Adler Group SA

XETRA:ADJ

Earnings Call Transcript

[Operator]

Good afternoon and welcome to the analyst and investor presentation for the Q1 2021 results of Adler Group S.A. Presenters today are Mr. Maximilian Rienecker; and Mr. Thierry Beaudemoulin, Co-CEOs of Adler Group. [Operator Instructions] The link to the webcast is available on the website under Financial Calendar section. [Operator Instructions] Today's presentation is available for download via the icon on the left-hand side of your screen. If you are unable to join the webcast, you can access the presentation from Adler Group's website. This call will also be recorded and made available on the company's website after the call.I would now like to hand over to Maximilian Rienecker. Max, please go ahead.

[Maximilian Rienecker, CEO & Member of Management Board]

Thank you, and thank you all for joining us here today. And welcome to the earnings call of Adler Group for the first quarter '21. We would like to use today to reflect on main events of a very successful first quarter 2021. Through the acquisition of Consus, we have consolidated one of the major German property developers with market-leading technology and expertise. And we are completing a high-quality pipeline over the next 6 to 8 years, along with long-term benefits of increased scale, growth and profitability. On the left-hand side, you can see a snapshot of our main KPIs, both operational and financial, which has mainly improved compared to historical numbers. Going forward and in the medium term, when the Consus build-to-hold projects have been completed, these properties will significantly and sustainably impact our portfolio KPIs further. Clearly, the first quarter success stems from consistently following our main goals. First, we will continue to manage our core residential rental portfolio, grow our top line rental income whilst being conscious of costs. Secondly, we will optimize the portfolio and aim to recycle capital by selectively disposing nonstrategic assets and acquiring bolt-on core products. Thirdly, we will add value and drive growth through development projects in Germany's top cities and focus on modernization of the existing core portfolio. And last but not least, we will work towards a 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 in the future. Now please join me on Page 3. And here, please allow me to present a small summary of our achievements during the first quarter. Net rental income came out at EUR 84.3 million in Q1 2021 versus EUR 27.9 million over the first quarter in 2020. Clearly, this effect is caused by the consolidation of Adler into our accounts since the 9th of April 2020. Let's have a look at the underlying KPIs. The average rent per square meter increased by EUR 0.16 in a year compared to Q1 2021 to EUR 6.34 and has substantial further reversion potential. Despite the Berlin rent freeze legislation entering into effect, we were able to realize a like-for-like net rental growth of 1.3%. And vacancy decreased slightly to 3.8%, down 10 basis points compared to Q1 2020. We have achieved a FFO 1 of EUR 32 million in the first quarter '21, translating into a '21 run rate of EUR 130 million, which is in line with our guidance for 2021 of EUR 127 million to EUR 133 million. As of today, rent deferrals relating to COVID-19 stand at a mere 1.2% of our monthly rent, circa EUR 300,000, of which 95% relate to the commercial part of the portfolio. The Riverside development, our project near the [ Bon Holt ] in Berlin is now fully let after signing a contract with a co-living operator for all remaining vacant 213 micro flats. Clearly, we continue to invest in our portfolio and have spent EUR 1.30 per square meter on maintenance and EUR 6.10 per square meter on CapEx. Maintenance expenses were lower as we now have a more optimized structure. At the end of Q1 '21, after revaluation gains, the combined group held EUR 11.7 billion of real estate assets and embedded a net asset value of EUR 5.4 billion, which translates into an increase of 3.6% compared to the previous quarter, Q4 2020. For more detail on our EPRA NAV and also EPRA NRV, I'd like to refer you to the appendix. On to financing. At the end of the period, the weighted average cost of debt stood at 2.58%, which is already significantly below the 3.2% at the end of the third quarter when Consus was fully consolidated into the group for the first time. After the repayment of the high yield bond, we could decrease our financing costs further to 2.2%, and a significant reduction of around 40 basis points. The lower cost of debt has been mainly achieved by the refinancing enabled by the EUR 1.5 billion dual tranche bond issue, with a 5- and 8-year maturity at a weighted average coupon of 2.075% at the beginning of January, and further issuance at the end of April this year of EUR 500 million with a coupon of 2.25%. At the balance sheet date, the net LTV stood at 50.4%, excluding convertibles, a decrease from 50.7% as of Q4 2020 due to the recent positive developments. Now please allow me to hand over to Thierry on our operational performance on Slide 6.

