LEG Immobilien SE

XETRA:LEG

Earnings Call Transcript 2021-Q1

[Operator]

Ladies and gentlemen, thank you for standing by. I'm Hailey, your Chorus Call operator. Welcome, and thank you for joining the LEG Conference Call. [Operator Instructions]And I would now like to turn the conference over to Mr. Frank Kopfinger, Head of Investor Relations. Please go ahead.

[Frank Kopfinger, Head of Investor Relations]

Thank you, Hailey, and good morning, everyone from Düsseldorf. Welcome to our special call today, where we will give you an update on our financials, but also want to present to you our ESG strategy. You have in the call our entire management team with our CEO, Lars von Lackum; our CFO, Susanne Schroter. [Operator Instructions] You'll find the presentation document as well as the quarterly report within the IR section of our homepage. Please note that there is also a disclaimer, which you'll find on Page 2 of our presentation. And with this, I hand it over to you, Susanne, to kick it off with our financials before then Lars, and Volker will lead us through the ESG part of the presentation. Susanne, the floor is yours.

[Susanne Schroter-Crossan]

Thank you, Frank. Good morning, everybody, also from my side, and welcome to our somewhat different call today where the focus will be on the ESG agenda in addition to the regular update on financials. On the financials, we released a set of strong results this morning, which prove that we are well on track to reach our full year targets. The highlights are summarized on Slide 6 in the presentation. Net cold rent increased by 9.7%, partially benefiting from the portfolio growth of 6.1%. However, we also gained momentum in the standing portfolio. On a like-for-like basis, our in-place rent rose by 2.8% compared to a strong first quarter in the previous year that was still largely unaffected by COVID-19. As of today, the corona effect is only minimal. We have also been able to reduce our like-for-like vacancy rate further by an impressive 70 basis points to 2.7%. The FFO I, our key performance indicator, increased by 10.7% year-on-year to EUR 104 million, well in line with our guidance. A strong financial profile is paramount to our business, and Moody's has just confirmed our BA1 rating. The EUR 500 million corporate bond that we issued in March led to further reduction of our average interest cost to 1.29%. Combined with a long average maturity of 7.5 years and an LTV of 37.7%, we can rely on a strong balance sheet as a precaution for uncertain times and as a basis for growth opportunities. Let me now move to Slide 7 with a short update on our portfolio. As mentioned previously, like-for-like rents in our portfolio grew by 2.8%. The free financed units, which account for nearly 76% of the portfolio were up by 3.3% on a like-for-like basis. Key drivers are the rent table adjustments and the catch-up after we suspended rent increases last year during the peak of the COVID-19 crisis. As expected, there is only a small contribution from the subsidized portfolio this year as there is no cost rent adjustment in 2021. On a like-for-like basis, the average in-place rent for our portfolio reached EUR 6.03 per square meter at the end of March or EUR 6.41 for the free financed units. Despite our focus on an affordable product, we are able to increase our rents in a reasonable way. I will point to a few highlights from the free finance units on a like-for-like basis. In the dynamic Rhine area, our in-place rents in Monheim, a city near Cologne, rose by 8.5% to now EUR 8.08. Outside NRW, but still in the orange markets, in Oldenburg, near Bremen, rose by 4.6% to EUR 6.68. In the stable markets, we are particularly happy with the performance in Mönchengladbach, one of our largest locations, where average rents were up by 4.6% to EUR 6.51 per square meter. The purple market showed also an overall strong development. Looking again at the portfolio as a whole, we can see a very positive trend regarding our vacancy rates, which highlights the continuous strong demand for our affordable housing product, our exposure to attractive regions and the excellence of our operations. Overall, we could further decrease vacancies by 70 basis points. In the purple market, we even managed to reduce vacancy by 130 basis points. At the end of March, the gross asset value of our residential portfolio was around EUR 14 billion, with a high-growth markets accounting for roughly 45%. We will do the next portfolio revaluation at the end of June. And today, I can already say that we expect a further uplift for the first half of 2021, and it should be at least in line with what we experienced in the first half of last year. Now please have a look at Slide 8, which shows the development of our key P&L items. The numbers once again demonstrate further noticeable margin improvements across all P&L lines. Net cold rent increased by 9.7% to EUR 168.4 million, driven by both organic growth and acquisitions. The recurring net rental and lease income again outpaced the top line growth and rose by 11.3% to EUR 133.2 million. Driven by the scale effects of the contribution of value-add services, the adjusted NRI margin increased to 79.1%, despite higher maintenance and an increase in operating staff costs. The adjusted EBITDA grew by 10.8% to EUR 126 million. As a result, we increased our EBITDA margin by 70 basis points to 74.8%, which puts us well on track for our 2021 EBITDA margin target of around 75%. Our FFO I grew strongly by 10.7% to EUR 104.1 million. On a per share basis, the FFO was up by 5.9% to EUR 1.44. Overall, this reflects the efficiency gains we've already achieved and which we continue to strive for. This already leads me to the end of our financial update for today, and I hand it over to Lars for our ESG agenda.

