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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good afternoon, and welcome to the analyst and investor presentation for the 2021 Half Year Results of Adler Group S.A. Presenters today are Maximilian Rienecker; and Thierry Beaudemoulin, Co-CEOs of Adler Group. As we will be using the webcast [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 Arla Group's website. This call will also be recorded and made available at the company's website after the call. I'd now like to hand over to Maximilian Rienecker. Max, please go ahead.
Thank you, and hello, everyone. I hope you all have enjoyed your holidays, and I would like to thank you for taking the time to join us in our H1 2021 call today. Apart from COVID-19, which is still spreading in Germany, there have been serious flooding accidents in a number of countries, including Germany last month. We regret that nearly 200 people lost their lives due to the indirect result of global warming and believe that we, as a housing company, should play an active role in reducing CO2 emissions by 50% in 2030, to which I will come back later. So let's go to Page 3 of the presentation first. Adler had a very good start of the year, resulting in very strong H1 '21 figures, allowing us to increase our guidance for full year '21, replacing the initial NRI range of EUR 325 million to EUR 339 million, to now EUR 340 million to EUR 345 million, and the FFO 1 range of EUR 127 million to EUR 133 million to now, EUR 135 million to EUR 140 million. Our net rental income increased by 52% to EUR 174 million as a result of the acquisition of other real estate and the strong like-for-like rental growth of 4.3%. The run rate NRI is currently EUR 334 million, which excludes about EUR 12 million of NRI from full commercial real estate. FFO 1 came out at EUR 67.8 million, of which EUR 32.3 million in Q1 and EUR 35.5 million in Q2, resulting in an FFO run rate of EUR 139 million, reflecting the impact of synergies kicking in during the year. Our NTA increased by 11.4% to now EUR 42.12, reflecting the 6.4% like-for-like fair value uplift. Our LTV is stable at around 54.7% year-on-year, which is a good achievement since its first -- it first went up at the end of 2020, following consolidation of Consus, and will decline towards the end of the year as a result of sales transactions, which we are concluding in the second half of '21. Our average cost of debt is showing a similar pattern following consolidation. So first, moving up and coming down thereafter. Recent refinancings have resulted in a significant reduction of our cost of debt from 3% at year-end 2020 to 2.1% currently. We have placed more than EUR 2 billion of bonds in January and April and are having -- and have attracted EUR 500 million of secured bank debt, realizing significant financial synergies. S&P finalized its analysis again showing a stable outlook as published in August this year. The average in-place rent of EUR 6.55 per square meter is the second highest of the larger listed companies in Germany, reflecting the quality and the locations of our portfolio and likely will grow to the highest figure in the sector following development completions. The vacancy last year was temporarily high at 5.6%, following the completion of the River side, which is our Berlin project development, which by now is fully leased up, improving our occupancy nearly 1.8%. Those developments we are building for our strategic whole portfolio are progressing well, being at 36% of completion, whereas 3 condo projects, all of them being 100% sold, are close to delivery to the new owners. In our report, More Future Per Square Meter, we explain our ambitions for ESG. Last month, we received a 10.7 score from Sustainalytics, ranking Adler Group in the top 5 percentile of more than 1,000 real estate companies globally. Capital rotation will continue, whereby we sell nonstrategic assets, which totaled EUR 503 million year-to-date. The proceeds of these sales are being redeployed in our development pipeline projects, which we like to add to our yielding residential portfolio. I would like to turn now to Page #4. Apart from the figures I discussed on the previous page, I would like to highlight that our yielding portfolio has grown by 11.2% year-on-year, which is coming from revaluation and investments we've made into the portfolio. Our development pipeline has grown significantly year-on-year following the consolidation of Consus, increasing our balance sheet to a total of now EUR 15.5 billion. Net Rental Income and FFO 1 have increased both by more than 50% year-on-year, following the acquisitions of Adler Real Estate and Consus, which means that going forward, you will see the like-for-like rental growth currently being 4.3% and completions from the development pipeline and sale of core nonstrategic assets being the major drivers for NRI. The 13 development projects we envisage to add to our strategic yielding portfolio would add nearly 10,500 rental units with a total gross development value of EUR 5.6 billion, of which EUR 3.2 billion CapEx is required and sales of nonstrategic projects will cover this until early 2025. On the debt side, we do expect further decrease in costs following the refinancing of the expensive legacy debt and are working on improvement of our rating, reflecting the low risk and high quality of our portfolio. Please note that the EUR 5 billion of NPA, which is NAV after deduction of goodwill, relating to the Consus acquisition, is twice our market cap today. Moving to Page 6. I would like to summarize our position in the German residential market. Our yielding portfolio has a book value of EUR 8.9 billion, with 20% reversionary potential, underpinning high future like-for-like rental growth. Today, we are at the fourth -- we are the fourth largest company in Germany and potentially soon the #3. We are unique as we are the only company with such a valuable pipeline in the top 7 cities. Our EUR 1.7 billion land bank will result in circa 10,500 new residential apartments with a gross development value of EUR 5.6 billion. We have already started construction for EUR 705 million and have received new permits for the Hudson project in Hamburg and Grand Central in Düsseldorf. There's good progress being made on the EUR 2 billion build-to-sell portfolio, which includes forward sales, condos and strategic sales. More than EUR 1.5 billion of cash will be released from these sales and will fund the build-to-hold pipeline until the beginning of 2025. The complex integration of our companies is well on track, and synergies are being delivered ahead of schedule and larger in size resulting in an increased FFO 1 outlook. We are proud about the ESG rating, and we'll continue to work on improvement of our investment-grade credit profile, lowering loan to value. Let us move to the next page, Page 7. When looking at Adler's portfolio and development