TAG Immobilien AG

XETRA:TEG

Earnings Call Transcript 2020-Q2

[Operator]

Dear ladies and gentlemen, welcome to the conference call of TAG Immobilien AG. At our customer's request this call will be recorded. [Operator Instructions]May I now hand you over to Martin Thiel, who will lead you through this conference. Please go ahead.

[Martin Thiel, CFO & Member of Management Board]

Many thanks, and good morning, everybody. This is Martin from TAG. Many thanks for dialing in into our H1 2020 conference call.We will go through the presentation. And of course, I will report on our H1 2020 numbers and then, of course, also say some words on the transaction that we announced this morning and that you have probably seen, which is the issuance of a new convertible bond and a partial repurchase of an outstanding convertible bond. But that starts with the H1 figures and are now on Page 4 of the presentation, which is the highlights slide.Looking at the operational performance in the German portfolio. Vacancy rates were broadly stable, a slight increase between the end of the second quarter and the end of the first quarter by 20 basis points. We've been now at 5.1%. Like-for-like rental growth was a little bit weaker in the second quarter 2020 due to some effects from the COVID-19 pandemic mainly, and I will come back to that a little bit later. A very strong development from our point of view in the FFO development. So we are up in absolute amount, EUR 2.5 million quarter-on-quarter. And if you compare that with the previous period, so with H1 2019, we're up by more than 9%.The EPRA NTA, or formerly known as EPRA NAV, stands now at EUR 20.77, up from EUR 20.15% at the beginning of the year, which is a 3% increase even after the dividend payment. If you exclude the dividend payment from this calculation, you would arrive at a total NAV increase of around 7%. LTV broadly stable, 44.9% after 44.8% at the beginning of the year.Very positive news from the acquisition front, so we were able to sign contracts for more than 4,200 units in several traditional transactions from January to August 2020. You know that at the end of the first quarter, we had some, around a little bit more than 800. So we've been successful now after the balance sheet date in July and August with other transactions. Total purchase price of around EUR 163 million, a gross yield of nearly 7% and average vacancy rate of all portfolios acquired in the financial year 2020 at -- of 21%.Closing of the acquisitions has, to a smaller part, approximately 800 units already taking place. And that was in the course of the second quarter of 2020, we expect that the largest part of the remaining acquisitions that -- here the closing will take place towards the end of the year in Q4, still a little bit uncertain whether this is then more the first part of Q4 2020 or more towards the end of the year. Just smaller disposals with our ongoing disposal program, 200 units. So that's not really material. So that's book value.As in the past years, we also had our portfolio valuation by CBRE. CBRE valued the full portfolio and the outcome with operation gain of EUR 174 million for the German portfolio. That's a 3.3% semiannual uplift. And the new valuation levels for the portfolio stands now at EUR 1,070 per square meter or a 5.9% gross yield.Coming to the next slide, Slide #5, which is an overview of the effects of the COVID-19 pandemic in our business. And to make it short, the effects are really very limited. You know from us from our Q1 presentation that we had voluntary waver on rent increases in the period from March to June 2020. Since July 2020, we are the ones who are back into a kind of normal mode. So we are increasing rents again. So it's more a timing effect that we have seen in the second quarter, and rent increases will follow-up afterwards in the next week months.Vacancy rates, as said already, remained stable. We already see that we are now down at 5.0% in August 2020. So therefore, we had definitely, on the vacancy rate, not any negative effect from the COVID-19 pandemic. Also very good news, we had a very, very small impact on rent payments, so just 0.1% of our total residential tenants were not able to pay the rents as an outcome of any problem they had from a COVID-19 pandemic. And even in the commercial tenants, the numbers are now even better than in the first quarter. So it's just 1.4% of the total commercial tenants who ask us for any rent deferrals. Also in Poland, the business was not really materially affected. And important was that the construction sites were running all the time. So we see here no material delays. We were able to acquire further land banks and projects. Besides [indiscernible] we have now 3 locations, Poznan, where we already had acquisitions in the first quarter, and [ new ] in the second quarter launch as our third location in Poland.What we've seen is reduced Q2 sales. I think we already discussed this in the Q1 call. So if you look at the numbers, the average sales number per month was down to around 20 units from something around 68 units per month in the first quarter. But we see from the numbers in July, with nearly 60 units sold, that we are already back on a kind of pre-crisis level. And perhaps even more important, sales prices remained stable or even increased in the