[Lars von Lackum, CEO & Chairman of the Management Board]

Thank you, Susanne. It is with great pleasure that I present to you today, the key pillars of our ESG agenda. Today's presentation on ESG should provide you with a first good overview on our specific targets, our transformational path as well as our specific measures for the next years to come. As you might have seen, we call this presentation a joint journey. It reflects that this is not about a capital market publication, neither about a problem between our tenants and us. It is a joint journey for all of us. Our company, our customers, the communities in which we are active, our colleagues, our nation and certainly you, as our investors and analysts. As we announced today, we will provide a deep dive into our ESG strategy on June 11, then we will dig deeper into all 3 topics and elaborate especially on additional subjects. For us, this marks clearly the start of a long-term transformation, and we want to provide you with the information you need to be able to join us on that journey. I am now on Slide 10. ESG is and always has been a very important topic for us as we run a very special company. Our focus will always be around the social topic as we provide affordable living to 400,000 tenants. That is our heritage and deeply rooted in our DNA. Therefore, our social work goes far beyond that of an ordinary property owner. We are an important partner for communities, offering solutions to redevelop and supporting entire districts. At the same time, we are dedicated to the environmental aspect, and our aim is to achieve climate neutrality already by 2045. That is in line with Germany's latest cabinet decision on an amendment to the Climate Change Act. It underlines our ongoing commitment to comply efficiently with the highest compliance requirements in the market. Let me now move to Slide 11, which is a summary of our ESG-specific targets. All targets are measurable and lay the foundation for our ESG road map. You are familiar with most of them from the new remuneration system, which we implemented last year. The complete organization executes along those targets consistently. However, as the political focus has moved nearly exclusively on the environmental aspect, in agreement with the Supervisory Board, we have decided to extend the target scheme by 1 additional midterm target regarding customer satisfaction. We are absolutely convinced that the ecological improvements can only be realized together with our customers. Therefore, we need to invest into customer satisfaction and will strive to be among the top performers over the course of the next 5 years. That guarantee is a strong voice of the customer being present in every meeting and every decision taken. So let me now dive into the environmental aspect of our agenda on Slide 12. Following last week's decision of the Cabinet to amend the Climate Change Act, we thought it would be helpful to provide you with some background on the changes. Germany, unfortunately, once again, after a decision of the German Constitutional Court, is about to enforce its environmental targets. As of today, climate neutrality is now to be reached by 2045. Additionally, the 2030 targets have also been revised and tightened. This translates into a carbon emission reduction between 2020 and 2030 of more than 40% for Germany as well as for the real estate sector. Until 2040, the expected reduction amounts to around 80% for the sector and Germany as a whole. This, for sure, will be a stretch to the sector, and we believe that tighter targets alone are not sufficient to reach the climate goals. We need a harmonized European trading system, which includes power, heat and traffic, so that all emissions are priced at the market.An extensive ETS would create a level playing field for all market participants and ensures that the most efficient measures are being taken regardless of the sector. We are convinced that as a company, we can take strong advantage of the initiated transformation. Germany's real estate market is highly fragmented. Around 2/3 of all real estate is owned by private persons or small corporate or mutual property owners. This group of owners will lack the necessary expertise and financial means to transform its assets. At the same time, LEG as a pure-play being exclusively focused on the asset class of affordable living and active only in Germany is also in a better starting position as we do not have to run this transformation across different asset classes and different jurisdictions. With the necessary toolbox in place to design successfully this transformation, we will make use of the upcoming abundant opportunities. Let us now move to our transformational corridor on Page 13. We are optimistic concerning the number of upcoming opportunities but it would certainly be naive not to admit that there is still a high degree of uncertainty. Typically, the longer a time horizon, the higher the execution risk. However, please keep in mind that there will and there must be plenty of innovation along the transformational journey. There have been many technical innovations during the last 25 years. Just think back at your first iPhone, which has been introduced just 14 years ago. I am convinced that there will be also innovation down the road when it comes to building materials and processes. The production of green power and heat as well as changes of consumer behavior. Therefore, we have chosen not to simply draw a straight line from our current CO2 footprint to the targeted one, that's to opt for a corridor, which leaves us the space for change and innovation and takes into account the uncertainties we face along our journey. On this slide, you can also find our 2 targets, which we have already published with our new remuneration system. For 2021, we target to energetically refurbish at least 3% of our units and until 2024, we aim to reduce the carbon emission of our existing stock by 10%, i.e., from