TAG Immobilien AG

XETRA:TEG

Earnings Call Transcript 2018-Q2

[Operator]

Welcome to the conference call of TAG Immobilien AG, which is now starting. At our customer's request, this conference will be recorded. May I now hand you over to Mr. Martin Thiel.

[Martin Thiel, CFO & Member of Management Board]

Thank you very much, and good morning, everybody. This is Martin from TAG. Welcome to our half-year results earnings call, and thanks for dialing in during the summer, during this nice weather into our call and for your interest in the company.One other thing today are a set of good and nice results with the increase of the guidance for the full year 2018, perhaps not that big surprise to many of you. We already announced in the last earnings call that we will review the guidance, now it's with an increase. Another very attractive valuation result that got published today and we think a good set of Q2 results.Let us start with a highlight slide on Page #4 of the presentation that you can download on our website. And I'm going now to the main points.I would say operational performance regarding vacancy development, regarding like-for-like rental growth, perhaps to summarize that, I think that's on track. Even a slight increase in vacancy in the residential units between the quarters, we had 5.4% at the beginning of the year, now 5.5%, but that's definitely nothing to worry. We had new acquisitions last year with higher vacancy rates. These have to be integrated. And we're working on some modernization programs for vacancy reduction, especially in the Chemnitz and Gera area; by the way, come back to that in a second.So 5.5% vacancy is residential units, looking at like-for-like rental growth, we're at 1.9% in the basic like-for-like rental growth. That's nearly stable in comparison to the previous quarters. And also the like-for-like rental growth, including vacancy reduction, is stable in comparison to the previous quarter, so we ended up at 2.5% within the last 12 months, and that compares to 2.6% in the previous quarter.FFO 1 increased by EUR 1 million quarter-on-quarter and increased quite strongly if you compare that with the previous quarter over the previous half year. So the FFO increase in absolute amounts and on a per share basis, if you compare first half of 2018, because first half of 2018 was 20%.EPRA NAV and LTV, both key metrics developed very nicely. EPRA NAV increased by 10% to EUR 15.15 on the back of strong valuation gains. If you exclude the dividend payment that we made in May to shareholder this year, the EPRA NAV increase was even 15%. And we already reached our LTV targets, so we're down at 50.2%, 50% is the target, coming from 51.4%. Even though we paid out a dividend, but of course, also here, the stronger operation results helped us quite a lot.Looking at acquisitions and disposals, I'd say no major transactions in the first half of 2018. Looking at acquisitions, in Brandenburg and [ Stadt Ihm ] that in Thuringia we acquired 2,000 units, average multiple 10.8x the current rent. That's a 9.3% growth yield. Vacancy reduction potential especially in the Thuringia portfolio available. And speaking generally about acquisition markets, that's not really a surprise. Clearly a challenging and clearly a large competition. Difficult to give you an exact guidance for the next 1 or 2 quarters, regarding acquisitions. I mean, we're clearly working on some projects. But today, I would say, the normal thing is that, first of all, maybe everything is a public auction. And secondly, even if you're exclusive, you're never alone. You've got 1 or 2 competitors in this acquisition process. So hard to give any exact predictions, but you can be sure we're working on further projects.On the disposal side, mainly in this quarter, disposal of non-core assets. So we sold a portfolio of 460 units in Northern Australia in Lower Saxony, and with an average vacancy rate of 13.2x. It was sold at book value. And this disposal -- or this portfolio comprises locations where we think where the size of this portfolio in the respective location is not large enough. So from efficiency point of view -- and also in some cases, from the quality point of view, this is nothing that we want to keep for long term. So therefore it was a good chance for us to sell this at book value.The selling price, please understand this, was agreed with the seller to keep this confidential. And just as an additional information, net cash proceeds from this disposal will amount to EUR 13 million.And then there's the ongoing disposal business, something that you know from us, from the past years, that's not only privatization, that's also disposal of small portfolios of let's say, 10, 15, 20 units. So this adds up to 312 units in the first half of 2018. So it's like the above book value, net cash proceeds of EUR 11 million, debt in line with the previous years.Then coming to the next slide. Slide #5, quick look at portfolio valuation. And 2018 for the second time we did as it is perhaps [ call them out ] and meanwhile in the peer group already a half year valuation, and the total valuation gain amounted to EUR 230 million, that's a 5.4% uplift. And if you take a look at reason for the valuation gain, approximately 85% is valuation gain coming from yield compression. And approximately 