Vonovia SE

XETRA:VNA

Earnings Call Transcript 2020-Q1

[Operator]

Dear ladies and gentlemen, welcome to the Q1 2020 Results Analyst and Investor Call of Vonovia SE. At our customer's request, this conference will be recorded. [Operator Instructions] May I now hand you over to Rene, who will lead you through this conference. Please go ahead.

[Rene Hoffmann, Head of Investor Relations]

Thank you, Alexandra, and welcome to our earnings call for the first quarter of 2020. Your hosts today are, once again, CEO, Rolf Buch; and CFO, Helene von Roeder. The 3 of us are gathered here in a conference room in Bochum, of course, mindful of social distancing. I assume you've all had a chance to download the Q1 presentation. In case you have not, please go to our website, and you'll find it under Latest Publications. Rolf and Helene will lead you through this results presentation on the basis of the agenda on Page 3 of that presentation. And of course, we'll be happy to answer your questions afterwards. So let's get right to it, and let me hand you over to Rolf.

[Rolf Eberhard Buch, Chairman of the Management Board & CEO]

Yes. Thank you very much, Rene, and also a warm welcome from my side. We had a good start in this year, as expected, and as boring as all quarters. Organic rent growth was up 3.9% year-on-year for all 4 segments, and all 4 segments contributed to EBITDA total growth, which in total was EUR 456 million. This is 6.1% more compared to Q1 last year. FFO increased by 10.5% to EUR 335 million. On a per share basis, group FFO was up by 5.1%. There was no portfolio valuation in Q1, as always. So adjusted net asset value per share did not move much and is up 0.6% to EUR 52.23. We plan, as normal, the next portfolio valuation at the end of Q2. Market observation suggested that there is no material COVID-19 impact in our asset class. And assuming that trend continues, we expect a fair value growth broadly in line with H1 last year, of course except for Berlin, where prices have remained flat. This flat -- this should not become -- should not come as a surprise given the unresolved situation with the rent freeze now firmly in place. If we ignore the Berlin effect, the total fair value growth for the rest of H2 is expected to be broadly similar to H1 2019 in local currency. As per March 31, our LTV was 43% and our debt-to-EBIT multiple was 11.8. You will all have seen our new AGM date of June 30. We do not expect to see substantial easing of corona restriction until then, so the meeting will most likely be a virtual one. We have tried to do it in physical, but I think it is most likely that it will be virtual. To be very clear, our dividend proposal of EUR 1.57 remains unchanged. And finally, the guidance for this year. We have done a thorough bottom-up forecast based on all what we know, and we are very confident that we will be able to achieve our original guidance, including EBITDA and FFO, with one exception. This -- because of lower fluctuation and because of delayed completion of some investment projects, we now expect our organic rental growth to be around 3.3% to 3.8%. The delayed completion is obviously a timing issue, and the fluctuation will be probably tick up again after corona. So the decline in rental costs should be temporary. And with this, I hand over to Helene.

[Helene von Roeder, CFO & Member of Management Board]

Thank you, Rolf. Q1 was pretty uneventful, and we think that is a good thing in our business, especially these days. Our portfolio was 5% larger in terms of units, and that resulted from a 6.1% adjusted EBITDA total growth and 10.5% group FFO growth. Because of the higher number of shares, the group FFO per share was up 5.1%. So let's talk about the individual segments and start with the Rental segment on Page 6. Rental income increased by about 12%, predominantly including -- resulting from Hembla and also organic rental growth. Maintenance expenses were EUR 79 million, which is in line with our expectation and not a bad proxy going forward. Operating expenses are impacted primarily by 2 things. The first is obviously Hembla. As you know, we are in the process of putting the operations of Victoria Park and Hembla together. But at this point, we still have dual functions for most positions, and the synergies will only start coming through later in the year. The second reason is one that you will be familiar with at this point. The Swedish rents include ancillary expenses so we have to show them both in rental income and in operating expenses, and that impact is even bigger now because of Hembla. It is obvious that in terms of cost, we remain on the right track if you look at our operations margin in Germany, which has increased to 78.2%. To those of you who compare this across the peer group, please bear in mind the very different maintenance levels. Page 7 shows the main operating KPIs for the Rental segment. Organic rent growth was 3.9% year-on-year, of which 1% came from the market, 2.3% from modernization and 0.6% from new construction. Vacancy remained very uneventful at a low 2.8%. Maintenance expenses were in line with last year. Capitalized maintenance were higher than last year as expected because we have budgeted and planned for a number of targeted larger-scale measures this year. And with that, back to Rolf.