currently 36.7 kilogram CO2 equivalent per square meter, down to around 33 kilogram CO2 equivalent per square meter. Those targets are already part of our remuneration scheme and have been presented to you last year. Ultimately, we target climate neutrality for our portfolio by 2045. We do not promise that lightheartedly as the 3 of us will definitely be around in the industry for the next 20 years. Now that I showed you the CO2 reduction path for LEG, let me give you some details on how we get there on Slide 14. In general, we see 3 key drivers. Following the size of the contribution, there are, firstly, energy transition; secondly, the effect from energetic refurbishment; and lastly, the consumption behavior of our tenants. Until 2024, we expect to invest between EUR 450 million to EUR 500 million into energetic measures and until 2030, around EUR 1.5 billion. This compares to around EUR 110 million, which we expect to invest in 2021 for pure energetic measures. It indicates that we should be able to execute our road map broadly at an investment level that is similar or slightly higher than what we see already today. Certainly, we will make use of available subsidies under the BEG scheme wherever possible. Let me now dive into the key driver. Firstly, the energy transition. And I come now to Slide 15. The nationwide transition of Germany towards green heating and energy will be a key driver to reach climate neutrality. Therefore, it contributes up to 70% of our CO2 reduction. The key input factors will be green district heating and green electricity. In our calculations, we kept the assumption that 10% of our units would still be heated with gas. This follows our conservative hypothesis that the heating system of all units cannot be plugged to a green energy sources. It is important to notice that we are at an attractive starting point compared to the overall market. District heating in our portfolio already accounts for almost 29% and while usage of heating oil is only minimal. Investing into that transition over the course of the last years via our subsidiary, ESP, has proven to be right. The general starting point for the sector, however, is much worse. In Germany, there is still a high usage, especially of heating oil, still accounting for around 20% of the energy mix. This is a function of the housing structure in Germany, while we are exclusively focused on multi-tenant housing, Germany's housing stock is driven by single family housing, which represents almost 40% of the total stock, with on average, weak energy efficiency and a high degree of fossil energy usage. The challenges from the Climate Change Act will be even bigger for that type of asset. The same holds true for privately owned multi-tenant houses. Private property owners lack the tools, capacity and network to address those challenges. We see this as a huge opportunities for our acquisition strategy as portfolios need to be transferred to professional property owners. Let me now move to Slide 16 and talk about energetic refurbishment. As an industry, we are just at the beginning of this transformation. We will need to adapt not only our modernization strategy, but also planning and execution as well. Therefore, we will increase the depth of refurbishment projects substantially. While we might have done only the facade in the past, we are going to work on the entire building shell in the future. Our refurbishments achieved already more than 30% of efficiency gains. Going forward, we expect to increase this ratio even further as we shift more and more towards a holistic refurbishment approach. We provided you also with some price points for energetic refurbishments. As you can see, an improvement from an efficiency class B to A is almost as expensive as improving all the way from H to B. From our perspective, that makes the challenges from the current refurbishment approach very transparent. It once again underlines that we need more innovation around materials as well as processes and a more standardized approach in order to realize efficiency gains. One quick word with regards to BEG and BGH. BEG is well-known to you, and the new law will enable us to take advantage of quite generous runs from KFW for refurbishments as well as new developments starting from July 1. However, you should also be aware of the latest decision of BGH German Federal Court on modernization rent increases. The demand to deduct proportionately saved costs for maintenance from the modernization costs even if maintenance is not yet due, brings about an additional restriction and high administrative burden. Finally, let me now also present 1 aspect on Slide 17, which is unique for LEG. We own a biomass plant, which is situated around 100 kilometers away from our major hubs like Cologne. By definition, it is categorized as green energy and carbon-neutral. It produces annually 105,000 megawatt hours of electricity. This represents the annual production of an onshore wind park with 20 wind turbines or the electricity demand for roughly 1/3 of our portfolio. As we transfer the electricity into the local electricity grid and cannot directly provide it to our tenants, we cannot use it for ESG accounting purposes as an offset. Instead, on a sector level, it counts as a green contribution to the utility sector. We, as a real estate company, do not benefit from it. Therefore, the biomass plant is not reflected in our footprint of 36.7 kilogram CO2 equivalent per square meter. If it were to be included, it would offset around 18% of our carbon footprint today. Certainly, that accounting limitation does not make sense at all as it undermines many cross sectoral solutions. Therefore, we ask you to reflect that positive impact while making up your mind on the holistic CO2 footprint of LEG. After this deep dive into the E part of our agenda, I am happy to hand over to Volker, who will lead you through our thinking and plans for the social and governance part.