15%, that's from stronger than last year's valuation expected rental growth and vacancy reduction. Comparing that with previous valuations, especially with valuations in the financial year 2015, 2016 -- with basically the gain from rental growth and vacancy reduction in absolute terms is nearly unchanged. Remember, this is just half year figure. But clearly, the element yield compression is much more important than 1 or 2 years before. Comparing that to 2017, valuation results percentagewise, it's clear, it's a little bit lower, but in absolute amount it's absolutely comparable. If you remember that in the second half of 2017, we had a valuation gain of EUR 250 million, now it is EUR 230 million. So -- we can summarize this as a continuing of the good development we already had in 2017.Now the key metrics in valuation are nearly EUR 900 per square meter, and a 6.7% gross yield, and this gross yield is based on the current rent, so including the vacancy rate we currently have. So therefore, we see definitely further potential. I mean, this is clearly not an aggressive valuation. We will have the next portfolio valuation at year-end 2018. And, of course, the interesting question is, what do we expect for the year-end valuation? For us it's simply difficult to give you here a guidance for that.Generally speaking, I mean, we see the markets, we see the positive development, but to give you an exact guidance, percentagewise, whether it's another 5% or a little bit lower or a little bit higher, that's really difficult for us. Now, so please understand that generally we see clearly positive momentum in the market, but perhaps we can give with the Q3 results, and more guidance on what we expect for the valuation result for year-end.Then financing structure, June was a quite active month for us regarding refinancing activities. Perhaps -- it was a second step and -- the last major step regarding the refinancing activities the refinancing activities last year in summer. So what we did is we issued 2 new corporate bonds via private placements, all together EUR 250 million, average maturity, 6 years, average coupon 1.5% in a very lean transaction, both new corporate bonds without any financial covenants. So as we think, a good transaction, a very lean transaction with accretive conditions. And we simultaneously bought back an outstanding more expensive corporate bonds, originally maturing in 2020 with a 3.75% coupon, with paying out the remaining interest coupon to the investors of this corporate bond.So this reduced our average cost of debt to below 2% for the first time. And if you compare that with the average cost of debt within the last 18 months, that's a reduction from 3.15% in December 2016 to currently, as I said, 1.99%. I mean, based on the EUR 2.3 billion, EUR 2.4 billion total financial debt we have, you can do a simple calculation, that's approximately EUR 27 million, EUR 28 million of additional cash flow that we now receive from this refinancing activities.And not only the average cost of debt went in the right direction, and I think as important is that we extended the maturities. We already had last -- long maturities 1.5 years ago with 8.3 years. And we were able to extend this maturity now to currently 8.8 years. And as already mentioned, our fee was reduced to 50% now from 57% 1.5 years ago. So I think that the financial structure is now in even better shape than it was 1.5 years before.Coming to the FFO and dividend guidance, surely you have seen this in our press release that we increased the FFO guidance from midpoint EUR 136 million now to midpoint EUR 142 million. Comparing that to previous FFO from the previous year 2017-'18, we expect now a 12% increase, not only in absolute terms but also on a per share basis. Here we expect $0.97 per share after previously $0.93 per share.And you know that we're paying our 75% of FFO, so this is a clear consequence for us that we pay out now or we're guiding a dividend for the financial year 2018 paid out next year of $0.73 per share.So that's the figure highlights. Then coming back to Slide #7. The income statement, perhaps you don't have to go through every detail, but some main trends. First of all, if you look at the net trend, yes, we had a reduction net trend of EUR 500,000 but this is, of course, not a result of falling rent, this is simply the result of disposals that we already signed in 2017. Perhaps you will remember the disposal of the portfolio in Berlin and in Halle. And for the closing boards at the end of the first quarter in 2018.Looking on it year-on-year basis, we increased the rents by EUR 7.4 million. I think that's the better comparison to achieve the result of our good like-for-like rental growth. And also the net effect from portfolio transaction, because clearly the portfolio is now larger than 1 year beyond year before.And even though net rent was a little bit reduced, net rental income increased. So we had lower maintenance expenses in the second quarter than in the first quarter. And also lower impairments losses on rent receivables where we had to clean up some order impairment losses, and also had a new systematic how we go now into rent impairment losses. Both no major effect, but I think generally, clearly, we get you on the cost side more and more efficient.Looking