[Thierry Beaudemoulin, Co]

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. Success with the sale of noncore assets, first, and success with letting. As announced in December, we successfully sold 1,605 unit noncore with a JV of circa EUR 75.7 million at a premium to latest book value. The disposal was closed on first April. After a challenging year with COVID-19 delaying letting of our co-living flats in our building development, Riverside, we have now rent out for long term all remaining 213 micro flats to a co-living operator and achieved a fully letting development in time and in budget. Moreover, I think we can be proud of our letting team with vacancy being reduced further to 2.9% on our top 13 cities. And in parallel, we have generated 3.8% rental growth outside of Berlin. Please join me on Page 7. On the left-hand side, you see the development of the GAV of our rental portfolio. At the end of the period, the portfolio reflect a fair value of our yielding asset of circa EUR 8.5 billion with just shy of 17,000 units. The value per square meter increased by EUR 62 per square meter in the quarter. This increase on a per square meter basis reflect 2 underlying movement: First, we have seen the impact of 2020 disposal or circa 6,600 units, which had a lower than average value per square meter than our core portfolio. On top, on the back of a rent increase and yield compression, we have recorded revaluation gain of circa EUR 200 million, which reflects 2.7% like-for-like value uplift for the first quarter. Now let's turn to Page 8. This page clearly show how well the rental portfolio is performing and that we continue to reap the benefit of our integrated asset management platform. Average rent per square meters increased by EUR 0.16 compared to Q1 2021 to EUR 6.34 per square meters. As we have indicated before, like-for-like rental growth is still affected by the rental rent freeze legislation, which has an impact on circa 37 of our rental portfolio. Outside of Berlin, we have been able to generate solid rental growth of 3.8%, and we are able to end the quarter on 1.3% like-for-like for the entire portfolio. For the year-end, following the cancellation of the Berlin rent freeze, we expect like-for-like rental growth to end up at around 4% for the total portfolio. The downward sloping trend of our vacancy rate continue as we posted 10 basis improvement to the Q1 [indiscernible]. This quarter, with a total vacancy of 3.8%, partly, this drop is caused by our intensive letting effort and our more selective CapEx policy. Moving on to Page 9. Clearly, one of the key pillars 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 in Q1 2021, we have spent less than EUR 34 million on CapEx and maintenance combined, which is largely in line with Q1 last year. CapEx investments were higher and maintenance lower compared to the same period as we are getting the benefit of larger scale and a more integrating approach over the portfolio. For the full year 2021, we expect our investments in our yielding portfolio to be largely in line with prior year. As always, please find a detailed overview of our portfolio metric on Slide 10. Berlin continued to account for almost EUR 4.6 billion fair value of our portfolio, which is more than half of the EUR 8.5 billion fair value of the German residential rental portfolio in operation. Together with other metropolitan area, the top 13 cities account for about 80% of the residential rental portfolio. Occupancy has improved year-on-year by 0.7% on the top 13 cities and by 0.1% for the overall portfolio, bringing the total vacancy to 3.8% at the end of Q1 2021. The average rental income in the top 13 cities show an average like-for-like net rental growth of plus 0.6%. As expected, LFL growth in Berlin was negative as the impact of the Berlin rent freeze crystallized, but still result in a solid 1.3% LFL rental growth in Q1. The rest of the portfolio continued to generate solid results and returned to a 3.8% increase like for like. Looking at reversionary versus estimated reversion value. The portfolio has solid prospect with reversionary in the top 13 city of 20.8% and 19.8% for the portfolio as a whole, taking into account cancellation of the Berlin rent freeze. Now I would like to hand you back to Max for an update on our financial structure on Page 12.

[Maximilian Rienecker, CEO & Member of Management Board]

