TAG Immobilien AG

XETRA:TEG

Earnings Call Transcript 2020-Q3

[Operator]

Ladies and gentlemen, welcome to TAG Immobilien publications of interim report quarter 3 2020. We have Mr. Martin Thiel, CFO of TAG Immobilien.Without further ado, I will now hand the call over to Mr. Martin Thiel. The floor is yours, sir.

[Martin Thiel, CFO & Member of Management Board]

Yes. Thank you very much, and good afternoon, everybody, and thanks for joining the call. Today, the call at a little bit unusual time, later in the day as we had several announcements from companies in the morning. We thought it's perhaps good idea to do this a little bit later to give you time to listen perhaps to more than just our call. So thanks again for dialing in.Today, Q3 numbers, looking at these numbers and summarizing the business development of the third quarter. I think the stable business that we had over the course of the year simply continued. I think so far, we had really a good year. This is also the reason, perhaps you've seen this already, why we could increase now the guidance for 2020 slightly. Still just very small effects impacts -- negative impacts from the COVID-19 pandemic on our business should also be good news. We will report today on our activities in Poland, to give you an update how far we are with our plans to build up the residential foreign pipeline. And we were published -- or have published today, we'll explain it to you during this call, the FFO and dividend guidance for the financial year 2021.But let's start with a comprehensive overview on Page #4. That's the highlights slide. And to pick out some numbers. First of all, a positive development in the vacancy rate during the third quarter. So we were able to reduce the vacancy rate by 30 basis points quarter-on-quarter from 5.1%, now to 4.8% at the end of the third quarter in September. Like-for-like rental growth, unchanged, still at 1.5% including the effects from vacancy reduction, 1.4% excluding the effect from the vacancy reduction. FFO I, basically stable and unchanged, EUR 44.6 million in the third quarter compared to EUR 44.5 million in the previous quarter. The EPRA NTA just showed a smaller change, a small increase to EUR 20.76 or more or less remained stable with the previous quarter. A slight increase in LTV, that was not unexpected because you can remember that we repurchased part of an outstanding convertible bond in August this year and this liability management transaction more or less was the reason for the increase in the LTV by 80 basis points. So that's roughly in line with our LTV target of approximately 45% at year-end. We clearly expect LTV should be around 45% or even below 45%.I will comment on the guidance later, of course, in more detail. Just to give you an overview, we increased the guidance for the financial year 2020 slightly. On a comparison year-on-year. So new guidance 2020 with the actual results for 2019, we can now -- or we expect an increase by 7% on an FFO on an absolute basis, on a per share basis, and as well we are guiding for dividend increase by 7%. The new guidance for the financial year 2021 shows a 5% increase on the FFO in absolute terms, also on a per share basis, and also, we expect the dividend to grow by 5%.Looking at acquisitions and disposals in our German business, we had smaller acquisitions in the third quarter, 120 units. So the total acquisition volume for the financial year 2020 now adds up exactly to 4,338 units. And also, there have been some smaller disposals, 110 units approximately in the third quarter. And that adds up to 320 units disposed so far in the financial year in 2020.Coming to the next slide and looking more detailed at the COVID-19 pandemic impact on our business. I mean the first topics that we hit here are more or less unchanged. You know them. I mean we had this voluntary waiver on rent increases until June 2020. Since July 2020, we are increasing the rents again. So we've come back to a kind of normal business. This has not the effect -- or had not the effect that from the 1st of July 2020, every rent increase as effective or was sent out, but we will expect here rent increases and a stronger rental growth, especially now in the fourth quarter. Vacancy rate yes, year-on-year or since the beginning of the year is stable. And as I said, even reduced in the third quarter. Still just very little impact on rent payments, so that's definitely important. The cash flow is virtually unaffected by the COVID-19 pandemic. Positive developments in -- on our business in Poland as well. So all the construction sites are still running even today. No delays so far. We've been able to acquire further land banks and projects. So the total investments, the total units that we have secured or are already under construction now add up to more than 7,600 units. And in the third quarter, we acquired landbanks and projects for 1,845 units in 3 locations in Wroclaw, Poznan and Lodz.Also the sales numbers in Poland picked up in the third quarter 2020. Perhaps you remember that we reported a quite strong reduction in the second quarter 2020 due to the COVID-19 