pipeline, it is very clear what the direction of the company is. Via our development pipeline, we will grow from a EUR 8.9 billion yielding portfolio today to a EUR 17.1 billion yielding portfolio, of which almost 70% will be located in Berlin, Düsseldorf, Stuttgart, Hamburg, Frankfurt and Cologne. The development projects are already secured, land is already financed and in certain parts, construction is already ongoing. We can finance all construction CapEx up to early 2025 without need for external capital contributions. There will be EUR 1.5 billion of equity return from sale of EUR 2 billion worth of developments, which entail only EUR 500 million of liabilities, including debt and prepayments. These net proceeds from sales will be received earlier than the CapEx for construction will and can be deployed. Following completion of the development pipeline, our annualized net rental income should grow by 80% from EUR 334 million at H1 2021 to just over EUR 600 million. EBITDA will double to EUR 460 million while significantly increasing margins as a reflection of higher occupancy, lower maintenance costs and lower margin management costs. The lower interest costs will even result in higher growth of FFO 1, growing by nearly 160% to circa EUR 350 million. The LTV will decrease to less than 50%. Let me also explain how you get from EUR 8.9 billion to EUR 17.1 billion yielding assets since the big figures should not scare you. Today, we have $8.9 billion and EUR 1.7 billion of build-to-hold. We will spend EUR 3.2 billion of CapEx to complete the development pipeline until 2030. On top of that, we expect EUR 1 billion of development profits, resulting in a gross development value of EUR 5.6 billion, which brings us to EUR 14.5 billion, whereby the remaining EUR 2.6 million -- remaining EUR 2.6 billion will come from the revaluation of the portfolio based on a 3% annual value increase. Let's move back to our day-to-day operations, which will -- which allow us to achieve our long-term strategy and go to the next page, Thierry, over to you.
Thank you, Max. And also warm welcome to all of you from my side. Sale of rental asset is on track, with EUR 76 million disposal to a listed peers at a slight premium to book value at year-end. We have sold another EUR 19 million year-to-date. Build-to-sell developments are also progressing very well with the sale of circa EUR 410 million of assets this year, of which a large EUR 185 million fee development at prison value. In addition, 3 forward sale projects with a total GDV of EUR 172 million will be completed by year-end. Furthermore, 3 condo projects will be complete and hand-over to the new owner for a total of EUR 139 million. The circa EUR 410 million of sales will result in a significant equity return, whereby the forward sale and the condo project have been self-financed by the new buyer. Overall, the development pipeline of Adler might see large, all construction is at low risk since either we own the resi assets in top 7 cities or the buyer will finance the construction. We have decided to keep 2 additional resi developments in the top 7 cities with permit and early completion in 2023 for our build-to-roll pipeline. We are also very pleased that the municipality has given us the new band development plan for the Holsten Quartier in Hamburg. This is a very important development project for the city and for Adler. The project is currently in our book for EUR 364 million and [indiscernible] for over EUR 382 million of construction costs. It means that and our team are working hard on the construction permit, allowing construction work of this project to start in 2023. The yielding portfolio saw an increase in value of nearly EUR 500 million or EUR 6.4 million in H1 2021, mainly coming from 4.3% like-for-like rental growth and investment. The Riverside development in revenues could fully let at an expected annual rent of EUR 10.4 million. High-quality projects like Riverside in Berlin, which account for circa 3% of our total brand, will become the cornerstone of our portfolio in the future. And our successful letting campaign shows that we will be able to get the full occupancy at attractive rent and keeping overhead costs low given the high concentration of the apartment. Vacancy of the portfolio is back to structurally low, 3.8% level and will become lower following further development completion and leases. Now I would like to take you through the detail of our rental portfolio and the development portfolio in the next 2 chapter. Let's move on Page 10. Our portfolio is constantly in motion despite the number of units remaining the same. And in the last 12 months, we have sold more than 6,000 units located in several cities and [ re-enlisting ] the proceeds in 3 high-quality developments in Berlin, Potsdam and Buch. We will continue to sell nonstrategic assets, reducing the number of cities we are investing in. And we invest into our development in top 7 cities, continuously improving the quality and the concentration of our portfolio resulting in a higher EBITDA margin. Let's go to the next page. In 2018, we have been selling the less strategic part of the portfolio, resulting into higher policies being reflected in the increase in value per square meters from EUR 1,550 to just over EUR 2,000. This figure is still well below cost income, which, together with land price, has been increasing significantly over the last year. The like-for-like sale value growth have been 6.4% in H1 2021 alone, which equaled allow the entire value of lease in H1 2020 when there were still large uncertainty around the Berlin Mietendeckel. We do believe that the rental growth and further yield contraction will continue to drive value going forward. Moving to Page 12. You see that resi ramp up are currently EUR 6.55 per square meter on average, which is after the combination of Vonovia and Düsseldorf, the highest in Germany. Over time, we anticipate that Adler will gain the highest rent per square meters following development completion in the top 7 cities of very attractive projects. The 4.3% like-for-like rental growth is clearly accelerating following the lift of the rent freeze in Berlin and Brazil from 1.8% indexation and 2.6% increase from relating at market rent combined with smart CapEx investments. On Page 13, you can see the rapid decrease of the vacancy, which is mainly a result of the full lease up of Riverside. Going forward, you will continue to see temporary increase in vacancy after completion of the development. However, the trend will clearly be downward as we expect all new projects to be fully let, given their strong location. Berlin, which is the largest city in our portfolio at 23.5% reversionary potential in relative drive. When looking at the total contribution of Berlin, circa EUR 30 million were close to 50% of the total EUR 6.6 million reversionary is driven by Berlin. Of the top 13 cities like Wolfsburg, Göttingen and Duisburg