course of H1 2020.Let's move on to Page #7 where we'll show you some details for the income statements. First of all, looking at the development between H1 2020 and H1 2019, the net rental income increased by EUR 5 million, not only driven by higher end, also driven by lower expenses from property management. Here, mainly lower ancillary costs of vacant real estate that we were able to reduce in the past 12 months. We saw a strong increase in the net income from our service business in H1 2020 versus the prior year period by nearly EUR 3 million, and it shows our expanding service business. Mainly this development is coming from our multimedia and energy services, where as you know that we're expanding this year-by-year throughout our portfolio.Looking at the net income from sales. Don't be surprised that we here -- have here even a loss of EUR 1.4 million in H1 2020. That does not really mean that we're economically selling portfolios of properties below book value but we have simply here effects from purchase price allocation from the first-time consolidation of Vantage, a EUR 3.3 million additional negative effect is here included in this number so if you want some more technical. Therefore, we arrived at a negative result. Economically, we are achieving, of course, here profits.Personnel expenses increased a little bit. This is then, of course, because our internal service business is growing. And very simple, if you compare it with the prior year periods, we have additional personnel costs from our business in Poland.Net financial results improved in H1 2020 by EUR 0.5 million year-on-year. So this is also a good development. And income tax, as not unusual, mainly contain deferred taxes. You see that we have cash taxes in Germany that are still on a very moderate level, which is -- was around EUR 3.6 million in the first half of 2020.Coming now to the next slide, which is Page #8. More details on the EBITDA, FFO and AFFO calculation. First of all, looking at the EBITDA margin. And from our point of view, definitely good development. So looking at H number -- H1 2020 numbers, we are now at an EBITDA margin close to 71% after 67.5% in the comparable period of the previous year. So that shows that we are not only growing our rents, but also are able to keep the costs on a, let's say, relatively stable level. I already commented on the FFO development, which was really positive. We saw a slight decrease in the AFFO, which is then driven by higher modernization CapEx that we are using. Modernization CapEx, nothing new. So that means not any new programs for existing tenants, as you know it from us, mainly driven from CapEx programs for vacancy reduction, here mainly in the Berlin and Chemnitz region, unchanged basically to what you have seen from us in the last quarters.Again, important to point out that the total results from Poland do not contribute to the FFO I, so when we talk about the FFO I, that solely refers to our German business. And we include all results from our business in Poland as it is in 2020, solely a disposal business, into the FFO II. You see here on the right side of Page #8, a detailed calculation. We're basically calculating a kind of net profit from disposals, cash after minorities, after effects from purchase price allocation, after any noncash effects, for example, from the valuation resulting from deferred taxes to arrive in the first half at a small loss of EUR 800,000. And for the full year, we expect a significant contribution to FFO II from our business in Poland, as you know that most handovers will take place in the development business or in the construction business towards the end of the year.Coming to the next slide, Page #9. Just a small comment from our -- from my side, if you compare the figures from June to December, please be aware that the December numbers are still without any effects from our acquisition of Vantage that took place at the beginning of January this year. So some of the differences are caused by this fact. For example, if you look at the intangible assets, we pointed this out here, in point #2, we see a goodwill of nearly EUR 19 million that is coming from this first time consolidation.On Page #10, the details regarding the EPRA NTA calculation. I already commented on the general development. And the EPRA NTA stands now at EUR 20.77. You will see in the appendix, we have a detailed calculation of the old EPRA NAV calculation, and also the other 2 new EPRA NAV metrics.Looking at the EPRA NTA calculation. Important to mention that we are not including transaction costs into our EPRA NTA calculation. Please have a look at the footnote. If we would do that, so if you will put on top of the numbers you see in the table, the potential transaction cost, that means mainly the real estate transfer tax, then the EPRA NTA would be, on a per share basis, EUR 2.84 higher. So that means it would stand at EUR 23.61 per share. We are not including this transaction costs. I know that this is something that is currently handled differently in the peer group. Because you noted from the past, we decided, I think, it will be what, 3 years ago, to exclude that from former NAV calculations because we simply see here risk in the current German RETT law that these real estate transfer tax-free share deals are not possible anymore