pandemic. But as expected, this was just a temporary effect. So the sales numbers in the third quarter nearly doubled to 124 units, and that's exactly the number that we expected at the beginning of the year when we did our internal budget. Sales prices remained stable over the time or even slightly increased in the first 9 months of the financial year 2020.I'm now on Page #7, and some more detailed comments on the development and income statement in the third quarter. Comparing the first 9 months 2020 with the first 9 months 2019 and looking at net rental income, this number increased by EUR 4.9 million. There was the increase in the net rental income, mainly driven by higher net actual rent at EUR 4 million and lower ancillary cost of vacant real estate over this time. In the third quarter, now we had a reduction of our net rental income by EUR 2.3 million. But please don't consider this as a kind of trend from quarter-to-quarter. Some costs like, for example, maintenance or also like service charges costs have a certain swing depending on the fact whether we do more service charges or not, whether we do more investments or not. So that should be definitely not the trend. But in the third quarter, therefore, a smaller reduction by EUR 2.3 million. Looking at the net income from sales. I think that's also important to point out, you see a number of EUR 2.6 million. That's more or less purely coming from our business in Poland. But this EUR 2.6 million net income, don't be confused with a number after effects from the purchase price allocation that we did under IFRS in our consolidated segments. If you exclude this effect and really look more at a cash number, this number is EUR 4.9 million higher. So in the third quarter, EUR 2.6 million, plus EUR 4.9 million, so EUR 7.5 million was more or less the net cash effect from the sales in Poland on our P&L.Looking at the valuation results. As always, in the third quarter, more or less no valuation results, so just a very small impact. As always, we're doing the next full portfolio valuation with the Head of CBRE at year-end. So we will publish that with the fourth quarter results. And clearly, we are already in discussions, and we know at least perhaps a certain trend where you should expect the full year valuation result to come out. Please be aware, this is not an official guidance. But looking at our first half results, we had the 3.3 valuation gain -- so of 3.3%, sorry, valuation gain in our P&L, you should expect something similar in that direction. So percentage-wise, the number is a little bit smaller, but in absolute terms, perhaps something very, very similar. That is a trend or a first rough estimate for the full valuation result. So that means more or less, we don't expect here any change in the positive trend that we had in the past. And we also see that in our markets, in our business. And if we look at our acquisition department today, as in the table, from the COVID-19 pandemic, there's definitely not any pressure on prices. And I think that's something that you know from other peers and what is true for the whole sector.Looking at other operating expenses. They are unusually high in this third quarter, but that's sort of very large part the result of a one-off effect. We found it in the third quarter a new foundation. Here I gave you the numbers who was -- that was established to invest in social projects in our TAG regions. And we've done this already in the past, but we thought, especially now after the developments that we had in the past months as a result of the COVID-19 pandemic, we want to structure that. We want to increase our social projects and therefore, we founded this TAG foundation. We will report on the foundation more in detail with our sustainability report. It is EUR 3.6 million that's a kind of capital this foundation needs to do these social projects. But that's, as I said, just a one-off and a onetime payment.The net financial results mainly decreased quarter-on-quarter by nearly EUR 75 million due to the fair valuation of the older convertible bond 2017/2022. So that's a noncash effect. Looking at the income tax result, the income taxes in Germany for the first 9 months have been, from our point of view, quite low with EUR 3.9 million. Very helpful and what led to an income tax reduction in the third quarter was the repurchasing of the convertible bond, or the partial repurchasing of the convertible bond 2017/2022, that we repaid in cash and that led to higher tax losses. So over the next 3 years, including 2020 and including 2021, 2022, we expect a total income tax saving of up to EUR 10 million from this transaction.Looking at Page #8, you see the development of the EBITDA, the FFO and AFFO. Looking at the EBITDA margin in the first 9 month 2020, you see the debt increased over time. So we are now at nearly 70% compared to approximately 68% in the first 9 months of 2019. As I said, in line with the reduced EBITDA in the third quarter, which is, again, not a trend reduction in the EBITDA margin compared to the previous quarter, but the more accurate picture if I can be taken