Thank you, Thierry. Please allow me to give you a short recap on achievements in optimizing our financial structure and achieving extensive financial synergies over the last few months. After a very eventful and successful year 2020, we continued the pace and have been able to place 2 bonds in 2021. On the 8th of January, we placed a EUR 1.5 billion dual tranche bond with a 5- and 8-year maturity and a weighted average coupon of 2.075%. The proceeds were used to repay the remaining bridge facility that was in an amount of EUR 317 million, partly redeem EUR 330 million ADLER Real Estate AG notes maturing in December '21, and the remainder to refinance expensive debt. On 21st of April, we placed a 6-year EUR 500 million note with a fixed coupon of 2.25% under our newly established EMTN program to repay the Consus high yield bond. We continue to see support for attracting secured financing at very compelling rates. We have been able to attract EUR 500 million of secured instruments at a 1.53% cost of debt in Q1 '21. In addition, we secured a new syndicated RCF for EUR 300 million. Overall, we managed to refinance more than EUR 2.5 billion in the first quarter, which is clearly a big success and gives us tailwind for the upcoming maturities in '21 and 2022, where we can realize additional synergies, reduce our cost of debt and smoothen out our maturity profile even further. As a result of the consolidation of Consus, the weighted average cost of debt increased from 1.8% in Q2 2020 to 3.2% as per Q3 2020. And since then, average cost of debt has drastically decreased to 2.58% as of Q1 2021, following the successful refinancing of more than EUR 1.9 billion of mezzanine debt with an average cost of debt of around 10%. The very positive improvement was also reflected in the average debt maturity profile, which was extended to 4.3 years as at the end of the first quarter. Since the end of Q1, we continued to simplify our debt structure with early repayment of EUR 450 million Consus high yield bond in May 2021 and achieved further improvement in debt KPIs with an average cost of debt reducing to 2.2% and the average debt maturity increasing to 4.4 years. Last year, we realized financial synergies in an amount of EUR 63.8 million. Consequently, outperforming the targeted EUR 54 million in 2020 by EUR 9.8 million. This year, we have already reached EUR 65 million in annualized financial synergies, including the refinancing of the Consus high yield bond in May. '21. In total, we have achieved approximately EUR 129 million in financial synergies since the acquisition of Consus in July 2020 until today, which is well on track with our stated target of EUR 130 million for '21. Overall, this is a great success, mainly reflecting the fact that we could refinance a higher volume at lower financing costs. Now please follow me on to Page 13. At the end of Q1 2021, our LTV stood at 53% or 50.4% when adjusting for the outstanding convertibles, and has decreased by 110 basis points and 90 basis points, respectively, since first-time consolidation of Consus in Q3 2020. This positive development reflects our sustainable financing strategy, which targets an LTV ratio of 50% in the midterm. Clearly, we adhere to our goal to deleverage the company further. Further strengthening the KPIs on this slide remains a top priority, and we foresee ample opportunity to realize these improvements going forward.In the medium term, we target a weighted average cost of debt of around 2% and a total amount of debt of circa EUR 6.5 billion. The debt reduction to EUR 6.5 billion can be achieved by selling mainly nonyielding development projects and does not include any capital measure. Moving on to Page 14. After closing the books for the quarter, we successfully placed a EUR 500 million bond with a 6-year maturity and a 2.25% coupon at the end of April. The proceeds were used for repayment of EUR 450 million high yield bond with a coupon of 9.625%. As you can see, our financing activities in '21 further improved and smoothened our maturity profile since year-end 2020, bringing maturities for the rest of '21 down to mere EUR 598 million, which is well covered by our cash balance of around EUR 740 million. The sources of funding chart indicates the diversified split between the different financing instruments. Where more than half -- or EUR 4.6 billion in absolute terms of our financial liabilities are unsecured, illustrating a well-balanced portfolio and an unchanged trend compared to Q4 2020 figures.Now I would like to hand you back to Thierry for a view on where we see the portfolio moving in the future.

[Thierry Beaudemoulin, Co]

Thanks, Max. Please follow me to Page 16. 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 developmental pipeline in geographical as well as 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 top 7 Germany. One of the strategic drivers behind the acquisition of Consus has always been to gain access to high-quality development in Germany top cities. With the whole development pipeline being exactly in these city, the future portfolio will have a more balanced profile with circa 75% of the assets being located in the top 7 German cities. On the bottom part of the graph, we show the composition of our EUR 11.7 billion fair value of investment properties, where we still have a large part of forward and condo sales project and some nonstrategic assets today. With the completion of the development pipeline, we envisage the portfolio to have transformed to a fully operational pan-German residential rental portfolio of around EUR 13.2 billion in the future. So let's have a look what the pipeline looks like in more detail in Page 17. Looking at the map, that's exactly where you would like to have your development pipeline located. The project Düsseldorf, Stuttgart and Hamburg will anchor the strategic pipeline and balance the current Berlin exposure within the top cities, as I have illustrated on the previous page. In the table on the left, we give you a detailed overview of 11 of our high-quality projects in the pipeline. The total book value of these build-to-hold project is circa EUR 1.3 billion, and exhibit a GDV of around EUR 4.7 billion on which we expect to realize a 4.3% yield on cost. Thank you. So following with me, now Max will touch upon our ESG strategy on Page 19.