have even significantly higher reversionary potential, ranging from 24% to 36%. In this city, we will make small CapEx investments to capture the full reversionary potential [ at release ]. Let's talk more about CapEx on the next page. Average maintenance level on our portfolio has come down as a result of procurement optimization and development completion. CapEx level has been increasing from EUR 8.1 million per square meter in the first half of 2020, which were historically low and a reflection of the Berlin Mietendeckel restriction to the current EUR 10.7 per square meters. Going forward, we will increase slightly our CapEx level in attractive locations such as Wolfsburg, Göttingen, where we have project ongoing where we can see if it is to increase rent as shown on the previous page. Let's go to the next page to dive more into the metrics of different cities. With vacancy at 3.8% for the entire resi portfolio and only 2.8% in the top 13, we are getting closer to the minimum level of vacancy resulting from turnover and strategic vacancy for CapEx renovation. Like-for-like has been almost equal between the top 13 city and the other city, which shows a national-wide increase of rent. We expect to continue to show like-for-like rental growth, which will be significantly exceeding deflation as the reversionary potential is clearly evident throughout the portfolio. Spending CapEx in the smart and energy will result in higher quality level, higher return and more COP reduction. Please let me discuss more details on our development pipeline in the next chapter. Like Max already mentioned during the introduction, we are increasing our focus on top 7 cities via completion of our built-in prices. This is the lowest risk of our pipeline as we want to increase our portfolio in these cities, and we will keep this asset for ourselves. Via our bill development, we can increase our portfolio in the best location in Germany without the need to be active in competitive auction process, already seen EUR 1 billion of value of lease in the development in total. The forward sale in condo sale are good risk return project since the buyer prefunds the construction. Currently, more than 60% of the entire pipeline is going to [ prefund ]. We only start forward sale project on [indiscernible] like the name already in line, so we don't run a risk. Where most those condo or delivery this year are sold, but we strategically slowed down the sales to capture higher sales price later in the construction process for the remaining of the project. The nonstrategic portfolio is a rundown portfolio of core development that doesn't have a fit in our strategic portfolio. Circa 60% of these assets are sold or in advanced stage of negotiation. Proceeds from the sales will be reinvested in our build-to-own portfolio. The forward sale condo sales and non-strategic portfolio has a total balance sheet value of EUR 2 billion and EUR 1.5 billion net cash generation once sold. On Page 18, we will go through the project risk made in the development pipeline in more detail. Almost 1/3 of the development pipeline has been sold, which mainly includes nonstrategic projects, forward sale in condos, which are to be completed first. Our build-to-hold increased. We have EUR 0.5 billion of acquisition and growth results in first conversion from the development company to the holding portfolio. So EUR 300 million of CapEx have been spent, and revaluation was EUR 200 million, resulting in total value of the development pipeline of EUR 3.7 billion at H1 2021. In the next 2 page, I would like to show the progress in the build-to-hold portfolio. As you can see on Page 19, the 13 projects will be the heart of our portfolio in the coming years only being located in top 7. Completion of the total build-to-hold pipeline at circa 10,500 units to the housing stock in high demand areas and to our yielding portfolio. The expected 4.1% yield on cost clearly show the upside value of the development portfolio, which together with the fact that we keep the asset ourselves resilient in limited risk.Whereas in other countries, getting a building permit is sometimes a question, this is not the case in Germany. There is a significant housing shortage in all top 7 cities and all of our projects are centrally located. So far, none of our projects have not received permits. However, the construction team and the municipality are diligent, meaning it's not a question if, but more a matter of time until we obtain the permit. Currency, construction is ongoing for EUR 705 million [ of GDV ] company, of which 36% of the construction is completed. We are pleased that we received the new budget development plan from the respective handler. We continue to work closely with the city on the building permit, which should allow us to start construction of the 1,200 apartments in 2020. The 2 VauVau development project have been transferred from the forward sale team build to pipeline given their large residential component and strategic location in Düsseldorf and in Cologne, adding rental income early in 2022.Let's move to the next page for more detail on timing of our build so far. There are 5 of the 13 build-to-hold projects currently under construction, which include the Schwabenlandtower in Stuttgart, which will be completed in 2022. The 2 VauVau project in Cologne and Düsseldorf, which together with the Grafental development in Düsseldorf will be completed in 2023, together with the Wasserstadt in Berlin to be completed in 2024. These 5 projects has a GDV of EUR 705 million and are reflected in our order book at EUR 370 million. The estimated profit will be circa EUR 50 million. The margin of the remaining project on the build-to-hold section is, on average, at least 20% as a result or significant higher yield on cost than yield on the market. In some of the cases, you can see that we have already started ground work prior to the starting of construction in order to accelerate the process of construction at a later stage. On the next few pages, I will show where we will get our equity release to finance our build-to-hold development. The 10 forward sales projects are also to German and international additional investors. 4 of them added a book value of EUR 150 million, will be completed between year-end and will result in a cash release of in-place equity, debt and future projects. The remaining 6 sold projects are all under construction, whereby the buyer is refinancing the majority of the contract.Let's move to the next page, which again includes prefinanced project. Our condo projects are a great way to increase the owner occupied level in top 7 cities, while generating good return as a future owner, which finance the majority of the development implying that we have very little risk. The 3 development that will be completed in 2021 are all 100% sold. The 2 Berlin project with completion 2024, were already parted we sold when we bought the project. We are almost top in presell are we rightly anticipate further increase of the project. Going forward, we will start the sale a bit later, releasing unique [ reverie ] maximizing profit.Let's move to the next page on strategic sales. At H1 '21, we had 16 core development projects, which are all call, however, not strategic to Adler. 