from the first 9 months 2020, where we see the increase in the EBITDA margin.FFO I, more or less in line with the previous quarter here. Clearly, we benefited from the positive cash tax effect that I already mentioned from the partial repurchase of the outstanding convertible bonds. The results from the operations in Poland purely contributes to FFO II. So as of today, and this will be also the case for the very largest part of 2021, the business in Poland is more or less purely a sales business. So we are handing over apartments that have already been sold in the past. And the first rental projects will start towards the end of 2021. The result from operations in Poland in the first 9 months was EUR 2.5 million. On the right side, Page #8, you see the details on this calculation. For the full year, you note from the guidance, we expect a result between EUR 10 million and EUR 11 million coming from this disposal.Looking at the balance sheet on Page #9, you see a quite strong cash position of more than EUR 500 million at the end of September 2020. This is before payments of acquisitions in an amount of around [ EUR 140 million ] in October. So the very largest part of all acquisitions closed in October. We paid the purchase price so that means in October, after the balance sheet date, this cash position was reduced by roughly [ EUR 140 million ]. And of course, a strong cash position was the result of the issuance of a new convertible bond that we did in August 2020 with a volume of EUR 470 million. We also issued a smaller promissory note in July 2020 of EUR 92 million. And I already mentioned that we repurchased an outstanding convertible bond partially that was a total investment of nearly [ EUR 190 million ]. And these increases -- or these issuances of financial debt was also risen by a severe increase in the noncurrent liabilities.Page #10 shows the EPRA NTA calculations. Comparing that with the number at the beginning of the year, we see a 3% increase if you exclude the dividend payment of [ EUR 0.82 ], the increase is 7%. And please be aware that EPRA NTA calculation is with the deduction of full transaction costs. So just to compare that as with other calculations that you see, if you would exclude transaction costs, then the EPRA NTA per share would be nearly EUR 3 per share higher. You see this in a small footnote on Page #10. Page #11 shows the financing structure. The average maturity of the total financial debt stands now at 6.7 years. The average interest rate on the total financial debt is now down to 1.5%. Of course, the issuance of the new convertible bond with a coupon of just 0.6% helped to reduce this average interest rate of the total financial debt. Still, there's refinancing potential next year EUR 383 million of bank loans maturing or the interest terms are ending in the next up to 3 years, and the average coupon of these bank loans is 2.1%. We are currently refinancing bank loans for 10 year maturities below 1% in most cases. So there should be clearly further interest cost savings in the future possible.On Page #13, you see the overview or the main data on our German portfolio. In this case, the quarter-on-quarter number of units is nearly unchanged, 85,000. As I said, the closing of the largest part of our acquisitions happened in October. So beginning with October, the number of units is increased by approximately 3,500 units. Page #14 shows the development on the like-for-like rental growth and CapEx in the third quarter and on a like-for-like basis. The like-for-like rental growth is at 1.5%. I already mentioned that at the beginning. So that's more or less unchanged compared to the previous quarter. And also from the last call that we tried to identify to make clear the corona impact on our rental growth from our voluntary wave of rent increases from reduced tenant turnover and also from lower vacancy reduction than we had in previous quarters. Still, we stick to our guidance on like-for-like rental growth, which would be above 2% for 2020, 2% to 2.5% is the official guidance. So that's still the case. Let me confirm the guidance and we expect further rental growth in the fourth quarter. Maintenance and CapEx development, there are no -- with new developments here. We have slightly increased the total investments. You see this on top right on Page #14 to EUR 21.80 on an annualized basis compared to EUR 20.40 on an annualized basis or on a full year basis in 2019. So not really a major change in maintenance and CapEx spending. And also the regions where we invest, the largest part of our money are unchanged, which is Berlin, in our case, [indiscernible] Hamburg and the Chemnitz region.Page #15 shows the development in the -- of our vacancy rates in the portfolio. And here, we're happy to show a reduction by 30 basis points in the third quarter of 2020. For the full year 2020, that means for fourth quarter, we expect similar development of the vacancy rate. And that means if we achieve a similar vacancy rate reduction like in this quarter, also in the fourth quarter, then we are already at our targeted rental growth -- sorry, at