[Maximilian Rienecker, CEO & Member of Management Board]

Thanks, Thierry. Let us indeed move on to the next topic, ESG, which has become an ever more essential part to our business. As you can see, we have, therefore, implemented ESG as 1 of our 3 strategic pillars. And for the next years to come, ESG criteria will obtain a key role in all our decision-making processes. In addition, we are closely working together with our stakeholders and various agencies to establish a prudent ESG strategy. We have published our first ESG report earlier this year, which is available in the Sustainability section of our website. Our increased focus has also already resulted in our first measurable ESG target, which is to reduce our CO2 emission within the whole portfolio by 50% until 2030. With ESG being such a key role in our future strategy, our confidence to reach or even outperform this target is very high. This target is further supported by a set of various goals to improve our entire organization and business. To make our goals relatable to the rest of the world, we have also chosen several United Nations Sustainable Development Goals to commit to, as shown on the next page. From the United Nations Sustainable Development Goals here on Slide 20, we have chosen a total of 8 goals to focus on. We believe we can bring a real impact towards these topics, and Adler Group's management team is fully committed to bring the organization towards ESG excellence. Over the next few years -- or sorry, over the next few slides, I mean, we provide in more detailed the 6 pillars and the road map for the reduction of CO2 emissions by 50%. Let us now shift our focus to the near future and move on to our 2021 guidance. It's on Slide 25, guidance and outlook for '21. In light of the disposals of 2020, Riverside, our Berlin project now being fully let, and competitive lending, we feel confident to reiterate an ambitious outlook in which we anticipate realizing between EUR 325 million to EUR 339 million of reported net rental income, which should result in an FFO 1 of EUR 127 million to EUR 133 million. The improvement represents an increase of circa 21% besides the fact that we sold yielding assets in 2020 with almost EUR 400 million worth of book value. Thank you all for joining us today. And I would like -- now like to start answering the questions together with Thierry that has been submitted. And also Mr. Sven Frank, who has joined us today.

[Operator]

[Operator Instructions] And we already have a couple of questions. First question is from Mr. Bernd Hashemian of Kroos Vermögensverwaltung. Last quarter, you estimated the full year impact of Mietendeckel as EUR 8 million. Therefore, it is difficult to understand why guidance for 2021 was reiterated and not raised. Was there a noncommunicated negative effects that offset the positive effect? A breakdown of the outlook as provided last quarter would have contributed to a better understanding.

[Thierry Beaudemoulin, Co]

So that the Mietendeckel's cancellation is very positive. The legal situation is clear for landlord and tenants. The political and social situation need to be handled with care. And you have noticed that most of our competitors have decided not to claim back the Mietendeckel rent. Our position in Adler is to be very careful to take the individual situation of the tenant and leave at least 18 months to the tenant to pay back this amount. So we expect that out of EUR 8 million rent decrease due to Mietendeckel, we will collect back at least 80%. But part of this amount will impact 2021 and part of this amount will be in 2022. So we will update each quarter on the progress made on -- which will allow us to be better than our guidance.

[Operator]

The second question comes from Kitarack Chapman of Revenio Capital. Will Adler pursue a public exchange offer for remaining Consus minority shareholders? Will Consus shareholders be given the opportunity to exchange their shares into Adler Group shares at the exchange ratio of EUR 0.272, in line with previous transactions?

[Maximilian Rienecker, CEO & Member of Management Board]

Thank you, Kitarack, for the question. So our Board has authorized us in April 2020 to initiate the process of entering into a domination agreement. So a domination agreement between Alder Group and Consus is planned. The process is ongoing and the conclusion of the agreement will, of course, require approval from Adler's -- from Consus' general meeting. So as of today, we plan the domination agreement in 2021, which will be, of course, another step in our integration process. But there is no other plans for a squeeze out at the point or take out of the remaining shareholders in the Consus. So the exchange offer has become obsolete.

[Operator]

The third questioner is Mr. Thomas Neuhold of Kepler Chevreaux. He has 4 questions. First question. What impact do rising raw material costs have on the margins of your development-to-sell business and on your development to hold portfolio? Second question, what strategic implication has the combination of Vonovia and Deutsche Wohnen for you and for the sector? Third question, upcoming elections, how big is the risk of negative regulatory changes after the next election? And the last question, what would have been the rental income in Q1 if you would have adjusted it or court rulings on the rent freeze law in Berlin?