3 have been sold in the last 2 months at a profit book value. Following the sale of Frankfurt 2stay and the Arthur-Hoffmann-Straße, we announced the sale of an incremental EUR 198 million of development sales. This, together with assets on which we have ongoing discussion, which account for circa 60% of the book value of our entire [indiscernible]. Given the relatively low leverage of EUR 50 million debt on the development, the total equity release from this sale is expected to an amount of circa EUR 1 billion. Together with the net proceeds from the forward and the coming sale, we can redeploy EUR 1.5 billion into our build-to-own pipeline, which I will show on the next page.We will be recycling the cash proceed from our sales, condo sale and forward sale, as shown on the previous page, into our build-to-hold development type. The EUR 1.5 billion cash release we will receive over the next year will come earlier than the CapEx requirement for our build-to-hold pipeline. As such, we confirm this pipeline until early 2025, without further [indiscernible] equity or debt, as you can see in the last green bar.Only in the second half of 2025 we might require initial additional debt funding, which we expect to be build to attract without increasing the LTV of our unit portfolio. By then, we see EUR 12 million as the existing yielding portfolio will have also shown revaluation, which we can use for further financing.On the next page, we summarize the construction and completion schedule of our build-to-hold pipeline. At H1 2021, we have EUR 1.7 billion build-to-hold pipeline [indiscernible]. Out of the EUR 5.6 billion growth development value, which is the value of completion of the entire pipeline, works are going on for EUR 705 million lease. You see that over time, more development projects start. And at 2025, we will have EUR 1 billion of yielding assets added to our portfolio and all of the projects under construction, resulting in a great step-up of completion to EUR 2.5 billion in 2026, after which CapEx will slow down again, as you have seen on the previous page.On the next page, you can see how the development completion translates into net rental income. The building blocks for the additional EUR 207 million net rental income you see in this chart. In the accounting year 2027, we will have had this asset generating EUR 96 run-rate to our net income. Please bear in mind that we have not had the indexation of rent that plainly showed you under likely number into this graph. So real figure might come out higher so far for a detail on the development pipeline. I hope this all be insightful, and feel free to come back to us should you have any further question for your model of our development pipeline. Max will take it over from here.
Thank you, Thierry. And like I said at the start, should you have any questions, feel free to already post them in the webcast. So let me quickly run you through on Page 28, the H1 2021 key financials. Net rental income was up 52% this year, and as a result of the full consolidation of other real estate and the 4.3% like-for-like rental growth. Total revenues increased even by 71% while adding incremental revenues from development projects, which have been progressing well. EBITDA from rental activities increased by 46%, which has been lagging the NRI growth still due to some integration inefficiencies that we are working on as we all know. FFO has increased by 53% as a result of cheaper financing costs.And moving on to the next page to go through our achievements on the debt side. We have been very active on the debt side, realizing significant reductions on cost of debt. The first half of the year alone, we have issued and arranged EUR 2.5 billion of new bonds and banks or bank loans out of EUR 8 billion of debt as of H1 2021.On the one side, this year, having issued EUR 2 billion of bonds in the first 6 months, refinancing bonds and mezzanine loans at subsidiary level, that was realizing EUR 33 million of financing synergies. Also, banks have been very supportive in providing 7 years secured loans with a total volume of EUR 500 million at an average cost of debt of 1.53%. We see spreads currently between 65 and 100 basis points. In Q1, we received a new EUR 300 million revolving credit facility, replacing our old one, although we do not anticipate to use the RCF you feel comfortable having it in place at a very low cost.In Q2 also, we have arranged a EUR 500 million commercial paper program, under which we have not issued. Our debt KPIs have improved significantly with our average cost of debt coming down from 3% at financial year-end 2020 to 2.1% at H1 2021. There is more room for lower interest costs. Our average debt maturity increased by more than 1 year over the last 12 months, whereas the loan-to-value increased slightly to 54.7%, including our convertibles.At H1 '21, we had EUR 370 million of cash on top of the unused facilities. This, in our view, is an adequate cash buffer. This year, half year has first -- has further built our financing track record on the refinancing side. Most of the short-term debt has been refinanced. H2 2021 maturities are already repaid or being rolled over. We expect to benefit from the favorable unsecured and secured lending markets to further lower our cost of debt in the medium to long run. We will have significant cash inflow from sales and reduction of receivables lowering our LTV.On the next page, I will show the maturity schedule. And as you can see, our debt exploration calendar is by far the lowest with only 6% and 8% of debt expirations in 2021 and 2022, respectively. Most of the 2021 refinancings have been completed. The EUR 95 million, 2.5% convertible at Adler Real Estate AG level have been repaid in July this year. The EUR 170 million Adler Real Estate bond will mature in December. And bank loans are in the process of being extended from 5- to 7-year maturities at lower cost of debt.In April 2022, a 1.5% Adler Real Estate bond will mature. And in November 2022, a EUR 120 million, 4% conscious convertible matures. We expect to refinance both with bonds and the lower cost of debt. For the extension of the remaining bank loans that are expiring in 2022, we will start discussions with our relationship banks soon.On the next slide, I will go into more details on the key financial KPIs. Our total debt is EUR 8 billion at H1 '21, which translates into an LTV of 52.3% or 54.7% when including the convertibles. Almost all our debt is fixed, and 61% is unsecured, resulting in an unencumbered asset ratio of 139.5%, which is the most limited bond covenant, still meaning