[Rolf Eberhard Buch, Chairman of the Management Board & CEO]

So then let's move to Value-add segment on Page 8. The adjusted EBITDA came out at EUR 37.2 million and was almost 4% higher than last year. As I'm sure you know by now, this business does not change much from one quarter to the next, and it's more a steadily growing addition to our rental business. While we are continuing to roll out our value-add strategy to a bigger part of the portfolio, we did have a decline in our external income Q1 this year. Part of that line item is the residential environment service you also see on the right-hand side. Because of the extremely mild winter and the absence of snow during the whole year, we had hardly any turnover from snow removal and de-icing of sidewalks. So this explains the deviation. On Page 9, we show the result of the Recurring Sales segment. We sold 760 individual apartments for a gross proceed of EUR 108.6 million. The average sale price increased by 6% year-on-year. The fair value step-up was 36.8% on average and in line with the prior year period in spite of a higher basis due to revaluation. All in all, recurring sales contributed EUR 26.4 million of adjusted EBITDA. As a side note, outside the Recurring Sales segment, we sold almost 287 noncore units in the first quarter with a fair value step-up of close to 36%. To us, this is always a good indicator for unbroken strong demand through Q1, also including the disposal of a commercial unit. Back to Helene.

[Helene von Roeder, CFO & Member of Management Board]

And finally, our Development segment on Page 10. The segment includes all new constructions of apartments by way of entirely new buildings, so excluding additions of floors on existing buildings. We distinguish between development to sell and development to hold for our own portfolio. The bottom line adjusted EBITDA was EUR 11.4 million in Q1 2020. This part of our business is less linear than the Rental or the Value-add business, so one quarter can be a bit different from another one, as you can see in this very quarter. The volume for to sell and to hold was down, which impacted both the top line and the operating expense. The operating expenses were further positively impacted by the reversal of provisions that are no longer needed. The EBITDA was EUR 11.4 million and probably comparatively low based on what we expect for the remainder of the year. Page 11 has more color on our new construction activities. We completed 122 apartments to hold for our own portfolio in the first quarter and no apartments to sell. But we already saw in the previous page that Q1 2020 was a slow quarter for our development activities. In our construction to hold, we now have identified potential for around 41,000 apartments based on the opportunities in our portfolio today. For 2020, we expect to deliver around 1,300 apartments. The development to sell part is a useful addition to the to hold developments. As I've explained before, we often rely on the higher margin from the to sell projects to cross finance the land costs and make the to hold developments more economically feasible. The pipeline for to sell is approximately 8,500 apartments. Our target for this year is to complete more than 300 apartments to sell. With that, on to Slide 12, the adjusted net asset value. The adjusted net asset value at the end of Q1 was EUR 52.23 and was 0.6% higher than at the year-end of 2019. We do expect to revalue our portfolio as per June 30. And as in prior years, we will include approximately 2/3 of the portfolio via the 26th largest and most dynamic German cities plus Sweden plus Vienna. We continue to see meaningful value growth across all our regions, except for Berlin, where prices have been flat, which we attribute to the continuously high level of uncertainty in Berlin. Not only is the expropriation debate still alive, but also the rent freeze is in place. While it is still unclear when the Federal Constitutional Court will decide and exactly what the ruling will be and the role of professional listed property owners is unclear in Berlin at this point, unsurprisingly, this is having an impact on the transaction market, which has been all but dead. With regards to COVID-19, the market that we have seen so far does not show any impact. We will continue to closely monitor the transaction market. But assuming that there will be no material impact from COVID-19 by the end of H1, we expect the fair value growth broadly in line with H1 last year. H1 2019 like-for-like growth was 8.4% in Germany, 3.4% in Sweden and 3.8% for Vienna. To Page 13 and the LTV. Our LTV at the end of Q1 was 43.0%, so 10 basis points below the end of 2019 and well within our target corridor. We continue to believe that the range between 40% and 45% is the right level for us, especially if you include the around about 8-year duration of debt and the fact that 96% of our liability side is fixed or hedged. The net debt-to-EBITDA multiple was 11.8x for Q1 2020. While this is a bit elevated from the end of last year, we still think that it's at a reasonable level, especially if you consider for this number includes already the full debt, but not the full EBITDA potential, which is normal in a growing business. So we're not concerned. Page 14 gives a bit more color on the capital structure and debt instruments. Interest cover ratio is now 5x and thus, very healthy above the minimum levels required in some of our debt instruments. Almost all debt is fixed or hedged, so any interest rate increase would affect our numbers only slowly as no more than 13% of the total debt becomes due in any given year because of our smooth maturity profile. You all saw the 2 bonds we issued a few weeks ago. Of course, that was at slightly elevated spreads than before corona, and even since, spreads have come down a little bit. But for us, it was very important to further derisk and to demonstrate to the market our strong access to liquidity even in adverse market circumstances. The impact on our average interest rate is in the second decimal. It gives us enough liquidity all the way until December when we will look to refinance the EUR 750 million bond that has a 1.625% coupon. Page 15 is a page that we haven't shown for a long time. But given capital markets turbulence in the wake of COVID-19 had some people worried about our covenants, we've moved this page into the main part of the presentation. However, as you can see, there's clearly nothing to worry about. We are a long way away from all of the required levels. Page 16, in the same vein as for the covenants, we've added another page to demonstrate why we are very relaxed about our financial situation. First, we have ample liquidity. In addition to a stable cash flow that easily covers our operating business expenses, we also have the funds we recently raised from the bond market plus the EUR 1 billion commercial paper program. Second, both the unsecured bond market and the secured financing market remain wide open for us. Third, our BBB+ rating from S&P and our A- rating from Scope are very safe, each with a stable outlook. And finally, interest rates remain low, and it appears that financing conditions, while elevated under corona, have begun to improve again. And with that, back to Rolf.