in the future. So therefore, we think it's perhaps a more prudent approach to leave that out from the very beginning.Then I'm on Page #11, which is the financing structure. The average cost of debt is now down to 1.6% with a total average maturity of the financial debt of 7 years. The Moody's rating is still a Baa3 with an outlook that is stable. Perhaps interesting to look at the last updated credit opinion that Moody's published some weeks ago in July 2020, and that confirmed that we are very stable even in this not easy times of COVID-19 pandemic.There's still further refinancing potential, EUR 409 million of German bank loan maturing or interest terms of these loans are ending in the next 3 years. So we included now the 2023 bank loans as well. And if you look at the coupons, they are between 2.5% and 2.7% in this bank loans. So as in the past, with every refinancing, we will have material interest cost savings.And I'm coming now to Page #13. A table with the main data about our German portfolio. At the end of June 2020, the total GAV stands now at EUR 5.6 billion. If we include the Polish portfolio, where the total JV is EUR 150 million, we arrive at a total JV of EUR 5.7 billion. 1,000 units more than at the beginning of the year, but this is mainly the result of the closing of some acquisitions, as I already mentioned, in the course of the second quarter of 2020.Page #14 is a slide with details on rental growth and CapEx allocation. I think the CapEx allocation and the CapEx amounts also on per square meter basis, are very comparable to what you have seen from us in 2019 and in the first quarter of 2020. And perhaps it's more interesting today to look at the development for the like-for-like rental growth quarter-on-quarter. And if you look at the total like-for-like rental growth that we achieved in the first half of 2020, we ended up with a total like-for-like rental growth, including vacancy reduction of 1.5%. And you have to take into account, when looking into this number, basically 3 different effects. So what we had, first of all, is a lower impact from vacancy reduction than, for example, in the previous quarter, which is an effect of around 30 basis points. You know that during the COVID-19 pandemic, the [ resetting ] processes simply have been not that easy. So therefore, for us, the vacancy rates -- or keeping the vacancy rate at a stable level was definitely a success. But to make it clear, we will stick to our guidance for vacancy reduction, and the vacancy reduction for the residential portfolio should be at the guidance, which is 4.3% to 4.5% towards the end of the year. As I said, in August, we are at 5.0%, so should still expect now in the next month. And in the course of the third and fourth quarter, vacancy reduction to come.Then we had, again, effects out on the voluntary -- from the voluntary waiver of rent increases that we did during the first and second quarter. That's already discussed. And what we have seen and what led to another effect of around 20 basis points is a reduced tenant turnover during the COVID-19 pandemic. So whereas our normal turnover stands typically between 10% and 11% in the total portfolio, we have seen now more numbers between 7% and 8%, which is, for us, then quite unusual.Now the turnover is perhaps back on a quite normal level. So more towards the 10% and 11%. So therefore, we also had a slight effect from reduced tenant turnover as the [ relating ] rents then were not on that level where we normally have it. But this effect is not material. But in combination, we are now at a rental growth of 1.5%. And if you try to adjust this, then we -- you end up at something which is perhaps around 2.2%. that's shown to you in the presentation. And that's absolutely in line with the guidance for the total like-for-like rental growth for 2020, which is also unchanged, which still stands at a -- in a range between 2.0% and 2.5%.On Page 15, you see details regarding the vacancy rate reduction, but I think we already discussed this. Again, in August, the vacancy rate was 5.0%. So we should see a positive development here in the next month and quarters.Page #17 shows you more details on our acquisitions. Please understand that the integral transaction details we have to keep confidential. So therefore, perhaps also, if you have to look at the aggregate numbers for this year comparing that with the prior years, perhaps last 2 years. First of all, the total number of units is definitely positive. So we are already at 4,200 units for this year. That's, of course, a very successful acquisition volume for us in the first 8 months. The vacancy rate is then slightly a little bit higher to what we have seen in the last 1 or 3 years, but nothing extreme, stands on average of 21%, also a reason why the average gross yield is not at an 8% but more towards a 6.8%. So the 6.8% is really based on the current cash flow. That means taking into account this 20.8% vacancy rate in the current portfolio. And also, I think we discussed this in last calls, we, of course, see increasing prices but based on this vacancy rate, a gross yield of nearly 7%, this is still something, from our point of view, very attractive.Then moving on to the portfolio valuation, which is on Page #19. You see here the results. The semiannual valuation uplift