we can attract another EUR 930 million of additional secured financing. Our weighted average maturity of debt will continue to increase. Likewise, we hope our bond rating to improve as we clearly have an investment-grade bond profile looking at the bond covenant. Our bond covenants loan-to-value is at 52.2%, well below the 60%. The secured debt is only 22.3% of total assets whereas the ICR is comfortably at 2.6x well exceeding the required 1.8x.Let's turn to Page 32. Our LTV has shown some swings as a result of the integration of our development portfolio. Good progress is being made to reduce the LTV from 54.7% today to circa 51% following signed and pending sales. The retention of the Düsseldorf development will increase our loan-to-value to circa 53%, whereby further planning sales proceeds from the forward and condo sales. And also remaining strategic sale of our core project will bring us down below 50% LTV in the medium term.On the next page, I would like to take you through the rundown of our receivables. Following major improvement of our financing structure in H1 '21, we will see a large decrease in our receivables in the second half of 2021, resulting in a significant cash release.At H1 '21, our receivables and the balance sheet show EUR 1 billion. These receivables are mainly the result of historic sales in which assets have been sold with a deferred payment mechanism. The total assets are used as collateral, which means we can claw the asset back in case the receivables have not been paid. At year-end, the receivables will be reduced from the current EUR 1 billion to EUR 275 million as a result of payment of 5 receivables and retention of the residential development in Düsseldorf.Under 2011, you see the strategic repositioning of the so-called valve project developments, which we have bought back and transferred partly into built-to-hold and partly into build-to-sell. It's important to note that out of this EUR 300 million payable, EMEA circa EUR 100 million will be left by year-end as we yesterday, late in the evening, notarized the disposal of EUR 200 million worth of these assets, so representing the build-to-sell part. Let's move to the ESG just at the end of the presentation next. We have, under the leadership of Christian -- Sven-Christian Frank, who is leading our ESG Board, published our first sustainability report in May 2021. This report has been recognized by Sustainalytics, assigning a 10.7% rating for Adler Group, ranking us at the 46% or top 5% best company out of more than 1,000 real estate companies globally. We also became members of the German Association of Sustainable Building and the U.N. Global Compact Group, in which we share ideas on improvement on sustainability.On the next page, you will see our target up to 2030. Our ESG team assent targets to improve in 8 fields, which in the end should result in a reduction of the group's CO2 emission by 50% until 2030. We will update you on progress starting with the new development in which we will implement our strategy to reduce the 36 kilograms CO2 per square meter to 18 kilograms.Let's move to the next page. Excellence and ESG is a key pillar for Adler, where we will focus on excellence and client satisfaction, ESG and digitalization resulting in better performance. In property management, we will strive to climate neutrality, investing in energetic refurbishments and renovation, including replacement of old heating systems.In our build-to-hold pipeline, we are not only constructing buildings but also entire borders, which allows us to roll out climate-neutral neighborhood internally balancing energy supply and demand. Use of sustainable building materials will result in significant CO2 reductions. Our employees will benefit once moving into our combined new headquarters from a healthy and modern environment. Adler will play a crucial role in building new sales and healthy neighborhood in the top 7 cities in Germany. I would recommend to read our ESG report, which is accessible via the link on this page of the presentation. Finally, I would like to conclude with the guidance for 2021 in the next chapter, and once again, feel free to already submit questions. The Q&A will start thereafter.Following a better-than-expected first half of the year and a positive outlook for the second half of the year, we have increased our guidance for the net rental income and the FFO 1 with the lower end of the ranges exceeding the previous upper ends of the ranges. So we now anticipate net rental income to come out in the range of EUR 340 million to EUR 345 million for the full year of 2021, coming from the previous guidance of EUR 325 million to EUR 339 million. The FFO 1 guidance also increased from EUR 127 million to EUR 133 million, to now a range of EUR 135 million to EUR 140 million.As we have a target 50% payout ratio, you could derive that the dividend over 2022 and 2021 most likely would come out between EUR 0.57 to EUR 0.60, which is a significant 27% increase from the EUR 0.46 last year.For the midterm, we targeted like-for-like rental growth of circa 3%. And as explained earlier, we are strongly committed to reduce our LTV to below 50%. For your convenience, we have provided bridges on the net rent income in the FFO 1, which I will discuss on the next 2 pages before starting the Q&A.For your models, we find the buildup of the NRI range for FY 2021. Last year, we reported EUR 293 million and arrived for financial year 2020. We have sold assets that had a negative impact of around EUR 24 million. Adler and Consus consolidation, which all happened during the year are large contributors in '21. As such, [ '21] [indiscernible] to calculate from going forward.Riverside, which is our Berlin development, which we concluded successfully and is fully let now, increases NRI by some EUR 4 million and a further effect in 2022. Further rental growth will bring you to EUR 340 million to EUR 345 million, which is indeed lower than the EUR 346.4 million we showed as in-place rent on Page 15, given as a timing effect from amongst others, the lease-up of the Riverside project in Berlin. So let me finish with the FFO 1 bridge on the next page. Here, again, I start at the EUR 107 million FFO 1, as reported last year. The building blocks are the same with disposals, Mietendeckel, Adler and Consus consolidation. And the latter impact is small since there is little impact from Consus in FFO 1 currently. The lease-up of our Berlin Riverside project and further rental growth, and let's not forget, there will be another EUR 22 million of synergies on top of the synergies already realized in 2021. Further impact of Riverside and the synergies will be, by the way, also show up in 2022. All in all, this brings us comfortably to a EUR 135 million to EUR 140 million FFO I guidance for the full year of 2021, which is only 4 months ahead of us. So thank you for your attention, and may I ask the operator to open up for questions.