[Volker Wiegel, COO & Member of Management Board]

Thanks, Lars, and good morning from my side. We are now on Slide 18, we summarized what we believe is the core of our corporate DNA. We provide affordable living to our tenants and we focus on this customer segment and to this asset class. Around 1/4 of our portfolio is rent restricted. This means we offer apartments to people who cannot afford units on the free market and who are entitled to subsidies. On average, our tenants pay EUR 6.03 per square meter, which translates into an average rent per apartment of around EUR 380 per month. Our rent level is below market average as well as below the rents of our major peers. With this, we express our strong social responsibility towards our tenants, and we take that responsibility very seriously. We demonstrated this last year when we, as the first major residential property owner in the German market, suspended rent increases at the beginning of the corona crisis. We believe that the provision of affordable living is an important contribution to society. Let me now dive into our ambitions towards our customers on Slide 19. In the customer segment, we have added 1 important midterm target, which we want to achieve by 2025. In order to create a customer-centric experience for our tenants we defined 4 key areas around our services, our products, our image and the customers' view on cost effectiveness of our product. We combined these 4 key areas in a measurable, annually evaluated customer satisfaction index, the CSI and target such CSI rates of above 70% from 2025 onwards. To achieve this goal while maintaining and expanding our leading efficiency, we at LEG kicked off a massive cultural transformation process, bringing the customer perspective into all our decisions and actions. We combined this approach with existing successful strategies like our digitalization road map and our agile omnichannel approach to create outstanding customer-centric experience. As Lars pointed out, we are here on a joint journey. Of course, this also will be a multiyear transformation. As a first step, we aim to reduce the number of iteration calls at our customer center by 15% this year. We believe that this is a strong indicator for speeding up and solving customer requests. This target is already part of the STI component of our senior management remuneration system. Going forward, we will be able to measure customer satisfaction levels at each touch point with our customers to better track our service experience and measure the progress along our transformation. Let us now go to the next slide and touch a very important component of our social profile, our colleagues. I'm now on Slide 20. We have just been ranked as one of the best employers in North Rhine-Westphalia by the latest Great Place To Work survey. With a trust index of 66%, we score among the top companies. This is certainly a function of our ongoing cultural transformation. We introduced lean hierarchies as well as our joint working spirit as one LEG team. Almost 80% of our colleagues say that LEG is a very good place to work. I have to admit that I'm personally 100% happy to work with the entire team and very proud to be part of the team delivering these impressive results presented today. And I am even more proud as these results are delivered against the background of the COVID-19 crisis with all its serious personal and social restrictions affecting all of us. We aim to keep this strong result at the next voting process, which is why it is part of our ESG targets and as well reflected within our compensation scheme. As I said at the beginning, the provision of affordable living is core of our DNA. Therefore, we are the reliable partner to our communities where we operate. We certainly discuss major modernization project with them, we cooperate on social