without any effects from CapEx was 3.3% that compares to 4.2% in H2 2019. Looking at the absolute amount, we see not really a material difference EUR 174 million in the first half compared with EUR 202 million in the second half of 2019. The overall valuation levels are still on a moderate levels of 5.9% gross yield and EUR 1,070 per square meter should definitely not be the end of the road.Any predictions on the second half valuation, we will do, of course, a full year valuation at year-end. Again, is, of course, difficult. But if you ask us, we don't see here any change in the demand for our properties, any change in the markets. We don't see any distressed sellers on the market that would potentially put pressure on valuation levels or on prices. So therefore, the positive continue -- the positive development that we've seen in the past should also continue in the year 2020, towards the year-end valuation.Looking at our business in Poland, you see a summary on Page 21. You know the summary from the previous presentation. We basically gave you an update now, including a new location, which is Lodz. All other parameters are unchanged for the total pipelines, the really current projects, current projects means we have already acquired the land banks are already constructing the projects, stands at 5,800 units. There are additionally planned projects of 9,300 units, where we are already negotiating. So we should be very much on track to achieve our midterm goal, which is unchanged to have the next 3 to 5 years between 8,000 and 10,000 letting units in Poland.On Page #23. We give you some information about a very successful ESG rating that we received from Sustainalytics. Perhaps you have seen the press release that we published some days or weeks ago. ESG is, of course, becoming more and more important and, basically, it was always a big topic for us internally. Now perhaps we look also more on communicating on this. Being amongst the top 5% in the total real estate sector worldwide should be a very nice outcome for us. ESG is not only, let's say, focused on environmental things, I think that's still important, but especially the social responsibility during the time that we have now good relationship to tenants. That's something that we really work hard on. So therefore, the total ESG score that received in this and other ratings, I think, confirms that we're here on a very, very good rating.Then finally, on Page 25, guidance for financial year 2020. The FFO guidance for Germany and the disposal guidance [ FFO I ] for Poland is unchanged. Perhaps you have seen it in the press release this morning that we are thinking about a potential increase of the FFO and also that the dividend guidance, that will come for 2020. That depends a little bit now on the closing of the acquisitions. Generally, if you look at the development of the FFO in the first half and you multiply the FFO for the first half of 2, then you end up as -- with an FFO of EUR 173 million. Acquisitions could have perhaps an additional impact between EUR 1 million or EUR 2 million. Perhaps, we see also some tax benefits from the transaction that we announced today, especially from the repurchase of the outstanding convertible bond. So therefore, let us work a little bit on that, and by the latest with the publishing of the Q3 results that will also include the FFO guidance for 2021. We will give you an update on the FFO guidance and the dividend guidance for 2020. And if everything continues as it is now, and that should be the case, then we're very positive that we are moving more towards an increase in the guidance in the coming weeks.Some final comments on the transactions that we announced today. I think you have seen that we published that we're issuing today, a new EUR 450 million convertible bond with a 6-year maturity, a coupon premium of 0.375% and 0.875%, conversion premium between 32.5% and 37.5%. So the outcome of this transaction will be announced today. Use of proceeds for this new convertible bond are, a, financing for our acquisitions. That's in total, up to date, around EUR 163 million. You've seen that in the presentation. And the second point, we're buying back also, not in total but with a volume of 50%, the outstanding EUR 262 million convertible bond, which is due in 2022, by a reverse book building process. So the total investment volume for this repurchase will be around EUR 180 million. If you do then a simple calculation and say, okay, EUR 450 million from the new convertible bond, less total investment volume of around EUR 180 million for the repurchase, that leaves you with EUR 270 million net cash proceeds. If you deduct then the EUR 163 million for acquisitions signed this year, then you end up something around EUR 110 million, EUR 115 million, that is still less. And that is, of course, liquidity that we can use for further acquisitions, for example, in Germany or also in [ ports. ]So we will report on the outcome of this transaction. And today, regarding the new convertible bond, we will report and inform you about the outcome of the tenders, of the repurchase, of the outspending convertible bond tomorrow morning.That's it from my side, as an overview, not just on this transaction, but also on the H1 2020 numbers. And of course, now we are happy to take your questions.