[Operator Instructions] We will now take our first question from Menelaus Taconic, who's written in from Jefferies.Congrats on the strong second quarter results, and thank you for the transparency. You disclosed EUR 299 million for project acquisitions on the last line of the selected financial assets receivables on Page 33 of the presentation. Can you please provide more color on those?
Yes, Menelaus. So we know that cost strategy and focus was to develop construction projects for third-party investors. Adler Group strategy is to develop its own portfolio. I think here, we have an example of 4 very attractive locations and projects within those locations: Düsseldorf, Kiel, Frankfurt and Leipzig that we were able to retain. So those EUR 300 million of EUR 299 million you see on Slide 33, line item 11, they relate to a payroll, which is due because of the retention of those 4 projects. So just to split that in more detail, 2 out of those, so Düsseldorf and Kiel will be kept within our build-to-hold and are accounted for as such already in the IFRS statement. Frankfurt and Leipzig are built-to-sell, so these 2 projects part of our, let's say, ongoing disposals. And yesterday late, as I mentioned briefly in the in the call here, Frankfurt was sold [ no price list ] yesterday evening. So out of those EUR 300 million payable, near EUR 100 million will remain because EUR 200 million worth of assets have been sold yesterday. And closing is expected to happen in Q3, latest Q4, this year. So I hope this clarifies that point. Maybe we go to the next question.
Yes. Of course. So the next question is from Pranava Boyidapu, who is writing in from Barclays. Thank you on the detail -- for the detail on select financial assets used in LTV calculations. Could you give us some detail on the reduction of select financial assets from EUR 1.2 billion in financial year '20 and EUR 735 million?
Yes. Thanks, Pranava. So of course, so there are, of course, the 2 disposals that happen at Consus level of where we see line item 1 and 2. These will crystallize in 2021. So they're the EUR 189 million and EUR 84 million, respectively, outstanding, but we expect to crystallize those in this year. There is, on the right-hand side, of course, a tick on the -- in the box that alludes to the fact that we have, in case there is nonpayment, enough security or ability within and take back the assets. That, of course, is not our route that we are planning to go down but it's just a matter of inbound questions that we had around those receivables. But I think we have enough comfort, and we've run our recoverability also including our auditors that are sure that there is enough comfort that those payments will come in this year '21.Then there is a EUR 60 million of Accentro that was dispose. We did an Adler level in 2017, of which 70%, 7-0% by now I've already been paid, EUR 60 million are outstanding. They are due in end of September. They are also -- we are in a very comfortable position. They are covered 2 times on over the security we have on those shares. So needless to say, we also have indication that at the end of September, this disposal will have crystallized and we will have recouped 100% of it. And then we have Gerresheim. There is this project which got sold at breakup level or at least 75% of it. This is part of the reduction in, let's say, in those select fund assets by EUR 759 million because of the fact that we have retained this project. So the EUR 209 million will become obsolete in this overview, and we will receive instead the assets back. And we'll have the asset value in our gross asset value accordingly.Otherwise, we have -- the remainder are minority stakes that are at our SPV levels, which are looking to refinance themselves and where we expect to have those funds also in 2021. So that's, I think, in more detail, the EUR 769 million reduction by year-end. Next question?
Next question is from Ludovic Walter who's written from Sona AM. There are 2 different net debt figures in your presentation, 1 on Slide 4 and 1 on Slide 31. Could you please discuss the difference between the 2?
Yes. So there are 2 different -- these are 2 different methodologies. So the one is gross debt net of cash, and the other one on Page -- that's Page 31, gross debt minus cash and cash equivalent. And on Page 2, we have the nominal debt less cash and cash equivalents that were EUR 370 million, net of those selected financial assets that are EUR 735 million that you see on the 1 slide, #33. Other than that, net contract assets, they also show in our asset side of the balance sheet is our growth contract assets minus prepayments received. So there's a net contract asset that is expected to be paid by the buyer of the forward sale projects. Assets and liabilities classified as held for sale are an incremental EUR 17 million, so we derived at EUR 6.9 billion. And that's the difference. It's just the difference of methodology overall.
Okay. We'll move on to the next question now, which comes from Bart [indiscernible], who's written from Compton Capital Management. You mentioned the secured bank loan a little further in the presentation, room to issue EUR 930 million secured financing. From a bondholder perspective, this is a negative. Any targets there and/or comments regarding the rating agencies on the secured versus unsecured debt? And what is the difference in debt cost for you?
Good question. So of course, we understand bondholders prefer a large share of unsecured debt. Currently, there's an advantage in cost in favor of secured debt. I think this exercise on this slide just shows how much flexibility we have in erasing new debt through the secured lending market instead of refinancing unsecured debt and unsecured bonds. So that is hopefully the sufficient answer from there. What is different in debt cost for you? Well, we all have seen the factory and on the secured lending market. Currently, we look at between 40% to 60% [ I believe ] between 65 and 110 basis points on a 7- to 10-year basis. So a very attractive secured lending market at the moment.