offerings via our foundation and we act as a strong partner to local public property owners. We just bought a 6% stake in the public property owner, GEWAG. With more than 6,000 units, GEWAG is one of the biggest landlords in Remscheid. Remscheid, just 40 kilometers away from Düsseldorf. We operate 1,000 units there as well, and we cooperate with the city in different projects. Just last year, we opened a bigger meeting location where tenants can now benefit from a wide variety of offerings from language classes, sports activities for kids and families and cooking classes. I think this example shares once again that we are considered to be the reliable partner of -- for our communities. On the next slide, Slide 22. You see our unchanged target, which we have selected for our governance topic. For 2021, we aim to defend our outstanding score with Sustainalytics. The strong 10.4 point score puts us among the top 2% of Sustainalytics global coverage and among the top 4% of their global real estate coverage. Given the wide range of requirements and the comprehensive evaluation process of Sustainalytics, we are of the opinion that this is also a good reflection of our governance setter. The annual review process will start in the second half of this year, and we would expect to get the results in Q4. Again, this target has already been presented to you with our new remuneration system. You can find a summary of our remuneration system in the appendix on Slide 42. Let us now come to the end of the presentation with our guidance on Page 24. I'm pleased to say that we are well on track with our Q1 financials and that we can confirm all our financial targets for 2021. I think that you are familiar with the figures. So just let me briefly summarize the highlights. We still expect an FFO I in the range of EUR 410 million to EUR 420 million. This suggests an increase of 8%, taking the midpoint of our FFO I range into account. As we have pointed out already at our last call, our guidance already includes the effects from the 2021 carbon tax of EUR 25 per tonne, assuming that the tax burn is shared equally between LEG and the tenant. This translates into a negative effect of EUR 2 million, which is included in the guidance range. I can also confirm like-for-like rental growth of around 3% and a further increase of the EBITDA margin to roughly 75%. We also feel comfortable with our LTV target set at a maximum of 43%. Concerning acquisitions, we still stick to our ambitious goal of 7,000 units. As you can see, our ESG targets are now also part of our full year guidance. With that, I would like to open up the call for your questions. And we, the entire management team are happy to take your questions.

[Frank Kopfinger, Head of Investor Relations]

Thanks, Volker, and I simply hand it over to you, Hailey, for the questions.

[Operator]

[Operator Instructions] And the first question comes from the line of Christopher Fremantle of Morgan Stanley.

[Christopher Richard Fremantle, Executive Director]

I just have a couple of questions. The first was on the volume of debate and speculation around rent regulation and how you think that ultimately is going to pan out for your portfolio and for the underlying growth rate for your portfolio. I think just some general comments or thoughts on that would be helpful, given how some of the sector has reacted over the last week, that would be helpful, please? And then more specifically, I was interested on your biomass plant. Can you just -- you mentioned that it doesn't count towards some of your metrics. And of course, that doesn't necessarily mean that you shouldn't continue to own it. But can you just explain to us why you continue to own it? What the benefits are to you strategically from owning power-generation assets?

[Lars von Lackum, CEO & Chairman of the Management Board]