our targeted vacancy rate of 4.5%, and perhaps we'll even be able to reduce it a little bit further. So that means in case of a vacancy rate reduction, we're more or less back on track after the difficult months of the COVID-19 pandemic earlier this year.Page #17 shows in a summary, the acquisitions year-to-date, as I said, just small acquisitions in the third quarter. But generally, we're, of course, very happy and satisfied with the acquisition volume year-to-date in 2020. More than 4,300 units at a nearly 7% gross yield in regions where we already are with an average vacancy rate of 21%. We are very convinced that we can reduce the vacancy rate over the coming years strongly, so that should be something very positive for the future.Page #19 shows an overview of the current and planned projects of our business in Poland. Looking at the current projects in the meanwhile, we have a total number of units, so that means land points or projects already under construction of 7,600, out of which more than 4,000 are designated as build-to-hold projects and 3,500 units are designated as build-to-sell projects. If you add on top of that planned project, and planned projects really means projects where we are in processes of looking closer at them perhaps already in divisions, processes and in negotiations. This number will increase. So you see here on the left part of Page #19, a rough estimate of 9,900 units in total -- build-to-hold projects and that would exactly tie into our target of 8,000 to 10,000 ready-for-rent units on the midterm in Poland. 3 locations, we have entered in the meanwhile, Wroclaw, that was the starting point. Poznan is a second location, Lodz is a third location. You should expect that in the fourth quarter, we can also publish that we have entered a fourth location. Here we can deliver and publish some details, hopefully now with the full year results next year in March.And then finally, on slides 21 and 22, the guidance for financial year 2020 and financial year 2021. So we increased the guidance of -- regarding the FFO, the FFO per share and the dividend per share a little bit to EUR 170 million to EUR 173 million in absolute terms to EUR 1.17 per share regarding the FFO and to EUR 0.88 per share when looking at the dividend. That's a 7% increase compared to the previous year. And again, the 7% increase is not only realized on absolute amount. It's also realized or will be realized on a per share basis.On Page #22, you see the new guidance for the financial year 2021. Regarding here for a 5% increase, again, on an absolute amount and on a per share basis. And this also is true for the dividend. This guidance is based on the current portfolio, including all the acquisitions that we have signed until October 2020. So everything that you see today in the presentation. For purpose of the guidance, no further acquisitions or disposals in the next weeks or in the coming year, are assumed. But of course, we're working on that, but please be aware that it's on the existing portfolio. And the FFO guidance 2021 basically purely refers to the German renting business, as we expect from our renting activities in Poland that the contribution to FFO I will be not really material. So this, in the midpoint, EUR 180 million FFO for which we're guiding is basically coming purely from our German business.Page 23 shows in more detail the FFO -- the expected FFO development between new guidance 2020, where the midpoint is EUR 171.5 million. And the midpoint of the new guidance of EUR 180.0 million, and you see, the main impact is coming from an increase in net actual rent by more than EUR 14 million. We are expecting for 2021 a like-for-like rental growth, including vacancy reduction of around 2%, and the remaining 2.5% of the total growth in net actual rent will be from acquisitions and disposals in 2020 that will then contribute in 2021 for the first time for a full year.We also expect some high expenses from property management, but that's not really a change in structure or change in maintenance policy or whatever. That's more or less the result of an increased portfolio size in 2021. Besides this, the cost base is broadly stable. This also refers to financing costs. And we have not -- we don't expect lower financing costs in an absolute amount in 2021 as the total debt as a result of our investments this year is higher than in 2020. But with the lower interest rate that we achieved through our refinancings in the course of the year, we were able to keep the financing cost stable. And this is also true for our taxes. So despite the fact that we expect a higher profit, not only under IFRS, but also under tax law, we're able to keep that more or less stable. Also here, very helpful was the effect from the partial repurchase of the outstanding convertible bonds 2017/2022.Yes. That's it from our side is an overview of the development in the third quarter of 2020 and about -- and our comments here on this. The increased guidance for the financial year 2020, the new guidance for the financial year 2021. And of course, now we are very happy to take your questions.