[Operator]

[Operator Instructions]And we've received the first question. It is from [ Andres Toome ] of Green Street Advisory.

[Andres Toome, Senior Associate]

I'm just wondering, why do you believe the convertible bond is a good financing option? Just from the looks of it, it seems that you're buying it back from -- for EUR 180 million for the principal of something along the lines of EUR 130 million. So the kind of implied annual cost comes to north of 10% per annum over the 3-year period.

[Martin Thiel, CFO & Member of Management Board]

Yes. Thank you for the question. I mean, you can, of course, look at a convertible bond. So I'm talking more generally, purely from a more debt perspective and compare it with the corporate bond and say, okay, the coupon is lower, but you have to [ dilution ] risk. And if you buy that back, then perhaps it's expensive debt, which could be then the case. But we look at a convertible bond primarily from the view that we hear placing equity, also with the new convertible bond, with a premium, and to have flexibility. So also, we could have now decided to convert the existing convertible bond into equity. Then, of course, we have the dilution effect. But I mean perhaps the alternative -- or a fair alternative would have been in 2017 to place equity. So therefore, economically, we would have a similar dilution as of today, again. So therefore, we still like convertible bonds. I know that this cash, and especially amongst German residential companies, is intensive. But as I said, we're not looking at that from a perspective that we achieve somehow cheaper interest rate on that. A convertible bond really gives us flexibility, and it's really also a tool to place equity with a premium.

[Andres Toome, Senior Associate]

And how should we think about this premium that you're paying now with the repurchase? I assume that won't flow through your FFO.

[Martin Thiel, CFO & Member of Management Board]

The premium or -- first of all, the calculation is correct. Basically, that's EUR 50 million that we are paying on top -- or something around EUR 50 million on top of the notional amount, which will then not be included in the FFO. It's also, by the way, already reflected as a debt, as a derivative liability in the balance sheet. So we're already accounting and have accounted for that in last year for the fair value of this option in our balance sheet.

[Operator]

The next question is from Kai Klose of Berenberg.

[Kai Malte Klose, Analyst]

I've got 3 quick questions here, if I may. The first one is on Page 7. Could you elaborate a bit more on, as you mentioned, technical effect on the income from sales due to Vantage. The second question is on Page 29 of the presentation where you show the split of the valuation change by regions. I was just a bit surprised about a relatively low uptick in values in Chemnitz after you spent there quite a lot for CapEx in modernizations. If you could explain that in a bit more detail.And then the last question would be on the LTV. As you know, it's the up end of your target -- virtually at the up end of the target. Is it fair to assume that by September, it might be slightly above that 45%? And then what are your plans then looking forward as the presumably limited upside in values for the year-end valuation?