Yes. Thank lot for your questions, Chris. And certainly, I will try to give you the answer for the first 2 questions. So looking at the volume of debate we've seen that was certainly following the publication of the party programs, which we have seen over the course of March to May. You might be aware that we are still waiting for the party program of the conservative party, which unfortunately need it much longer to point the candidate for the chancellorship which is Mr. Laschet, luckily, which whom we know certainly very good. He's the Prime Minister here in North Rhine-Westphalia.Looking at the party programs, certainly, it looks a bit left winged currently. And certainly starting with the left party, Die Linke, certainly with a socialist approach towards markets. And certainly, also with regards to the increase of rents and demanding the strongest regulation of rents. If you, however, look at the party which is really becoming part of the next government, has even now a higher support from the electorate than the conservative party, which is the Green Party. That's something which looks much lighter from our perspective. First, I think, which is of utmost importance is that, certainly, they want to include the rental break into their party program. And certainly, they will also want to extend it. But looking at where that rental break has been implemented in North Rhine-Westphalia, we're just looking at 18 communities. And the impact we are seeing is minimal. That's just due to the fact that 24% of our portfolio anyhow is rent-restricted. And the remaining part, the free finance part, is among the lower-priced assets in the markets. So that's something where we are quite relaxed. The same holds true if you are listening to Annalena Baerbock, who is the one being appointed to run for the from the Green Party. And she just gave an interview that a rental cap comparable to what we have seen decided by the Berlin Government is nothing they are really promoting. So therefore, from our perspective, yes, there are a lot of discussions around rental regulations, a bit looking at especially the 92% of assets we are owning in North Rhine-Westphalia, the risk we are running seems to be manageable from our perspective. And also, if you look at the homeownership rates, in the countries, which we have now freshly entered, so look at Schleswig or Lower Saxony where you have a homeownership rates above 50%. From our perspective, there is really no risk that additional rent regulation will hit us. Second point was the question for the biomass plant and the question why we own it. So from our perspective, it is just wrong to not include the biomass plant. And therefore, we are asking for a uniform and extensive ETS system. So if we would include not only industry, and -- the industry and the power part into this trading system, but would also include heat and traffic, then we would have extended price for carbon emissions in the market. And then certainly, it does not make sense to stick to sector targets. But instead, you would look at the overall CO2 emissions in the market and then you try to reduce it. That's a demand which has also been done and made by Mrs. Merkel during the last Petersburg climate dialogue, which was taking place last week. So it's nothing which is not already in the political discussions, and we think that would be the right approach. In this case, then you would not certainly look at the reduction of the utilities companies versus the real estate companies, but you will look at the overall emission. And the positive effect is that the next oil euro which you're spending, you're always spending it or the most efficient measure to reduce carbon emissions. And that's something what we consider will happen over the course of the next years. So therefore, we think that owning this biomass plant is a very strong advantage going forward.

[Operator]

And the next question is from the line of Thomas Neuhold of Kepler Cheuvreux.

[Thomas Neuhold, Head of Research of Austria]

I have 2 questions on ESG, actually. The first one is more philosophical one on the ambitious CO2 reduction targets in Germany. What do you think, what policy mix the government will or should implement in order to reach the target, specifically in the housing sector, which is, as you pointed out, mainly owned by individuals or small players? Is it regulation, access or more subsidies? What is your view?

[Lars von Lackum, CEO & Chairman of the Management Board]

Yes. Thanks a lot for the question, Thomas. Our core belief is, and that was something which we tried to point out during the presentation, look, around 40% of all the assets in the market are single houses. And if you look at the complexity of managing really an energetic refurbishment or managing the energy transition, you will just need someone to help you through that process. So you need an energy consultant. At the same time, if you look at the complexity of the financial programs being in place, especially the KFW program, that's also a very difficult thing. Then this is also something which will be a big burden. Looking at the multifamily houses, 2/3 of all multifamily houses are being owned by private owners and -- or small corporates or mutual landlords. Also those people will do not have neither the capacity nor the expertise and also not the financial means to really manage that transition. Therefore, we definitely are going to see strong subsidies being paid to the property owners in order to have a start to that transition. At the same time, and that was also something we tried to point out, is core to our DNA is really taking care of our customers. They are earning only low-to-mid income. So it will be quite difficult for them to afford an A class efficient building. So therefore, in order to make it affordable to those people, you also need subsidies being paid directly to those tenants because otherwise, you are doing the transition for the G&H efficiency class buildings first, but unfortunately, you reposition that asset and the tenants living in those assets would not be able to afford it. So also additional subsidies being paid to those tenants will also need to be part of the equation and to come to a social, reliable and lasting solution in the market.