at net financial result, perhaps it's also important to explain. If you look into p-value and look at the net financial result, you see EUR 46 million negative net financial result. A large part of it, nearly EUR 22 million, is from the fair value valuation of the equity option of the convertible bonds. So the largest part of it, I think, that's important to point out is a noncash effect looking at the FFO relevant, net financial results, so cash after one-offs, we improved by EUR 600,000 quarter-on-quarter.And also income tax is very much higher than in the previous quarter but here, the very large effect nearly completely the effect refers to deferred taxes from the valuation results. Looking at the cash tax expenses, we even had a reduction quarter-on-quarter by EUR 400,000. And clearly, the prepayments of the coupon of the repurchased corporate bond of EUR 9.5 million, that helped us to reduce here the current cash tax expense for reduction of EUR 400,000 quarter-on-quarter.Coming to the next slide, the calculation of EBITDA FFO and AFFO. Perhaps important to point out that the good development of the EBITDA margin is still continuing. So 68.6% EBITDA margin now at the end of the second quarter compared to 68% in the previous quarter. And comparing that on a year-on-year basis, if you look at the EBITDA margin for the first half of 2018, we ended up at 68.3% compared to 67.6% in the first half of 2017, so that's definitely a positive development.I already mentioned, the FFO development. Looking at AFFO, we had a slight reduction in the quarter, simply because we invested more CapEx, EUR 1.6 million more CapEx in this quarter in comparison to the previous quarter. And you will see this also later that on a per square meter basis, we invested now in the first half in the residential units EUR 9 per square meter. So that includes everything, maintenance and CapEx. And yes, that's a little bit more than last year. But this is definitely not a change in strategy. So what we're doing not is the start of large modernization programs. But we're clearly investing more to reduce vacancy. And especially in 2 regions, or in 1 region, it's, I think, the best example in the Chemnitz region, we're investing quite a lot because we see here a lot of potential for vacancy reduction. So that's the reason why AFFO in the second quarter was a bit lower than in the first quarter. Looking on a year-by-year basis, as we compare the first half 2018 with 2017, we're still EUR 2 million above with our AFFO in comparison to the previous year.Then our next slide, Slide #9, balance sheet. Just a comment on the quite massive for our company cash position, EUR 330 million. And on Tuesday, we repaid EUR 191 million corporate bond. This was, as I said, on Tuesday. So therefore, we had a lot of cash on the balance sheet in June 2018. But clearly, there is enough firepower left for new acquisitions. Also some acquisitions from last year were not yet refinanced, because simply we had enough cash in the balance sheet. So therefore, it's a normal ongoing acquisition business, we're clearly funded for the remaining part of the year.Then coming to slide #10, just a small -- short comment on the EPRA NAV development. As I already said, EUR 15.15 now at the end of the first half, there is a 15% increase in the first 6 months. If you leave out dividend that we paid by 65 -- they were $0.65 per share. And you see in the developments or in the chart on the right side, that the portfolio valuation with EUR 1.65 was clearly the main driver of this NAV development.Then on the next slide, Slide #11. Summary of the development of the average cost of debt and loan-to-value. And we see the 1.9% average cost of debt. And please be aware that this is a kind of pro forma figure, because this already excludes the corporate bond that we repaid on Tuesday. So today, it's 1.99%, that's the number -- the current number that we present here.And as I already mentioned, we are already at our LTV target, 50%, based on the current valuation is for us as we think a very, let's say, the number that makes absolute sense. And we'll keep this LTV target for now. Let's see how the valuation development in the last -- in the next quarters. Whether it's then after some stronger valuation results at time to redefine the achievable target, but definitely not for now. 50% for us is definitely a good level.Then I'm coming to Slide #5, quick look at the debt financing structure. And, again, worth to point out the -- that we also extended the average maturities, now to 8.8 years after 8.6 years at the beginning of the year, at 8.3 years ago -- 18 months ago. But there's still further refinancing potential. If you look at the bank loans that are maturing or at the interest terms ending in the next 2.5 years, so 2018, 2019 and 2020. You see on the chart, on the left side, that this adds up all in all to EUR 380 million of bank loans that we can refinance. And looking at the coupons of this bank loans, that's an average between 2.6% and 3.7%. And looking in today's financing conditions for 10-year bank loan, I would say, a typical bank loan has a margin of 80, 90 basis points, putting on top of that the swap rates, currently a little bit north of 90 basis points. So we are at 1.7%, 1.8% just to give you an idea, for