[Thierry Beaudemoulin, Co]

Thank you, Thomas. So the first question on the impact on the increase of raw material on our development. On our forward sales project and our condo project, they are under construction. And contract have been signed several years ago, so there is no impact on that. On our upfront sale project, which are mainly commercial project, we sell them as they are without any construction activity, only for some project planning permission or preplanning. So there's also no impact. On our build-to-hold project, we will start construction in the next 3 years. We anticipate a limited impact on raw material increase because this is only on some material. And on the other hand, we will have labor cost, which we don't expect to increase. And we expect also margin of construction company to decrease slightly following the COVID-19 situation. We still have in our construction development budget enough miscellaneous budget. And also, we didn't index the rent on our GDV. So if we have a few percent increase on cost, we may preserve the margin with higher GDV. But we have, of course, to follow very closely the situation. The second question was the combination of Vonovia. So this is not the first time that this company are trying to go together. I think that's a good sign of the evolution of the Berlin situation where Adler has more than 50% of our portfolio. They will both continue to do like us, build-to-hold development project, which are both doing that and also managing property all over Germany. So I think this is a good sign of the strength of the German residential sector. And there are space for a pure German player like us and European player like the combination of Vonovia and Deutsche Wohnen. They intend also to send some assets to the Berlin City, which is also positive in the context of the election to calm down the situation in Berlin. So I think, overall, this is a good strength for the sector. Third question regarding the evolution of the regulatory environment following the election. So this is difficult to forecast what will come out from the election. But we are confident on basic scenario that the Green and the CDU will be able to work together. And with the ESG ambition, I think we have understood that rent increase needs to be done in order to finance the energy transition. So we are positive on what could be the outcome there. And last question was about the Berlin rent freeze.So if we have adjust starting in Q1 our rental income, it would have been for the first quarter, EUR 1.6 million. But as we have -- as I have mentioned, we will take time to adjust, and we will give time to tenant for that in order not to raise political problem. Thank you.

[Operator]

We have a couple of more questions. The next question comes from Mr. Nishant Nand of Société Générale. Could you please clarify the time line for reducing the debt to EUR 6.5 billion? And is that a total debt or total debt level?

[Maximilian Rienecker, CEO & Member of Management Board]

Thank you for the question. So the plan is to reduce the debt figure to EUR 6.5 billion from the current EUR 8 billion roughly by the end of the year. This is mainly achieved by crystallizing selected financial assets throughout the year, which are certain [ rent blockers ] or receivables that we will be crystallizing towards the end of the year as well as, of course, disposing of some nonstrategic, nonyielding development plots. This will bring us, as expected, to the EUR 6.5 billion of debt towards the end of the year.

[Operator]

The next question comes from Mr. [ Thierry Ferero ]. Despite very good operational and financial, the shares have been stable at [ 1 of 2 ] of the NAV for more than a year. What concrete steps the management intends to take in order to close discount?

[Maximilian Rienecker, CEO & Member of Management Board]

Thank you for the question. That is indeed a very good question. Of course, right now, we are trading at a significant discount to NAV. We have seen that for the last 12 months, and I think we have shown that we have made very good progress on our targets. So quantitatively or fundamentally, we are progressing very well on our delevering or refinancing measures. There are, of course, certain more qualitative aspects that we will have to bear for the next time. I think we have seen that also on governance, we have made very good progress. It is a matter of time. The management believes that the gap between share price and NAV will close down.

[Operator]

The next question comes from Mr. Alexander Oetzmann of Paladin Asset Management. Can you give us a bit more information on the milestones you will achieve for the Consus build-to-hold portfolio in 2021?

[Thierry Beaudemoulin, Co]

So on this project, so we have start the construction activity in our project next to Stuttgart. And we will start also after summer in Düsseldorf, in our project Grand Central, where the building permit is approved. And we expect building permit to be ready end of the year in Hamburg, Holsten. So we are progressing well in our development activity. And the other builds, we are intensively working in the planning activity. So everything is progressing according to plan.

[Operator]

And the next question comes from Mr. Clark McPherson of Pictet Asset Management. Following agreement with Vonovia reached with Berlin in order to complete merger with Deutsche Wohnen, is there a risk that other real estate owners in Berlin, such as Adler, could come under pressure to make a similar agreement, specifically in relation to the limit on rent increases?

[Thierry Beaudemoulin, Co]

So we are always in close discussion with the authority about our Berlin portfolio, which represents 50% of our portfolio. But the situation of Vonovia and Deutsche Wohnen is they need authorization from the city and [ prevention ] right. So that's why they have agreed such measure. So we are not in this case, and we don't intend to do that. And the city of Berlin perfectly understand that.