[Operator]

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

[Thomas Neuhold, Head of Research of Austria]

I actually only have 2 questions. The first one is on the likely ramp-up of the Polish build-to-hold portfolio. You mentioned that there will be only immaterial effect in 2021. Can you provide us with more details on how 2022 and '23 and '24 could look like in terms of ramp-up of the build-to-hold portfolio? And then just a minor question on the guidance. Page 23, you mentioned that you modeled in 2% total like-for-like rental growth, including vacancy reduction. If you would split this 2% between like-for-like rental growth and vacancy reductions, what would be the figures here?

[Martin Thiel, CFO & Member of Management Board]

Yes. Thank you, Thomas, for the questions. I'll start with the second question. So it's correct, this 2% is a rough number, like-for-like rental growth that we expect, out of which is approximately 30 basis points, so approximately 0.3 percentage point vacancy reduction, and that means that we expect approximately 1.7% from like-for-like rental without vacancy reduction. And this 1.7% is then purely a like-for-like rental growth coming from regular rent increases for existing tenants and from rent increases in case of tenant changes. So that's without any modernization CapEx or without any effects from larger monetization work for existing tenants. Looking at the portfolio in Poland. And as you know from our previous presentations, and we will update that with the company presentation that we will publish in the course of the day that we are already guiding for the development of units-to-hold. And you will see that the total number of units in the renting business at year-end 2021 will be still not that significant. We expect around 500 units. But then year-by-year, that will increase. And at the end of 2023, we expect that something around 5,000 units in our portfolio are also designated or also ready to be rented out. And the full impact from the renting business in Poland, that means the point in time when we have reached 8,000 to 10,000 ready-for-rent units, will then be in the end or in the course of financial year 2025. So Poland is definitely a midterm business and more or less, the FFO 2021, and also to a larger part, FFO 2022, we'll see just smaller contributions from the renting business in Poland. But since -- or beginning with the financial year 2023 and then quite strong 2024, 2025, you will clearly see very positive effects from the business in Poland FFO I as well. And until that date, I mean, we still have the cash flows from the disposal business. Just to make it clear once again, for 2020, we expect here a number of around EUR 10 million from disposals -- net cash proceeds from disposals. And for 2021 and the following years, we expect, of course, also further net cash proceeds. By the way, we will publish the guidance for the disposal results in Poland next year, together with the annual report in March next year.

[Operator]

Next, we have Kai Klose from Berenberg.

[Kai Malte Klose, Analyst]

I've got 3 questions, if I may. The first one is regarding Page 14, where you show the corona impact on rental growth. Just to understand how we should read that? If we hadn't had corona, it's then right to assume that the vacancy reduction in Q3 would have been around 60 bps compared to 30, what you achieved? Second question would be on the income statement on Page 7 -- on the chart with the income statement on Page 7, I didn't understand completely the comment on the net income from services, where there was a decrease. May you could elaborate a bit on that. And also on that page, just to understand the increase in other expenses, which you mentioned, is coming from the personnel expenses in Poland? Just to understand where the salaries for the Polish employees are booked. Is it in personnel expenses and/or in other expenses? And the last one would be on page -- on the FFO bridge on Page 24, the increase in total expenses. Do you expect in the next year, how is it coming from also from Poland? Or is it some other -- or are there other regions behind it?

[Martin Thiel, CFO & Member of Management Board]

Yes, thank you for the question, Kai. I'll start perhaps with the last question. The increase in personnel expenses that we expect is purely from salary increases that we penciled into our forecast, and we expect that, on average, and that means to the largest part, our employees are here in Germany, the service will increase at around 3%. I mean, we will have also some efficiency gains in this regard, but that's definitely not an increased headcount. It's even a little bit slower, but it's on average 3% increase in salary that we take here into account, and that leads to the higher personnel expenses.And yes, of course, it's correct if you ask a what is this 30 basis point reduction or, let's say, this 30 basis point impact that we show here on the like-for-like rental growth with the corona impact. This 30 basis point is the number that we are behind our plan. So behind this assumption, there's a very simple thought that due to the COVID-19 pandemic, we were not able for several weeks to proceed with the vacancy reduction as we have been used to in the previous months. And so therefore, looking into our plan, the vacancy rate would be normally 30 basis points lower. And therefore, we pencil in, we try to give you an understanding, well, what is the impact on like-for-like rental growth from a low vacancy reduction expected. And I think the last quarter, meaning the third quarter in 2020, shows that we are already back on our, let's say, normal mode. And also for the fourth quarter, you should expect perhaps similar, but even stronger vacancy reductions compared with the third quarter. So that's the background of this 30 basis points.Looking in the income statement, and you asked for the personnel expenses from the business in Poland, that's completely included in the personnel expenses and personnel expenses are really everything. So whether people are in Poland or in Germany, whether they are in the caretake service or whether they work in the asset management, that's also in -- that's everything in personnel expenses.In the net of other operating income, I think that was your question. Here is the effect of capitalizing some of the personnel costs in Poland because then this personnel costs, and in this case, this was the EUR 1.6 million, and we refer to people who are directly working in the construction business. And as we would do it with external costs, also the internal costs then are capitalized. So it's, let's say, across presentations our full personnel costs are in the personnel expenses. And if we capitalize some of these costs because they refer, for example, for the construction work, then it's shown in this case, in other operating income.