[Martin Thiel, CFO & Member of Management Board]

Thank you, Kai, for the questions. First of all, perhaps I try to explain this purchase price allocation effects a little bit more in detail. So what we had to do under IFRS that we account for every property that well -- Vantage is constructing with the fair value. So that means also the construction projects, which are normally valued at cost in the IFRS balance sheet on Vantage level are in our balance sheet at the acquisition date, that means in January 2020 at a fair value. So for example, if Vantage is selling something at EUR 100 million, and their book value at cost is, let's say, EUR 70 million, we have it in our books from the very beginning at the EUR 100 million. So therefore, as long as we are selling properties that already have been in the balance sheet of Vantage at the acquisition date. We basically not -- we are basically not making any book profits. So -- and then on top of that, you have ongoing sales costs. That means mainly marketing costs or mainly any kind of broker fees that you're paying upfront. So just, I would say, for the first 1 to 2 years, technically, in the IFRS balance sheet, we have a result which is around 0 or even slightly negative. Of course, economically, the cash flow is there. So there are -- clear Vantage is making profits on their level, that the margins are -- if we look at really gross margins, perhaps something around 25%.You're right, the Chemnitz valuation uplift is not that spectacular, especially having in mind that we are investing a lot, but that's not an uncommon picture. So what we have seen maybe always in the past is that we have modernization programs. And then, of course, let's say, a kind of discussion with our valuers or what's really the new rent level afterwards we can achieve, what's really the new vacancy rate we can achieve. And normally, after 1 or 3 years, we always get the valuation uplift, but perhaps not already at the point in time where the construction process is still ongoing over the construction process, modernization process is just finished. So therefore, we need to prove that our plans are really going into the right direction. So therefore, achieving just small operation gains in -- during modernization phases. That's not as uncommon. But here in Chemnitz, we are very positive that we will see here a positive development in the next 1 or 2 years also regarding valuation levels.And LTV targets. You're right. Basically, we are exactly at our LTV target. So the LTV target is approximately 45%. And now we are at 44.9%, penciling in today's transaction, where we're buying back an outstanding convertible bond that would increase the LTV by approximately 100 basis points. So they would go then from 45% to, speaking rounded numbers, something around 46%. But if you have 46%, and an LTV target of approximately 45%, that's, from our point of view, not a big difference. But it's clear, we don't want to lever up here. So you should not expect that we are now going towards a higher LTV and go more back towards the 50% or something like that. So we clearly stick to our LTV target, which will take them some weeks and months to bring that a little bit more down from our ongoing results. And also, by the way, we are selling assets, not in material amounts, but this continuous sale of properties will also reduce the LTV in the next quarters.

[Kai Malte Klose, Analyst]

Maybe 2 quick follow-up on that. First one on Chemnitz, again. The EUR 4.9 million valuation result. Is this on top of the amount of CapEx you have spent? So what I'm asking is where we acknowledge the amount of modernizations in full -- full as modernization investments?And second question also on the LTV. Then it is fair to assume that by year-end, the LTV will be slightly above to you -- up a little bit? Or do we expect on the second -- from the [ year-end ] valuations, this to come down closer to the 45%?

[Martin Thiel, CFO & Member of Management Board]

[ And while ] that's the case. So we expect it to be at year-end. We are basically, again, where we are now. And regarding your first question, it's on top. So the -- it's a bit more than EUR 4 million. It's on top of the modernization that was then, if I want to accept it by [indiscernible]

[Operator]

The next question is from [ Daniela Lungo ] of First State Investments.

[Unknown Analyst]

Yes. Can I ask 2 questions, please? One is on your rental growth guidance of 2% to 2.5% for the full year. And I've noticed you've gone through the potential adjustment, just to explain what the impact from COVID was in the first half. So my question is, is the guidance based on pure real rent growth? Or should I look at this 2%, 2.5% on an adjusted basis? Meaning that if we add back, the negative COVID impact would be 2% to 2.5%. But if we don't have that, the real rental growth at the year-end would be lower?