[Operator]

Okay. And the next question comes from Mr. [ Marco Ford ], an independent financial consultant. Adler's EBITDA, NRI margin are 64% is 5 points lower than the equivalent margins of Vonovia, excluding added value. What is your target? And which actions are planned to improve your cash conversion? Profit continues to be still lower than the revaluation of assets. What do you expect to make a profit from operations?

[Maximilian Rienecker, CEO & Member of Management Board]

Indeed, the EBITDA margin of 64% is roughly 5 percentage points lower than of our peers. I think we have progressed well in addressing that point by disposing less efficient units. For example, the 5,000 units we disposed of last year as well as the 1,700 units, which we disposed of in beginning of this year 2021. They both will see an improvement on our EBITDA margin. That is, of course, something which already you can see improved slightly towards the last quarter. And we can expect further improvements in the next few quarters coming. So of course, we are aligning ourselves towards the close to 70% EBITDA margin, which is also our goal for this year.

[Operator]

We still have a couple of questions left. The next question comes from Pranava Boyidapu of Barclays. In the context of liability management, can you give us your plans for the existing Adler bond? I understand a potential domination agreement can reach to pari passu status. But would the Adler bonds continue to exist in the current format?

[Maximilian Rienecker, CEO & Member of Management Board]

Good question. So indeed, that is the case. So the domination agreement, which we pursue between Alder Group and ADLER Real Estate AG will see that the bonds will be ranked pari passu. They will still exist at the respective level. Of course, as we progress and as the bonds mature, we will be looking to refinance them.

[Operator]

Okay. And we have one more question. It comes from [ Suran Jethro ] of [ Right Adviser ]. Page 37, other expenses, EUR 16.9 million. What for? Page 38, difference between net interest and FFO 1 and FFO 2. Why? Corporate expense is EUR 33 million. Is this the new going level per quarter? With EUR 8.4 billion in debt, an average COD of 2.25% should result in finance expense of EUR 190 million or 50 per quarter. Page 52. Finance income, EUR 22 million. What is this? Please explain about Consus total GDV development, what projects are for sale. Building costs are going up. Implications for expected yield on cost for build to hold.

[Maximilian Rienecker, CEO & Member of Management Board]

Thank you for that question. Thierry, you will probably take the GDV question of it. I will take the first part. So Page 37, other expenses. These are all related to adjustments for one-off costs, which include items that are of a nonperiodic nature, recur irregularly and are not typical for operations or are noncash effective. So that is for the first part. The second part, difference between net interest and FFO 1 and FFO 2. Of course, net interest of FFO 1 are interest expenses relating to our rental business, while the net interest in FFO 2 also includes the interest expenses for the development part. On the corporate expenses, yes, indeed, that is a more efficient level than the previous quarter. The EUR 33 million, I guess, of course, we should be expecting an even lower amount due to synergies, operational synergies amounted to EUR 49 million in -- or will amount to EUR 49 million in 2021 according to our view. On the debt side, coming down from the EUR 8 billion to EUR 6.5 billion, of course, will have a significant impact on reducing interest expenses. But for now, of course, if you were to do the 2.25% cost of debt on the EUR 8 billion, then yes, you would be expecting some EUR 190 million in interest. Yes. Of course, I think important to note is that some of the financial costs here will be even capitalized. On the finance income of EUR 22 million. This relates to mainly changes in fair value of derivatives and also to valuation effects from the Consus financial liabilities. So when we are, for example, releasing purchase price allocation step-ups to the P&L because of repayments of loans. On the GDV question, maybe, Thierry, you can take this up.

[Thierry Beaudemoulin, Co]

Yes. So our build to sell our upfront sell project are mainly commercial project, for instance, an office project in Frankfurt, Frankfurt [ Ostend ]. We have a mixed also office project, which is finishing construction in [indiscernible]. We have also the so-called part of the [indiscernible]. So we intend to sell this project within the next 18 months, and we are targeting this year around EUR 500 million profit from sale of noncore projects. In regard to building costs, as I have mentioned, might -- some material costs are increasing, but labor cost and margin are not expected to increase. We still have room in our budget with miscellaneous and with also the possibility to index the rent in our forward sales. And for the rest of the construction activity, contract have been already sold. And with the new size of the group, we will be able also to be more efficient in terms of purchase because we will have around EUR 400 million CapEx per year. So we will be a strong player in the market. Thank you.

[Operator]

There are no further questions in the queue. And that will conclude today's presentation. Thank you for your participation, ladies and gentlemen. You may now disconnect.