a new 10-year bank debt. Currently bank loans currently maturing in the next 2.5 years between 2.6% and 3.7%. So this should provide further refinancing potential for us in the next 2.5 years.On Slide #13, we summarize for you that we think strong development of financing metrics of the interest cover ratio of the net financial debt-to-EBITDA ratio, and also the net financial debt per square meter. And especially, commenting on the ICR development, I think that's definitely a good development. And it's definitely not the end of the road. The 3.5x we achieved in the first half of 2018, includes the still quite expensive bond that we now repaid on Tuesday, the EUR 191 million that had a coupon of more than 5%. So you can expect an ICR definitely quite soon above 4x from us, so this goes in the right direction. And also net financial debt to the EBITDA adjusted goes in the right direction. Now quite quickly below 11x.Summarizing is quite simple. I mean, we're operating with a stable financial debt, and this as you can see, if you look at the net financial debt in euro per square meter, even though the portfolio grew in the past, we didn't really lever up. But the operational results increased. So therefore, the financing structure is definitely in a very good shape from our point of view.Then looking at a portfolio, and perhaps I'm starting with Slide #16, with vacancy reduction. Just to make this clear, again, we have now an increase in the first half of the year of 20 basis points. So, including the last year's largest acquisition into the portfolio, [ into this new ] started with 5.3%, you can see this on the chart on the bottom right of Slide #16, and we're now at 5.5% in June. But this has a clear, clear reason. First of all, that's not unusual that after integration of new portfolios, and it was 5,000 units all in all, you always have a slight increase in vacancy. You have to change the tenant structure, do some modernization projects. And beside that, we have some large amortization projects, as already mentioned, especially in the Chemnitz region. And we expect a further reduction -- already reduction rate in the vacancy in the second half of the year. For us, that's very clear.Coming to the next slide, Slide #17. Like-for-like rental growth. I think I already commented to development. It's an additional information looking at the basis like-for-like rental growth of 1.9%, the composition of this 1.9% is as follows: That we have 0.8% from tenant turnover, 1% from regular rent increases, for example, from the [ Leipzig ] and approximately 0.1% from modernization programs for existing tenants.So still the base like-for-like rental growth of approximately 2% is achieved without modernization programs, so really, let's say, a kind of basis, a kind of underlying like-for-like rental growth that is still there. And putting the effects from vacancy reduction on top of that, we ended up at 2.5%.Then I'm on Slide #19, looking again at the valuation results for the second half of the year. Looking at the key metrics on the right side, I already mentioned that we now at a book value per square meter of close to EUR 900, and a 6.7% gross yield. And please be aware, the 6.7% gross yield is based on the current vacancy rates, which is in the residential portfolio at 5.5%. So we think that's definitely a conservative level. And if you look at the development over the last 1.5 years, you see the strong momentum we currently have in the markets. I mean, 1.5 years ago, in December 2016, book value per square meter was EUR 740, gross yield was 7.9%. So this shows you that the regions in which we have our portfolio [ commit above ] with larger cities, midsize cities, Eastern Germany have definitely a good development. Next portfolio valuation, as I already mentioned, will take place at year-end 2018.So then, again, commenting on the guidance and Slide #22 of our presentation. We increased the guidance in comparison to the guidance that we published in November last year by EUR 6 million. And if you break down the EUR 6 million increase in guidance, that's approximately 2.3% from better-than-expected EBITDA performance. And this is not only a good rent development, this is also cost efficiency. And refinancing activities, including the refinancing that we did in June. So we expect here an effect of EUR 3.6 million. So these are the 2 main effects.Cash taxes, generally as planned, EUR 6 million increase in guidance. And this now leads to a new FFO guidance in the midpoint of EUR 142 million. And on a per share basis of EUR 0.97 per share, that's a 12% increase in comparison to the previous year.And as, of course, without any further acquisitions and without further disposals, but we don't expect any major disposals that should have an effect on the guidance. So as we always do that's based on the portfolio as it is, dividend per share already mentioned at -- now at $0.73 per share, for the financial year 2018. And that still translate even after the good development of the share price in the last month at 3.7% dividend yield, which should be definitely an attractive dividend yield in comparison to the whole peer group.So that's it from my side. The summary of the first half-year results. And thanks for listening. And, of course, now happy to take your questions.