[Thomas Neuhold, Head of Research of Austria]

Okay. Understood. And my second question is also on ESG. Can you please share your views on the importance of total life cycle GHG or Scope 3 emission reduction targets in your ESG strategy? Because I think your targets are about Scope 2, if I remember correctly.

[Lars von Lackum, CEO & Chairman of the Management Board]

Exactly. So we have not included Scope 3, at the moment. And that's due to the effect that it is quite difficult to measure. It is not that we are of the opinion that we should exclude it also for the coming years. But definitely, going forward, we will look at it and certainly will then also include it. But we have already started to work also on the Scope 3 emissions, for example, with regards the power we are using to supply, and we are looking at supply chains, et cetera. So that's something where we have started to work at, but which is currently not included in our CO2 footprint.

[Operator]

The next question is from the line of Thomas Rothaeusler of Jefferies.

[Thomas Rothaeusler, Equity Analyst]

One question on rental growth. I mean the 3% like-for-like rent growth this year, I assume, still consider some COVID-driven limitations. Can you provide some color here? And on this background, is it realistic to see more rent growth for next year, I mean assuming COVID over then?

[Lars von Lackum, CEO & Chairman of the Management Board]

Yes. Thank you, Thomas, for your question. So with regards to rental growth, I think -- at first, I want to just point out that it was a strong start into the year. We already gave you the indication that due to the actions we have taken last year, just not executing all rent increases according to the Mietspiegel, we will have a bit of a spillover into next year. That was materializing in this 1.4 percentage points now contributing to this 2.8% overall increase. If you are asking how the rental growth for next year will look like, then I think it's just referring back to the first question we received from Chris today, it depends heavily certainly on how the rental regulation will look like next year and how the government will be formed. Our belief is that we are going to be at around 2.5% to 3% also for the coming year, that seems to be something which is working, certainly relying on some of the relettings and which certainly comes with higher turn cost investments, but also the modernization measures, and modernization, as you've seen in the presentation, will be cool in order to get the energetic transformation done on our asset base.

[Thomas Rothaeusler, Equity Analyst]

Okay. And maybe a second question. Can we get any thoughts on acquisition opportunities for you?

[Lars von Lackum, CEO & Chairman of the Management Board]

Yes. Certainly. So as we spoke in March, we were talking about a very slow start into the year. Unfortunately, lockdown in Germany certainly has lasted much longer than most of the people thought. So I remember the discussions in February when we are going to see opening up already in March, that will certainly a drag down to our acquisition pipeline. Luckily, and I'm very happy to share that, is that we've seen new portfolios now coming in. So most of the professional players are of the opinion that we are going to see now, after we have seen a vaccination at least -- the first vaccination for around 1/3 of the German population, that markets and also work will open up for a more normalized basis, as of end of May, beginning of June. So therefore, we are currently working on bigger portfolios, now sizes between 1,000 to 4,000 units. And we are quite confident that hopefully, by August, we can already present to you a substantial progress towards the 7,000 units target. The sellers have changed a bit. So we are seeing a lot of private sellers now in the market. They are quite afraid of what's going to happen, especially with this energy transformation that they need to manage. We've just been able to take advantage of the situation, bought a very nice portfolio here in Düsseldorf, in Wittlaer, which is one of the most prestigious districts here. And we are very happy to have done so. And that was really driven by this elderly person, which was afraid of really doing all the refurbishment and energy transition on that -- on her own. And we are talking around 100 units, which we have been able to buy. And that seems to be something which is now gaining momentum because we have all that discussion in the market around the intensified environmental targets for Germany.

[Operator]

The next question is from the line of Paul May of Barclays.

[Paul J. May, Analyst]

Just a very quick couple for me. Just following on Chris' question on the biomass plant. What's the current value of the plant at the moment? And how much have you kind of spent on it? When did you acquire it? And kind of what's been the value change over time? And then secondly, just on the general valuation growth guidance over H1, I think you mentioned sort of similar, at a minimum to H1 last year, just, I think, around about 5%, is that the right way to think about it? Or can you see -- or are you thinking more in absolute millions in terms of the growth rather than percentage terms?