[Kai Malte Klose, Analyst]

And on the slight reduction in the income from services, you mentioned there's a footnote saying billing volume for energy services.

[Martin Thiel, CFO & Member of Management Board]

Yes. Service business is also to the energy business that we have current service charges that we hear -- not service charges, services that we're doing to the tenants that are then part of the service charges. And if we do hear more billings for the service charges in one quarter, then from time-to-time, the income is higher than in the following quarter. So that means in the second quarter of 2020, we had, if one saw a slightly positive one-off effect. And in the third quarter, we had then a kind of normal volume in service charges that, for example, contain also our energy business compared to the previous quarter. And that led, in this case, to a slight reduction of EUR 600,000 quarter-on-quarter in net income from services. So I think in this net income from services, that it's really the better view to look at that on a year-on-year basis. And there you'll see the increase from EUR 15.8 million to EUR 19 million. That's often more, let's say, the true picture than looking at that quarter-on-quarter.

[Kai Malte Klose, Analyst]

Sure. And the last question I have, again, on Page 14, where you show the regional split of the amount of maintenance and CapEx spend for the 9 months, which was primarily on Berlin and Chemnitz. Would you -- could we expect that there will be in those 2 regions also in 2021 is the focus on investments? Or are you -- are there projects in other regions -- special projects in other regions, the allocation of the investment volume might be somewhat different compared to this year?

[Martin Thiel, CFO & Member of Management Board]

No. This should be more or less unchanged, especially the Berlin region. And in the Berlin region, more specifically, Brandenburg half of the location, that's clearly, let's say, a focus on our CapEx programs also for the financial year 2021.

[Operator]

Next, we have Mr. Andres Toome from Green Street Advisors.

[Andres Toome, Senior Associate]

I was hoping maybe you can speak to what are you seeing in terms of market rents in your locations? And in which locations are you underwriting the highest look forward rent growth?

[Martin Thiel, CFO & Member of Management Board]

Well, looking at the different regions, I would say, we will especially see strong rent growth in first of all, the region around Berlin. So in our company, of course, called the Berlin region. But you know that these are the nearly commuter belts around Berlin. These are locations like Brandenburg an der Havel, like Strausberg and like Nauen where we have seen over the past years and also see today here, quite strong rental growth. Then definitely, cities like Leipzig and cities like Poznan are quite strong. And we see still a very strong underlying like-for-like rental growth around, let's say, 2%, even without any CapEx programs in other medium-sized cities in East Germany, where we are in. And I would say, in our portfolio, it's not the case that we have extremely strong locations where we have, let's say, double, triple the rental growth compared to other locations. It's often quite close together. So our like-for-like rental growth without CapEx without vacancy reduction of 1.5% to 2% is something that on a mid-term basis, I think, refers to nearly every region in our portfolio.

[Andres Toome, Senior Associate]

Okay. And then a follow-up, maybe alluding to the like-for-like rent growth comments you made for 2021. That 1.7% basis, like-for-like, that's lower than historically. Is this a result of lower market rents or the result of each being lower or a combination?

[Martin Thiel, CFO & Member of Management Board]

Yes. Honestly, we are, of course, more careful also with guiding our like-for-like rental growth after the development that we had in 2020. It's not the case that we see a trend in the market, so that we see rents not increasing that strong as in the past. But I mean, one has simply to say, looking at the actual results as -- looking at the results from each period, it came out over the course of the year. I mean, they have been a little bit weaker than in the past. I mean, now we can start discussions, where is that coming from. I mean, of course, one impact is that the reference period from the range tables from this niche period has been extended to 4 to 6 years. Perhaps there's also some more pressure on politicians as inflation rates are lower, that also rent from this niche period should not increase too strong. So I would say, yes, it should be more a conservative measure to having that in mind what happened over the course of 2020 that we guide really a reliable figure for the financial year 2021.

[Operator]

[Operator Instructions] Next, we have [indiscernible] from BMO.

[Unknown Analyst]

Sorry, I was on mute. Can you hear me?

[Martin Thiel, CFO & Member of Management Board]

Yes. I can understand you now.

[Unknown Analyst]

Just for next year, how much CapEx do you plan to spend in Poland? And how does that compare with the current firepower left that you have? And also just to get back on the lower like-for-like rental growth, excluding vacancy reduction at 1.7%. What is your assumption in terms of churn rate and reversion rate?