[Operator]

[Operator Instructions] The first question is coming from Mr. Thomas Neuhold from Kepler Cheuvreux.

[Thomas Neuhold, Head of Research of Austria]

I only have 2. The first one is on Slide 24. The vacancy rate at Chemnitz and Gera went up a little bit, and that's quite high levels. You mentioned that you're carrying out a modernization program there. Can you please provide us with more details in terms of how many of your units you plan to modernize? What kind of CapEx are involved and what you think the impact could be on average rents? And then vacancy rates in these 2 cities? And the second question is, I want to come back on your comments about the strong investment market, which is obviously good for portfolio valuation, but to certain extent, limits your external growth opportunities. Now we have the situation that in the first half year, the portfolio size slightly declined year-on-year due to debt disposals. I was wondering if you can share your thoughts about if you still will be able on an annual basis to keep the portfolio stable? Or maybe even increase it depending on your current acquisition pipeline? And what you think could happen in the second half?

[Martin Thiel, CFO & Member of Management Board]

Thank you, Thomas, for your question. I'll start with the second question regarding investment market. And you're completely right on the one side, that's for us good news that we see such high demand in our markets. And that we see a lot of competition and we see increasing portfolio prices. So that's the good news so far for our portfolio. But existing portfolio and, of course, for the valuation on the other side, yes, it's clear. This makes the acquisitions harder. It's not a new picture. And basically, this is a situation as we have it in the last 1 or 2 years or even longer. And we don't expect that we're a net seller for 2018 to make that very clear. And as I said, we can't give you an official acquisition guidance, but we expect clearly that the portfolio size at year-end 2018 should be larger than at year-end 2017. So it's not the case that the acquisition markets are that tough that we are starting to become a net seller and that portfolio is shrinking. So this should be the current situation. And regarding your first question, yes, that's true. The increase in the vacancy rate in the Chemnitz area -- or the stable vacancy rate in the Chemnitz area and also the increasing vacancy rate in the Gera area, which is mainly the City of Gera, is a result of modernization. I'd say, even more in the Chemnitz area, we're really investing quite a lot. And what are we doing here? I mean, with a falling vacancy rates, honestly, the modernization programs are a little bit more complex. So perhaps in some of the locations, I'll be very open, the low hanging fruits, that's already done. So we have to invest more. I mean, still the returns are quite effective. These returns are clearly often in areas of 20% or 30% per annum. So it absolutely makes sense to do this. It's not a very complex modernization. So it's also -- after a modernization full apartment blocks like we do, for example, currently in the Chemnitz area. And that doesn't bring the apartments now to a luxury standard, it's still very targeted, it's still targeted to what we rent out to most of our tenants, that means attractive apartments, particularly for the affordable housing area, that's very clear. And therefore, we expect in the third, and I think, even more in the fourth quarter, now dropping vacancy rates, especially in the Chemnitz and Gera region.

[Operator]

The next question is coming from Sander Bunck from Barclays.

[Sander Bunck, Vice President of Real Estate Equity Research]

Couple of questions from me, please. First one, I think, during the last conference call, you mentioned that the level of revaluations for this year were going to be broadly similar to the ones from last year. So last year, I think, you did 14%. And then, I think, you mentioned, that it was not unrealistic to see a similar number for this year as well. Now in the first year, you reported 5%. Can you give us a bit of feeling? And is that in line with plan? Do you expect a bit of catch-up in the second half? Just a bit more guidance here, please.

[Martin Thiel, CFO & Member of Management Board]

Yes. First of all, it's completely true, last year valuation up was 14% for the full year. I think a little bit more than 7% in the first half and slightly below 7% in the second half. Now its 5.4%. As I said in absolute terms, we had quite similar to the valuation result that we had in the second half. So percentage wise, I mean, it's very natural that this is now coming a little bit down, but more, in you want, mathematically. I know it's, of course, interesting what will be the valuation result in second half, but it's really difficult to give you a guidance. But let's say, the 5% valuation result that we had in the first half this year gets from our point of view, definitely not an aggressive valuation. So going -- having a similar result in the second half of the year should be something normal. But as I said, please understand that we can't here give you an exact guidance for that. Perhaps we can do this with the Q3 results then we're clearly -- or then clearly see that we have already begun with the first work. We have more color on the development of investment markets. So therefore, perhaps with the Q3 results, we can give you a little bit more color on that.