[Martin Thiel, CFO & Member of Management Board]

No. Thanks for the question. And [ as I have ] a chance to put it clear, that's based on real rental growth. So it's not an adjusted rental growth.

[Unknown Analyst]

Okay. That's great. Good to hear. And secondly, could you give us some more color on the acquisition? You've made -- are the -- and apologies if I'm not fully cognizant of the German geography. Are these locations similar to where you already operate? Why is the vacancy so high? Do you need to do some CapEx? Is there a lot of investments? So just a little bit more color for us that are not Germans to understand a little bit more of the portfolio that you're acquiring, please?

[Martin Thiel, CFO & Member of Management Board]

It is, of course. And basically, all the transactions that we signed in the course of 2020 is, also the transactions that we did after the balance sheet date, our typical TAG portfolio. First of all, looking at the locations that, I think, 100% are located in East Germany, which is, for us now for years, a big focus. It's then not Leipzig and [ Dresden ]. It's more -- the secondary or the midsized city in East Germany that we like a lot. And we also like vacancy rates as long as we understand what's the reason for the vacancy rate and what can we perhaps do better than former owners. And therefore, as we are purely buying -- and that's also, I think, for 100% of the portfolio, for nearly 100% of the portfolio, too, in locations where we already are, we are very positive that we have here the right concept to fill up vacancy. And if you are now at a vacancy rate of, on average, 21%, I mean it's clear, getting that to 2% or 3% is perhaps not possible. But reducing that year-by-year would bring us really very nice extra cash flows on top of their starting gross yield, which already stands at 7%. So that's really something that we like. And again, the total amount of more than 4,020 units for 2020 should also be something very positive.

[Operator]

The next question is from Thomas Neuhold of Kepler Cheuvreux.

[Thomas Neuhold, Head of Research of Austria]

I only have 2 questions, basically on the Page 31 of the presentation, regarding the NAV calculation. It looks like that you have chosen not to reflect the value of the service business in your [ normal REIT. ] So I was wondering, first, what were your considerations here -- not to reflect the value of the service business here? And secondly, can you give us an indication, what the FFO contribution of the service business was in the first half year? And what it could be this year?

[Martin Thiel, CFO & Member of Management Board]

Yes. I mean that's a valid question, why did we not account in the EPRA NRV. So the net regions treatment value for the fair value for our intangible assets. And intangible assets, that's mainly the service business. First of all, there's one, let's say, formal reason. We have not any valuation report on that. Honestly, we are little -- waiting a little bit what is really here the market standard within the peer group. And if it's clear that everyone is publishing valuation reports on the intangible assets, that means mainly on the service business includes this into the EPRA net reinstatement value. And this is something that market needs and like then, of course, you would do it. If you ask -- and that's also, by the way, what the EPRA guidance says. You can't calculate it on your own, so we need external valuation.If you ask perhaps me personally, how do we see this? Is this something that makes sense? Or I think everyone that has made valuation on intangible assets knows the range is really extremely broad. So therefore, personally, I would be careful when looking at fair values for intangible assets. But that's more a personal opinion. But Thomas, perhaps, give us some time and perhaps towards [ year-end, ] we will do something. And again, it's clear if this is something that is the kind of market in peer group, then we would also follow. For now is just the book value.And the second question from the FFO contribution from the service business. I think from the top of my head, we had ended last year, we had a contribution for the full year of around EUR 8 million to EUR 9 million, if I remember it correctly. We were expecting for 2020 for the full year something between EUR 10 million and EUR 12 million. And I think we are completely in line. So as a rough number, we are between EUR 5 million and EUR 6 million FFO contribution for the service business in H1 2020.

[Operator]

At the moment, there are no further questions. [Operator Instructions]We've received another question is from Andre Remke of Baader Bank.

[Andre Remke, Co]

Yes. Also from side only one question on your acquisition path. After the strong number of units you acquired year-to-date, should we expect more to come for the remainder of the year, at least in terms of signing? Or is this a [ state of ] 4,500 roughly of what is achievable this year?And a related question, is it fair to assume that if the mid -- or, let's say, larger state portfolio would come to your mind a cash capital increase would be needed, given your reach LTV target. That's the question, please.

