO 1 guidance for fiscal year 2021? And when after the remaining process minorities?"
Our focus is on margin improvement. The sale of noncore portfolio this year, the improvement of vacancy and the rent increase have contribute. However, we are still to continue to work on the integration on both platform, and we will show in the H 2021 result, the first substantial benefit of this work. But as you have seen, we can anticipate good news because we are ahead of the plan on operational synergy. So for FFO 1 guidance, we will provide you guidance in the full year result. On Consus minority, Max?
Yes. On the question, when we would be offering to Consus minorities. We are, as I stated, we have the process ongoing and we'll be looking to either to close this year, still the process to take out the minorities at Consus as communicated previously.
Our next question is from [ Soren Jaskos from RDIT Advisor. ] Yes. "Is it correct that the EPRA NTA is likely to be EUR 5 below the EPRA NAV due to [indiscernible]? When will the offer for remaining Consus shares come? Unseen to be cautious as to the COVID impact and you were showing a different view, your Consus deleverage calculations at quarter 2, are they still valid? "What certainty do you give after the closing of the deleverage deals in your outlook? Why have you stopped a nice practice from quarter 1 and quarter 2 about the next steps? What will be happening next?"
So thank you for your question here, the EPRA NTA and EPRA NAV are obviously 2 separate methodologies from EPRA. The goodwill is roughly EUR 570 million attributable to the Consus part, and we have 107 million shares outstanding on a fully diluted basis. So indeed that's some EUR 5 a share, but it will not reduce the EPRA NAV because the goodwill will remain valid, so to speak. But yes, the goodwill per se is some EUR 5 a share. On the deleveraging path, that is still valid. That started in Q2 at the Consus level, and these were mainly the 2 transactions that saw some 25 projects disposed. So one, as I mentioned, we closed just recently and are in a post process of settling within December and the other one is to be closed in this month two. So we have everything closed by the year-end, which is a good achievement.In terms of next steps, yes, thank you for the comment. We will consider this in the next presentation and have the next step section. But for us, right now, the next steps clearly are streamlining the company, harmonization of the platforms and delevering path, that we have successfully started.
Our next question is from Nishant Nair from Société Générale. "What does the 53% LTV figure represents? On Page 14, it appears as net LTV ex-converts, while on Page 29, it is shown as PF LTV."
Yes. Nishan, thank you for that question. So difference between the 51.3% LTV, excluding convertibles and the pro forma LTV of 50.1% is the disposal of the noncore assets to Partners Immobilien Capital Management. So that is expected to be closed until year-end 2020, so this year. So that is the difference.
And another question from Soren Jaskos from RDIT Advisor.Yes. "Regarding portfolio, the planned increased for EUR 11.5 billion to EUR 13.5 billion by adding EUR 5 billion, imply EUR 3 billion disposables, is this correct?"
So thank you, Soren. So in the current balance sheet, we don't have only the investment property, we have also the land plot and inventory in relation to build-to-hold project, which is EUR 1.2 billion assets, which will be converting EUR 5.2 billion operating asset in the midterm. The reminder of what has to be sold is a condo cell, where we have presold 1/3. You have 4 lots sold, which are already pre-sale to international investor and you have remaining portion of nonstrategic assets, which is a bit more than EUR 500 million, where we are working to sell in the next 12 months.
We have a question from [ Robert Lidberg from Duva. ] "According to my calculations, you will need another round of capital increases in the next 5 years to meet your LTV due to the development of new projects. Retained FFO is not enough. Please elaborate."
Yes. Thank you for that question. Just to put very -- clearly, there is no need for any capital increases to fund any of the future pipeline. We have, so to speak, a self-funding business plan. So we have 60% to 75% in loan-to-cost that we receive from lending banks. Given where we are in terms of margins, 20% to 30%, that would still allow us to have -- to be in line with our 50% financial policy. The remainder is to come from selected disposals. Since there's one schedule in the presentation that elaborates, so it's an insignificant amount that is needed per year in terms of funding needs for fueling the pipeline. So there is no capital increase needed whatsoever for this.
The next question is from Kitarack Chapman of Revenio Capital."Please can you provide us an update on the voluntary exchange offer for the remaining Consus shares, as previously, it was communicated that this was anticipated to take place in quarter 4 of 2020."
Kitarack, thank you for your question. That is still the case. It's anticipated to be launched in this quarter 4 2020.
The next question is from Thomas Rothaeusler of Jefferies. Yes. "What's the NAV, excluding Consus goodwill?"
The NAV attributable to Consus is also visible in our Q3 report. Thanks for that question, Thomas. So EUR 570 million is the goodwill, and we have 107 million outstanding shares, so it's roughly EUR 5.35 delta. I hope that answers your question.
The next question is from [ Hans-Peter Kines, Street Alpha. ] "Please give us an update on the planned domination agreements on ADLER Real Estate."
Hans-Peter, thank you for your question on the domination agreement between ADLER Group S.A. and ADLER Real Estate. So we are in the process of generating the respective evaluations with a mandated auditing firms that do give the assessment here, and that may take into the beginning of next year. But rest assured, we are working on domination mentioned agreement as planned.
That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.