[Sander Bunck, Vice President of Real Estate Equity Research]

Okay. So a bit more color on that during the Q3 results, that's very clear. On the -- the second point I had is on the guidance. And obviously, you've upgraded that quite nicely. However, just looking broadly at the maths and looking at your Q2 FFO run rate and adding that to Q1. You're already kind of at the top end of that guidance. And then on top of that, you have some refinancing gains still coming through throughout the second half of this year as you pay down an expensive EUR 119 million bond. Will we also get another update on the FFO guidance during the Q3 results? Or is there something else in play that makes you feel that the current guidance is appropriate?

[Martin Thiel, CFO & Member of Management Board]

Well, that's, honestly, that's not planned to give another update for the FFO guidance with the Q3 results. The paydown of the EUR 191 million corporate bond is included in the new guidance, and was already included in the previous guidance from November last year. But on the other side, you're right. If you take the run rate and multiple it with 2, then we are already more in the upper end of the guidance. But if you look at the disposals that we signed in the first half, we sold some units, 700 units, in the first half. We then acquired 200 units. So as the guidance is without new acquisitions, we simply have to take or account and be a little bit conservative in this regard.

[Sander Bunck, Vice President of Real Estate Equity Research]

Yes. But 500 units on an 80,000 unit portfolio is relatively immaterial, I'd say, no?

[Martin Thiel, CFO & Member of Management Board]

That's not incorrect, yes.

[Sander Bunck, Vice President of Real Estate Equity Research]

Okay, good. And then just lastly, on the like-for-like, and I think you alluded already to it a bit quickly that your -- briefly, that the vacancy reduction towards the end of this year is going to be a bit stronger probably than in the first half. Is it, therefore, likely to see the like-for-like rental growth accelerate a bit through the second half of this year, so more from the 2.5% to 3% kind of range?

[Martin Thiel, CFO & Member of Management Board]

Yes. Yes. So our guidance for like-for-like rental growth, including vacancy reduction is between 2.5% and 3%, and that's still valid.

[Operator]

The next question is coming from Georg Kanders from Bankhaus Lampe.

[Georg Kanders, Investment Analyst]

I have also -- you have also other regions, your Hamburg and Rhein-Ruhr where you have higher vacancy rates. What's the reason here? I think that you're not modernization programs there?

[Martin Thiel, CFO & Member of Management Board]

Yes, thank you for the question. Yes, that's true. Rhein-Ruhr and also Hamburg saw an increase in the vacancy reduction. But I would say, this is nothing where we see really a trend now shifting that in these regions, we have especially not in the Hamburg region now a trend. I would say this is perhaps a normal swing that we have from time-to-time. So I would say, as in the last year's where we had in every region a vacancy reduction, perhaps give us some time that we look at the figures on a full year basis. And we're very confident that also in the regions like Rhein-Ruhr or Hamburg or for example the Leipzig area where we already had an increase -- also had an increase in vacancy reduction on a full year basis. This is now, let's say, definitely a stable vacancy rate or it's clearly the aim or the target area reduced vacancy rate.

[Georg Kanders, Investment Analyst]

And the sale of non-core portfolio will definitely help also for Rhein-Ruhr?

[Martin Thiel, CFO & Member of Management Board]

Yes. Yes. When I talk of our reduced vacancy rates, just to make this clear, that's without the effect of the sell-down of this non-core portfolio, which will not have a massive effect, it's clear. But that's on a like-for-like basis. So we don't only expect vacancy rate to fall because we sold the non-core portfolio, we clearly expect that the Vacancy rate will fall in the second half of the year because of the operational development.

[Georg Kanders, Investment Analyst]

And regarding maintenance spending. I think, last year you were at EUR 15 per square meter total, but we should assume more for the whole year this year. So no relief on maintenance spending in the second half?