[Martin Thiel, CFO & Member of Management Board]

Yes. Thank you, Andre. I mean, outlook on further acquisitions is always difficult. Normally, third and fourth quarter are typically stronger quarters. But yes, it's really difficult to make here a complete focus. So first of all, we're happy with that more than 4,000 units. Should we expect another 4,000 units in the remaining part of the year, so the next 4 months? I think that will be too optimistic. So Germany is definitely competitive. But let's see what is possible. But it's really hard to make -- giving here concrete guidance. Poland looks not that competitive. Here, we have some opportunities. We're doing this, as you know, step-by-step by acquiring further land banks. So therefore -- and Poland will be definitely active. In Germany, of course, we are also looking at the market closely, and we're working hard on that. But here, we are [ basically ] as well as in Poland really price disciplined.And the question, if we see other significant acquisition size, whether it is Poland or it is Germany? Do we need a capital increase? I wouldn't assume that as a choice we need for the next month. But as we said in -- I think also on the last call, looking especially at our plants in Poland and continuing there or expanding there our pipeline, we are investing more than EUR 1 billion, or at least that's the plan in Poland over the next 5 years. So at some point in time -- at this point in time, if that's not 2020, but more for next year onwards, we will also think and also perhaps do something on the equity capital market to have our LTV here in line with our target. At the moment, we're absolutely not worried that we get into another dimension with acquisitions regarding our LTV target.

[Andre Remke, Co]

So the acquisitions you have in your pipeline or you are working on, let's say, until year-end, there is no additional capital needed other than you have on your operating business.

[Martin Thiel, CFO & Member of Management Board]

That's the -- cash is enough. So that's -- especially with the, hopefully, successful transaction from today, the cash position should look very good.

[Andre Remke, Co]

And then you would allow to exceed your LTV target of 45% to a certain extent.

[Martin Thiel, CFO & Member of Management Board]

Yes. I mean if we are at an LTV of 46%, economically, the situation would not really change. So we've also seen, let's say, a lower LTV in the light of that. Here, the situation does not really change that much. So if we are round the 45%, then we're absolutely fine. So 1 percentage point more or less does not really change our view on our debt structure. But again, it's very clear, we don't want to lever up, so we should not expect that we're now moving towards the 50%. That's clearly not the plan.

[Operator]

The next question is from Georg Kanders of Bankhaus Lampe.

[Georg Kanders, Investment Analyst]

I have one question regarding the service business. Compared to Q1, I saw a decline in the expenses from the service business, while there's not such an increase against Q1. Is there some special in Q1 or a special factor in Q2 -- yes, in the expense?

[Martin Thiel, CFO & Member of Management Board]

Yes. Thanks for the question. The cost position as well as the revenue position in the service business is floating quite strongly because of the energy business. So in the energy business, we mainly, to make it simple, buying gas. So -- and then if we have a quarter with perhaps more purchases of gas and we have more costs and perhaps also more revenues. So I think looking at the net number, the related net income from services is something that makes sense. But looking at the development of cost position in total, that's then difficult to analyze.

[Georg Kanders, Investment Analyst]

Okay. Then -- but if the gas business is such important then, okay, you need more gas when it's cooler.

[Martin Thiel, CFO & Member of Management Board]

Or perhaps we are also buying gas because it's simply cheaper on the market. And then we buy it for the next quarters. So for next 2 years. So that's really -- not really predictable. I think in the full year presentation, we also published details on expenses and revenues for each service business line. Perhaps that's then helpful to look into that. There we see a little bit the proportion of expenses and revenues within the different service lines.Okay. I don't know if there are any further questions left. Perhaps we are missing our operator now.Okay. There seem to be no further questions left. If there are any questions left, then we are now not able because of perhaps some technical problems, to answer it. Please feel free to call our team or me directly or give us an email, happy to answer that. Thanks for joining the call, and have a good day.