[Rolf Eberhard Buch, Chairman of the Management Board & CEO]

Thank you, Helene. We have issued 3 releases, especially with regard of what COVID-19 means for our business. Let me update you on where we currently stand. Our Rental and Value-add segments are proving to be very robust. This is not a surprise. We see fluctuation going down but demand remaining very strong with more than 5,000 inquiries every day. So far, roughly 1% of our tenants in Germany have contacted us because of COVID-19 financial hardships. And in each case, we have found an amicable and pragmatic solution. The financial impact of this is immaterial. Very importantly, the April rent collection was in line with the months before corona and showed no meaningful increase in default ratio, which is not a surprise. Even if somebody is coming into problems, this is more a timing issue than an issue that he cannot pay his rent, because the security net in Germany is very safe. Nobody has to leave his apartment because he cannot afford the rent. So the cash flow profile for this company is actually not long term affected by corona. It might be effect from 1 month, where the first tenants are not finding the right solutions to get the rent, but we can help them. So there is no material impact for the cash flow. The imbalance between supply and demand stays actually stable because the death rate in Germany is very little. So all the underlying [ phenoments ] still the same. Of course, in corona, we see some modernization projects which are experiencing delays because we have some more time -- we are losing some time in the construction space. We expect to see small impact on our Value-add business from our craftsmen organization in this respect. In the Recurring Sales segment, we continue to observe strong demand for our condo units, and we think the impact of adjusted EBITDA contribution will be small. While some notarizations will shift to a later point in time, we do see that our largely digital back-office processes enable us to continue to run the business mostly as before. And finally, Development. Here, we see some delays in project completions. Again, this is the construction part. And part of what we have planned for 2020 will move into next year of this is -- but though this is a purely timing effect. The overall impact of the 2020 adjusted EBITDA should be small. Keep in mind that in our Development business, we have nearly no meaningful commercial development. That's why this is purely a residential development pipeline. All in all, we are proud to see that the scale and the depth of our operation gives us a relative advantage over smaller players and enable us to continue operations which is fully -- which are fully digitalized with a very little interference from COVID-19. But obviously, COVID-19 is much more than it means to the number. And this is Page 18. In a way, COVID-19 somewhat crystallizes the responsibility we have. We employ 10,000 people and own more than 400,000 apartments. That's about 1 million people to call it their homes. This home is probably more important for them right now than it was ever before. So COVID-19 lifts stakeholder responsibility for us to a new level, and we have been mainly focusing on 3 areas. First, our employees. We have implemented flexing working -- flexible working hours, home office solutions and other initiatives to give our staff the flexibility they need in this difficult times. Those that cannot work from home, of course, has been equipped with necessary protective gear to make sure that they are safe. Second, the service and infrastructure for our customers. We run a mass operating business with thousands of touch points with existing and potential customers every single day, so it is crucial that we are able to continue to provide the best-in-class service. This also includes our ability to continue with our repair and maintenance services, which is fully operational. And finally, people will be looking for new places to live, and we are making sure that we can show them our apartments, either in person or virtually. And third, our customers. We are helping tenants in financial travel, and we have put rent increases on ice for now to help our customers through this different times. And while we continue to manage the COVID-19 crisis for as long as it takes, we are also aware that the long-term megatrends that the housing market faces are even more forceful because of corona. We cannot afford to slow down in our efforts for new construction, energy-efficient modernization, CO2 reduction and preparing more apartments for the elderly. On page -- we are now on Page 19. So while corona will continue to dominate the headlines for a little bit longer, the efforts in fighting the pandemic and dealing with its consequences must not distract us from the long-term challenges and given opportunities. We drafted Page 19 before corona, but everything on this page is relevant in the current environment and will continue to be relevant long after COVID-19 is history. So we have said many times before, we see 3 dominating megatrends in our markets: urbanization with supply and demand imbalance; energy efficiency and CO2 reduction; and demographic change with an aging population. Our building is built for managing these megatrends. And if we get it right, this will provide support for many, many years to come. The key to success here is a careful reconciliation of stakeholder interest. Our product is not a commodity like any others. And while we run a for-profit business, this can only be successful in the long run if it is to the benefit of all stakeholders. Similarly, we can only be part of the solution and provide benefit to all of our stakeholders if we are economically successful. And this requires a long -- a strong performance in all these areas of ESG. While we can always do better, I think it is fair to say that we have been making good progress lately on this front. Let's go to Page 20. Our 2019 sustainability report will be published at the end of this month, and it will be a good source of data to demonstrate our progress. Similarly, we have been stepping up our efforts and participating in various sustainability rankings to make sure that our achievements are more actually reflected. I have to admit, we probably neglected this point and I personally neglected this point in the past. We recently appointed a Sustainability Director who reports directly to me. Among the main priorities for her are the further development of our ESG strategy, including a road map, and developing a step plan in compliance with the Paris Climate Accord and for achieving CO2 neutrality by 2050. We are looking forward to updating you as we go along, including the initiatives (sic) [ innovative ] research towards energy efficiency that we have been conducting. With this, to the guidance.