[Martin Thiel, CFO & Member of Management Board]

The number, the EUR 15 for the last year or the EUR 9 for the first half, that's not only maintenance, that's everything. That's maintenance, that's capitalized maintenance and that's modernization CapEx. So really what we call full investment. And we think that this is perhaps the number that makes sense to look at because of it's more or less of an accounting question, whether we capitalize it or capitalize not, so we internally always look at the full number, which was the EUR 9 in the first half. And yes, that's more than in the last year because of these projects we have, and I think you should expect a similar number for the second half of the year, that's true. Just perhaps to add this, we're far away from doubling our CapEx or doubling our investments, just to make this clear.

[Operator]

Next question is coming from Bernd Janssen from Victoria Partners.

[Bernd Janssen, Head of Research]

Two questions. One is on the debt financing structure and the other one is on the rental cap. Debt financing structure, looking at Page 12, and the indicated EUR 318 million of upcoming refinancings in the next 3 years. Two sub-questions. One, following the repayment of the corporate bond and the issuance of 2 new bonds, do you generally feel that you now have, at this stage, the right split between bonds and bank loans? Meaning effectively enough flexibility, also for your portfolio. The second question to that is, are you -- could you consider early refinancings or at least early interest fixings coming up on the volume that would be due in the next 3 years? And the second question on rental cap, least important for you, I guess, relative to your peers. But there seems to be a very mixed and irritating news coming from Berlin in the last, whatever, 2 months. Any view from your side of what's going on, on the political side with regards to rental cap?

[Martin Thiel, CFO & Member of Management Board]

Thanks for your questions. Starting with the refinancing structure. First of all, you should not expect a general shift in our debt structure. So it's clearly from our point of view, mortgage secured bank loan provide for us, not only a cheap money, but also very stable money. And here we can achieve from our point of view, for our company, the best financing condition. It's currently at around 80%. And the bonds can be corporate bonds and convertible bonds that stand for approximately 20%. Perhaps it's more likely that the share of bonds increases in the next let's say 1 or 2 years. So why is that? The main argument for unsecured financing is flexibility. And also in short-term maturities, the unsecured financing interestingly is cheaper than the mortgage secured bank financing. So therefore, for us, it's perhaps a good strategy, and that's what simply what we're doing now is to say, okay, we've got at the moment, portfolios, or finance debt bank loans that are maturing for portfolios where potentially in the next, let's say, 3 to 5 years, we simply want to or have perhaps want to have the chance to sell it without [ package fees ]. Not yet decided, but simply to keep the flexibility. So therefore, you should expect more an increase of the share of the unsecured financing than a decrease. Your question regarding interest cost fixing or early refinancing of upcoming bank loans, maturities. I think, not for 2018, but more for 2019, 2020 maturities. Yes, this is something that we can perhaps potentially think about it. But not now. I think in the last year, it was always a good strategy for us to wait until we are closer to the maturities. And especially looking at the total amount, I mean, we don't have to have a fear or to be concerned that we missed a point in time where interest rates and to be very, very attractive. So therefore, this is something to think about more at the beginning of 2019. The larger steps and the most important steps regarding refinancing are clearly done. So we secured the interest cost at real attractive levels. And also we've made the whole financing structure that's just really, really stable. Looking, for example, at the covenant requirements we currently have, I mean, in the now outstanding 2 corporate bonds and no financial covenants. The converting bonds have no financial covenants. And looking at the bank loans, they are in the financial covenants, that's really, really moderate. So therefore, whatever happens in the next year, it should be in a very, very good position. And the last question, regarding rental caps or regarding -- generally, the political discussion around that. I mean, of course, we're closely watching that. But on the other side, honestly, we're happy that we not really, let's say, don't have to worry about it too much. Because simply our strategy is different. And looking into press releases, that you see at the press articles today, I mean, there is a lot of discussion about increasing rents, about increasing rents as a result of a large modernization programs, about further regulations regarding rental caps. So therefore, I think the possibility that we see here more further rent regulation is quite high. But on the other side, happy that this is not really major effect for our business model.

[Operator]

[Operator Instructions] We have no further questions coming in, Mr. Thiel.

[Martin Thiel, CFO & Member of Management Board]

Okay, then, thank you very much. And thank you very much all for listening to the call. As always, if there are any further questions left, please contact Dominic Mann from our IR Department or -- of course, also myself. We're happy to see you in the next weeks on the road or during conferences. Have a nice day. And bye-bye from Hamburg.

[Operator]

We want to thank Mr. Thiel and all of the participants of this conference. Thank you very much, and goodbye.