[Martin Thiel, CFO & Member of Management Board]

We're looking at the investment that we're doing in Poland, you see on the slide that we have in the presentation, Page #19, that we are investing approximately EUR 1.1 billion in Poland over the next 5 years. Part of that is already done in 2020. So that means if you do a simple calculation and that calculation leads to a correct number, on average, around EUR 200 million per year needs to be invested in Poland. And this is also a good estimate for financial year 2021, perhaps a little bit more. So I would say something between EUR 200 million and EUR 250 million is something that you should expect as total investment in Poland. That, of course, depends also on the timing of further acquisitions in Poland. And looking at our current firepower, I just commented on the cash that we have on the balance sheet. So if we reduce debt by the payments that we did after the balance sheet date for acquisitions, there's still something around EUR 300 million, EUR 350 million left. So therefore, for 2021, there's definitely not any short-term financing need. So therefore, we should be very well prepared. And yes, again, we are doing in Poland investments of a really material size, but we're doing that step-by-step. So over years, again, around EUR 200 million annually, you should expect as investments. And the second question was around the like-for-like rental growth. The assumption for the tenant turnover and the reversionary potential are unchanged to financial year 2020. So we have, in a normal year -- or I should say, more specifically to 2020 without this month of COVID-19 pandemic. So during the COVID-19 pandemic, which is still ongoing, but during the first lockdown, I should say, more specifically, in March, April, May, we had a churn turnover, which was very low in our portfolio, around 7%. Now we are back to a normal level, which is perhaps between 10% and 11%, and that's also the assumption for 2021. And also the reletting rents are based on a scenario or developments that are very comparable with 2020. So that means the reduced like-for-like rental growth income is mainly coming from expected low rental growth from existing tenants, mainly from which periods, as I before. Okay, I think we can ask for any further questions, if there are any. If I may ask if there are any further questions. Well, it doesn't seem to be the case. And in case if we have here any technical difficulties, please feel free to contact us right now after the call, the IR department and personally myself are always available for any questions.

[Operator]

Hello, Mr. Simon, the call is -- yes. Now -- yes please -- continue your question, please Mr. Simon.

[Simon Stippig, Analyst]

Okay. Can you hear me?

[Martin Thiel, CFO & Member of Management Board]

Yes, I can hear you.

[Simon Stippig, Analyst]

Okay, great. My first question would be in regards to the pipeline and the acquisitions. Maybe first, in regard to Germany, what do you see there? Do you see anything? Do you have any number in mind that is maybe equal as in full year '20, also in full year '21 to be acquired? And then in regard to Poland, because for now, as I understand, you're only acquiring land plots and where you intend to build property for to-hold and to-sell. But is it also attractive to buy portfolios or assets and integrate them to your portfolio then in regard to Poland as you did in the past in Germany?

[Martin Thiel, CFO & Member of Management Board]

Well, looking at the acquisition market in Poland, I mean that's just unchanged, and it's extremely difficult to predict a specific acquisition number. And therefore, we have also not any official acquisition target. So this year so far was quite successful with more than 4,300 units. If you remember, the year 2019, we acquired something around 1,600 units. And if you ask me, was there any change in the market, I would say no. But simply, in 1 year, we have more opportunities for what reason ever, and you get the sellers to the notary, and you can sign it. So there's a kind of a natural swing. As an average -- and just to give you an idea, as in the past, you say, well, something around 2,000 to 3,000 units a year in a normal year, should be something that is doable. I mean, we know acquisition markets are competitive. But we are buying also in smaller sizes, we buy more frequently. I mean, we are not penciling in our debt into our guidance, but just to give you an idea, perhaps a normal year should end up. Perhaps that's a number that could be helpful. And looking at Poland, and perhaps I can comment a little bit more detail on what we are buying. When I'm commenting on land banks and projects. That means that we are also buying projects from other developers. This is a smaller part of the total acquisitions. So out of the currently 7,600 units that we have in the pipeline as ready-for-rent or ready-for-sale projects, I think, something around 1,300 units are projects where we have more or less entered into forward deals with other developers. And that's mainly the case in one location in Poznan where we then, of course, use their capacities where we think we have achieved a good price for the whole project. And that's not an existing portfolio, but there's a project or projects that are starting right now and are then finished in the course of 2021. What we cannot exclude, but is currently not the case that we're buying really existing portfolios. First of all, in the segment that we are looking at, that is newly constructed apartments in large cities in Poland, these portfolios are not really on the market, not as ready-for-rent portfolios. And that's something where we, as one of the first companies want to build up. And then looking at what is existing portfolios in existing buildings, the construction quality of these portfolios, if they are on the market, is really, in most cases, poor, not comparable to what we are buying in East Germany or in other federal states in Germany. So therefore, that's nothing you should expect, at least not in a material size in the near future.