[Lars von Lackum, CEO & Chairman of the Management Board]

Yes. Thanks a lot for your question, Paul. With regards to the biomass plant, we are currently talking about a book value of around EUR 5 million for the biomass plant. We are not doing a fair valuation of the biomass plant. So that's the current book value we are running for the biomass plant. With regards to the valuation growth guidance, I think it is fair to assume that at least you can think that we are going to reach the 5% and that was something we've seen in H1. We are still in discussions with regards to the valuation with our valuator, it's CBRE. It just takes a bit of time under all the numbers and multipliers are tickling in and being reflected in the current valuation model. And that's certainly more than a week's exercise for us. So therefore, we are still in the midst of discussion, but I think it's fair to assume it will be at least 5% for H1 2021.

[Operator]

[Operator Instructions] And the next question is from the line of Jonathan Kownator of Goldman Sachs.

[Jonathan Sacha Kownator, Financial Analyst]

I wanted to go back on the BEG and whether you already have an assessment of what will be the impact on LEG? You also said that there were some recent court rulings on restrictions in rent. If you could perhaps come back to that and clarify a bit, I think your explanations went quite fast, that would be certainly most helpful.

[Lars von Lackum, CEO & Chairman of the Management Board]

Yes. Very happy to do so, Jonathan. So with regards to the BEG, as you know, it will start July 1. So therefore, it's being part of our current planning, but the planning for the modernization measures, which we will start to do next year. So the impact of the BEG on the current modernization, which we are currently doing, will be quite minimal. Certainly, we would try to include it as far as possible, but most of the measures have already been started. And therefore, it is difficult to say of how much impact it will have on this year. I think it's fair to assume it will be just a couple of million of euros not more. For the next year, certainly, very happy to give you more details with our November figures, if we are also giving you the guidance for next year, then we will have also finalized our modernization planning for next year. And then we will give you precise numbers with regards to how far we want to use the grants from KFW for our refurbishment. Looking at the latest BGH decision, the difficulty now is that you need to deduct proportionately the saved costs for maintenance from the modernization costs regardless whether a maintenance is due or not. And that means that typically, certainly for a door or a window, et cetera, you need to assume what would be the price if you would buy the same type of quality in the market at the point of time of modernization, and you need to calculate that number for each and every element which you are replacing, and you need to deduct that amount from the modernization costs, which can be then used to calculate of how big the surcharge is you can do to the tenants. And that's, on the one hand side, certainly a high administrative burden because you need to do it for every single element. And at the same time, certainly, it is an additional restriction because it is quite difficult to handle, and it might, once again, reduce the amount which you can -- which currently is, let's just say, relatively 8%, which you can then put as a burden to the tenants. Also there, it just has started. So there is still no market standard being developed. There is also not a law being in place, but everyone now tries to gain an understanding out of this decision by the German Federal Court, and it will take a bit of time until we can tell you of how much it really impacted our numbers.

[Jonathan Sacha Kownator, Financial Analyst]

Okay. But overall, do you think the law will be positive for you, small positive, I mean, positive or more than that?

[Lars von Lackum, CEO & Chairman of the Management Board]

No. It will -- the decision will be slightly negative. So we just wanted to give you both sides of the coin. On the one hand side...

[Jonathan Sacha Kownator, Financial Analyst]

Yes, sure. But the overall comprehensive low as opposed to that decision, which I understand it, is slightly negative. But overall, are you expecting this is going to be positive for...

[Lars von Lackum, CEO & Chairman of the Management Board]

Overall, it will be positive because the subsidies will certainly overcompensate for that negative decision we have received on the BGH side.

[Operator]

[Operator Instructions] And there are no more questions at this time. I would like to hand back to Frank Kopfinger for closing comments.

[Frank Kopfinger, Head of Investor Relations]

Yes. Thank you, Hailey, and thanks for your questions. And as always, should you have further questions, then please do not hesitate and contact the IR team. And as we have also announced today, we will offer an ESG dive -- deep-dive call on the 11th of June. We will then exclusively focus on our ESG agenda and have then the chance to elaborate in even more details about all the aspects of E, S and G. You should find the registration link in your inbox shortly. And with this, we close the call, and we wish you all the best and hope to see you soon. Thank you, and goodbye from the entire LEG team.

[Operator]

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.