[Helene von Roeder, CFO & Member of Management Board]

So on Page 21, you see our reiterated guidance for 2020, which is unchanged except for the organic rent growth line item. We took it down 20 basis points because of lower fluctuation and delayed completion of some of our investment projects. Both factors are down to corona and should be temporary. You will remember from last time that we provided a range, but it is actually pretty binary. If rents in Berlin must be reduced to 120% of the rents dealing in November, and it looks like this at this point, we expect to come out at the low end of our rental growth guidance. Similarly, in case rents are not reversed in Berlin, we expect to come out at the upper end. Everything else in the guidance is unchanged and confirms the confidence in our business even in this challenging environment. And with that, back to Rolf.

[Rolf Eberhard Buch, Chairman of the Management Board & CEO]

Before we get to the Q&A, let me summarize the main points, as you can see on Page 22. We had a good start into the new year. It should not be a surprise. Our business is boring in a good way, and it remains predictable even under COVID-19. Helene just showed you the guidance. Nothing has really changed. COVID-19 really does not attack our top line, and that's why not the stability of the business. We are living in a highly unusual times. And here at Vonovia, we feel a particular responsibility for our 10,000 employees and for our 1 million customers. Every single day, we make sure we live up that responsibility. And finally, I want to emphasize again that while COVID-19 is the #1 priority right now, the long-term megatrends remain. Managing them successfully is more important than ever, and Vonovia will be sure to continue as a leader in finding solutions to the benefit of all stakeholders. Back to Rene.

[Rene Hoffmann, Head of Investor Relations]

Thanks, and I will pass it directly to Alexandra to kindly open the Q&A for us, please.

[Operator]

[Operator Instructions] The first question is from Chris Fremantle of Morgan Stanley.

[Christopher Richard Fremantle, Executive Director]

I just have a small question on the rental growth. I appreciate the guidance that you've given for 2020. You've talked also about -- in previous occasions, you've talked about the lag between modernization spend and the impact of that spend on rental growth coming through in future years. So my question would be, how much of an impact will the delays you're hinting at here affect your -- the organic rental growth for 2021? Any help you can give us on the quantum of that impact would be helpful, I think.