[Simon Stippig, Analyst]

Okay. Great. Can you hear me?

[Martin Thiel, CFO & Member of Management Board]

Yes, we can hear you.

[Simon Stippig, Analyst]

Okay, perfect. And the second question would be in regard to vacancy reduction. I need to get back to the 30 basis points of lower vacancy reduction because I just wonder, is it really a catch-up effect or that you see then in Q4, maybe even switching into next year? And then these 30 basis points, where did they come from? Did they come from a lack of releasing modernization projects? Or is it rather of empty apartments, you were about to newly rent, and haven't spent any CapEx on them? Can you just give me a little bit more of an insight into those 30 basis points? And then also into your -- where you see the most vacancy reduction going forward, maybe especially the focus on full year 2021?

[Martin Thiel, CFO & Member of Management Board]

Well, quarter-on-quarter, the largest progress on vacancy reduction was in the Chemnitz area. We expect that especially in the Berlin area, you will see a strong reduction in the fourth quarter that is coming mainly from the modernization programs that I already mentioned. And perhaps to make it clear, that's not, let's say, one modernization program that takes some months, and then we're letting it out, we really divide that into different stages and to really do that step-by-step. And therefore, it means that already in summer, some of these modernization programs ended. Then it has taken some longer time than expected to rent them out. And we think this was for the very largest part, not a reflection of market development, but simply to restrictions from the COVID-19 pandemic or from many concerns that tenants had to move during this time. And therefore, now this is kicking in. I would not say that this is a kind of catch up effect. When I look into the reports today or vacancy developments in October. I mean vacancy rate was already further reduced. So therefore, we are very optimistic that we can reach our target vacancy rate of 4.5% maximum at year-end 2020.

[Simon Stippig, Analyst]

Okay. Great. Then just the last question maybe on the guidance. In regard to the full year 20 guidance, just look at it on a per share basis, then I'm already at EUR 0.90, but you're still guiding at EUR 1.17. So I have the additional acquisitions kicking in, which is included, but just annualize that and add another EUR 0.30 on your current 9-month '20 figure, then you would end up at EUR 1.20 per share. So is it that I'm missing something? I mean, surely, there is some higher maintenance costs, but are you more cautious somewhere? Or is it just that you expect more cost somewhere else than maintenance? And could you detail that a little bit for me, please?

[Martin Thiel, CFO & Member of Management Board]

Yes. Well, generally, you should not expect any surprises, or how to call it, that you should be aware of in the fourth quarter. What is really always difficult to guide exactly, it's not only maintenance. There's also income taxes. I mean, of course, we have your estimates. But let's say, EUR 2 million more or less in, for example, income taxes are also then in the maintenance area, it's then difficult to guide exactly. So therefore, we are always more comfortable to guide perhaps more towards the lower end of a possible range than guiding something that is then perhaps too high because at year-end, we see, I don't know, EUR 1 million or EUR 2 million more income taxes. We did more maintenance work than expected, which is often not bad news, but simply perhaps the possibility of doing some projects more early. So therefore, that's really nothing behind, but still uncertainties in perhaps these 2 areas and the reason why we are here, that's a little bit more careful.

[Simon Stippig, Analyst]

Okay. So in the sense let's under promise, over deliver?

[Martin Thiel, CFO & Member of Management Board]

That's something that could be perfectly reasonable.

[Operator]

That will be the ending for our question-and-answer session. I would like to pass this session over back to Mr. Martin Thiel. The floor is yours, sir.

[Martin Thiel, CFO & Member of Management Board]

Yes. Again, thank you very much for listening to our call a little bit later today. If there are any questions, again, please feel free to contact Dominique from our IR department or myself. We are available for your questions. Have a good day, and we'll talk soon. Thank you very much.

[Operator]

Ladies and gentlemen, with that, we have come to the end of the conference call. Thank you for your participation, and have a pleasant evening ahead.