Okay. The next question comes from MH, Matt Hodges, who's written from Headwaters Holdings. What is the latest status on tidying up the corporate structure? There are a number of loose ends with minority stake holdings needing to be tidied up, which once done, might entice new investors to the company. You also have the second question, but I'll ask that once you've answered the first one.
Yes. On the managed stakeholdings need to be tied up, which, once done, might entice to invest into the company. Of course, we all know the structure, as it is right now, has room to improve. Of course, where we see Adler Group and Adler Real Estate AG and Consus Real Estate AG, we are currently in the process of putting in place domination agreements. I think Jenny will allude to that in the next question. But overall, it is something we take very seriously. [indiscernible] would have seen on the Adler Real Estate AG level, we have successfully run a squeeze-out process, and so that is the first step towards simplification of structure. At the same time, we are reducing the layers of debt by having issued at top level and paid down expenses at the company level. So we are in an active process of efficiency improvements.
The second question is asking whether you can confirm if you are able to extract all synergies from your Consus and Adler Real Estate holdings without full domination?
Yes. So we are working in parallel of the process of putting in place domination agreement, which need several adviser has been mandated. White NK is working on the contract documentation. Alvarez & Marshall has been appointed court auditor. But in parallel, as you have seen in our results, we are ahead of the schedule for achieving our operational and financing synergy. So we are involved to fully extract the synergy plan in parallel of the legal and the timing of the domination agreement. Thank you.
Great. Moving on now to the next question. They are from Thomas Neuhold, who's written in from Kepler Cheuvreux, and he's asked a few. So we'll begin with a question about the table on Slide 7. Can you please provide us with details on the key underlying assumptions for your FFO fully developed projection of EUR 350 million, for example, for rental growth, cost inflation, financing costs and cash taxes.That was quite a long one, so I will repeat it again. It's a question about the table on Slide 7. Can you please provide us with details on the key underlying assumptions for your FFO fully developed projection of EUR 350 million, e.g. for rental growth for cost inflation, financing costs and cash taxes.
Thank you, Thomas, for this question. So for the build-to-hold development asset, we used the same assumption as our [indiscernible] valuation for the yielding assets. And we estimate between 2% and 3% per annum value increase and also rent and cost increase. So this is a very conservative assumption.With regard to ESG, we will provide a detailed strategy to achieve our target of CO2 reduction by 50% over the next couple of months, but you can already see in our presentation the different actions that we are undertaking in our building to reduce the construction through new meeting through buying energetic heating. So we have a full set of major, which we will update in regular.So in regard to the domination agreement, as I previously mentioned, our Board authorized that in early 2020. Our adviser are working on the legal documentation. So this is an ongoing process, and domination agreement will be in place in due course. But as I have mentioned, in parallel, we are able to extract the synergy to further integrate the group. So I think that's the main important that we can do in parallel of the legal steps of the domination agreement.
The next question from Mr. Neuhold is can you please provide us with an overview about your strategy to minimize CO2 emissions during the construction process?
Yes. So I just alluded in my previous answer that we are -- we have initiated a full set of action to reduce construction in our building. And of course, the development pipeline also will contribute to that. So this will be a release in the next quarter of the full of action. Thank you.
Thank you. The final question from Mr. Neuhold is asking whether you could provide us with an update on the status and time line of the potential domination agreements with Consus and Adler Real Estate.
I just answer to this one on the domination agreement. So let's move forward. Thank you.
The next one is from [ Saihur ], who is asking from Reorg Research. Has there been any delay in build-to-hold construction?
So there is no delay in build-to-hold construction. So as you have seen in our presentation, we are in time with our project, which are under construction like Schwabenlandtower in Stuttgart due to be delivered in 2022. We are making good progress in planning authorization with the [indiscernible] contract of [indiscernible] being obtained. So we are on track with what we have previously announced on our BL2 pipeline. Thank you.
Great. Thank you. The next question is from Rob Woerdeman, who is calling from Kempen Capital Management. Do you experience cost price pressure in your building development pipeline currently? And is rising inflation, shipping and raw materials a concern?
In our development activity. So we are first the upfront sale, where we don't intend to build or to develop, which are going to be sold as it is, which are not concerned. Forward sale and condo, as you have seen, are mostly under construction. So the costs have been contracted in the past, so we will not be effective. On the bill-to-hold project, most of the project will start in the next 3 years. So as it's mainly residential, where the human part of the cost -- labor part of the cost is higher than the IO, we anticipate a limited impact on the raw material increase. But as a precaution, we have miscellaneous in our budget that we can use, and we are permanently updating our construction cost to be able to face this raw material increase, which is a situation of today, but we expect that in the coming months, the situation will get better. We have also the possibility to index our brands. So we have not used that there. So this is another buffer for the future. But this is for sure something we need to monitor carefully. Thank you.
We now have a question from Christopher Blake. Do you expect to need external capital for the new construction after 2025?
So thank you, Christopher, for this answer -- for this question. Do you expect for construction. After 2025, of course, we have laid out in the presentation also that shows any different colors on the bars itself. So we have readily available at very attractive terms, construction loans. We had 1 of our projects, Berlin Riverside, that we funded as such, these are very attractive terms. So you typically have 3 to 4 years construction period in which the interest is accrued and then it rolls over into a 5- to 10-year loan on the asset itself. So there is the intention to have construction loans after -- within 2025 to fuel further build-to-hold pipeline.
Moving on now to the next question, which is from [ Buberkar Kapur ]. He is calling from [indiscernible]. He has 2 questions, so I'll start with the first one. Can you please be more specific on the coming debt maturities? There's almost EUR 1 billion over the next 2 years, and there are only EUR 670 million of liquidity, including RCF. So he's asking what the plan is.
Okay, Buberkar. So on this, there was -- Indeed we had EUR 370 million of liquidity as for H1. The RCF, we do not intend to draw upon. But we have, as I mentioned, the ability to fund that at SPV level, so secured financing at attractive terms 5 to 10 years. And so that would cover the entire year. So typically, also, when you look at the maturity profile, you see any bank gets to be extended anyway. So it's more to cover those bonds that are due next year in 2022 and potentially covering those with secured lending. So it's just optionality. It doesn't mean we're going down that route, but that covers the entire '21, 2022.
He has asked a second question, which regards the reversionary potential, asking whether you could please elaborate on the flexibility you have in the near term?
So as we have presented, we have at least 20% reversionary potential across our portfolio. In Berlin, this is again the case now that in Berlin, it is solid. And in some locations where we have repositioned our portfolio, we go up to 26% and 36%. So timing-wise, we have depending on [ CT ] 8% to 10% turnover across our portfolio, which will allow us in the midterm, so at least 6 to 7 years, to capture that. And what we have seen in the past is a reversionary potential stays the same because even if we capture the rent increase, this potential market is moving. So we still have of reversionary potential. And we have posted a high 4.3% rent increase, we show all across our portfolio, which show our ability to capture through relating this potential.
The next question comes from Bernd Hashemian, who is calling from Kroos Vermögensverwaltung AG. He expresses his appreciation for today's report, which is gained enormously in quality with regards to the important option criticized issue of transparency. Today's promising report is in stark contrast to the recent positioning of well-known short sellers and Adler Group shares and bonds, in particular, JPM shorter tax against Adler bonds raises many questions. The intended MDAX listing became impossible in this environment. Is the management aware of any specific accusations by the short sellers?
Thank you, Bernd, for this question. So indeed, management is very aware of the decline in shares and bond prices. And we have been informed that there is a short seller group in the market questioning our strategy and, in certain, cases also disseminating false information. We believe this is led by a fund manager, who has previously invested in other real estate AG and did not support the merger. This activity has driven share price decline to far below our NAV intrinsic values. And as management, we are proactively addressing this through the enhanced disclosure to highlight in more detail the fundamental value in Adler address any questions therewith. And we are committed to both engaging on any topics that investors want to discuss and making sure that the fundamental value in Adler is recognized in our share and bond prices. So very good results today, I think, demonstrates the strength of the company today and also future growth potential.On the MDAX listing. Indeed, the cutoff is end of August today, the last day in August for September inclusion. It is, of course, as you know, a function of the share price and free float market cap. So we will see whether we have been at the relevant position to be included in the MDAX. But needless to say that if it's not this turn, we will we run up in the next turn, end of the year.
The next question is from Helmut Kurz, who is writing from Bankhaus Ellwanger & Geiger. How does the development Consus handle the building cost increase? And how does this affect the margins?
So yes, with our build-to-hold pipeline and build to sell, it's not only pipeline, we have all development team, which is to properly manage this project and bring them to success. So as we are present in our figure, so we are targeting, on average, CapEx of EUR 3,400 per square meter for residential project, which give us enough buffer for further cost increase. And we are targeting margin on the build-to-hold project, above 20%. So, so far, thanks to our experience, thanks to great range of projects, we are able to enroll that. In case further cost increases are coming, we have still the option to increase -- to index the rent, which will increase the BV and maintain our profit margin. But with EUR 3,400, I'm convinced that we can bring to the success of this project. Thank you.
Moving on now to the next question from [ Friedrich Mango ], who's written in from Ampega Asset Management. He asks whether you to provide the time frame for the envisaged deleveraging.
Yes, Friedrich. And the Slide 32, which shows our trajectory in terms of LTV starting at 54.7%, you will see that the nonstrategic disposals is in line item -- Box #1 as well as the project disposals in Box #2 have both been notarized as well as the Gerresheim retention, which is looking to close in Q3. So over time, we expect to be in terms of deleveraging at circa 51% to 53% year-end. It's a conservative view, but needless to say that it's something we feel comfortable with. At the same time, we have remainder of our disposal schedule that we look at to dispose of as early as next year and relevant closing. So it means that we expect this delevering by end of the year, leading us into 2022. And yes.
Great. Thank you. We do have another question from Clemens Zehndorfer, who has written in from Orchard Global Asset Management. He has a question on the EUR 209 million Gerresheim receivable. It appears you are essentially unwinding the original sale of the 75% stake that you won't be receiving the expected EUR 209 million. So this is negative for your liquidity. Previously, you said the first installment of the purchase price has been paid. Does this mean you also now have to refund the first cash installment to the buyer? And if so, could you disclose how much this was?
Gerresheim is an important project in Düsseldorf, where we have already 3 build projects. So I think that's a strategic move for the group to be in Düsseldorf. So the interim, so we will get back 75% of the asset. It's going to be cash neutral. We will take back the debt on the existing project. And further installment payment won't have to be paid and then we will work further to finalize the plan information on this project and to start it over the next 7, 10 years because this is a project which we can phase over the year and include also a part of condominium together with B2.
Thank you very much for your answers. That will now conclude today's presentation. Thank you for your participation, ladies and gentlemen. You may now disconnect.