[Helene von Roeder, CFO & Member of Management Board]

So Chris, the way we look at it is like the key impact is that we couldn't get construction workers onto our construction sites. In Austria especially, there were a few weeks where the construction sites were closed because people couldn't adhere to the health requirements. So it's really all about how long is the lockdown and how quickly can we get the construction sites up -- back up again. But it's not really that meaningful.

[Christopher Richard Fremantle, Executive Director]

So we could be talking tens of basis points again for an impact? Or something more than that?

[Helene von Roeder, CFO & Member of Management Board]

Hard to give you numbers. I'm really thinking more in months. So we had 7 weeks of lockdown. So it's like 2 months, 2.5 months. That's what I'm right now sort of, like, estimating.

[Operator]

The next question is from Jonathan Kownator of Goldman Sachs.

[Jonathan Sacha Kownator, Financial Analyst]

Two questions, if I may. Can you hear me?

[Rolf Eberhard Buch, Chairman of the Management Board & CEO]

Yes, we can hear you.

[Jonathan Sacha Kownator, Financial Analyst]

Okay. Great. So the first question, perhaps in the same line as Chris. I just wanted to understand, currently, you're saying that you are not increasing rents for your tenants in the COVID environment, which is obviously very sensible. Can you help us understand also if you expect that, that will have an impact in 2021? And for how long you would expect that to be in place? So that's the first question. The second question is...

[Rolf Eberhard Buch, Chairman of the Management Board & CEO]

Can we do question-by-question? Can we do question-by-question because then I don't forget the first question.

[Jonathan Sacha Kownator, Financial Analyst]

Of course.

[Rolf Eberhard Buch, Chairman of the Management Board & CEO]

So probably the first question to answer. So you know the German law gives us a time frame. The German law says that until June, the rent can be postponed, so 3 months from the law. So this means -- I think it is fair to say we have not declared it publicly, but it is fair to say that this also gives a corridor how long we do not send out rent increase letters. Later in the year, we will definitely send out the rent increase letters. So we are losing probably some rent increase for a very small period of times. That's why it's not meaningful. To not send out the rent increase letters, we just feel that in a moment where people are hit hard and panicked because of COVID, we should not add the rent increase letter on top of it. We are not saying that we are stopping rent increase. We will continue to do this because it's our right to get it and it's fair and it's modest. And this is the same for modernization. So we are just doing it a little bit later. So in the like-for-like rent increase in the end of the year, it will not have an impact.

[Jonathan Sacha Kownator, Financial Analyst]

Okay. Fair enough. That's very clear. The second question is really more longer term. And appreciate it's very early to say, but one of the key trends that you're highlighting on the supers trend is urbanization. And appreciate there are large cities and sometimes smaller cities, so the question may be different for one or the other. But how do you think about urbanization in the COVID environment? I mean you're obviously [ passing sentiment ] here. But are we peak urbanization? Or do you think people in Germany would think twice about coming to cities and would perhaps try to work more remotely going forward or commute or anything?

[Rolf Eberhard Buch, Chairman of the Management Board & CEO]

No. I think we are not talking here about -- in New York. I mean in Germany, we don't have cities like New York. So there's clearly megacities. So we have bigger cities. Also, what we call cities is also the urban environment around the cities. So this is -- and there, I think there is no reason why people should not live there, especially keep in mind that medical treatment, which is probably showing for the people this is very important. I think Germany is good in it. But of course, Germany is good in it in the big cities and not in the -- outside the big cities. So there might be arguments saying if you are closer to a better medical hospitalization, the city is better. We also don't see that the hotspots of COVID-19s are necessarily in the cities. So the hotspot was, which was in the media, I don't have a detailed analysis, was actually small towns outside the big city. Heinsberg, for example, a beer brewery town in South Bavaria. So there is no indication that COVID-19 is more in the big cities. But I think the megatrends which pushes the people in the cities are beyond COVID-19. I've always talked about it. It's the young people who wants to live in an environment. And if you talk -- again using my daughter, she is getting sad with the situation that she has to sit together with her parents in Gütersloh. I can tell you, she will be the first that will move again to the city back. Taking about the old people, I think the medical treatment is a very strong argument, and it will get stronger and not weaker. And then the double income people with well education, for them, actually, they have no chance, but they have to live in the big cities. So the fundamentals of urbanization stays the same, at least in Germany. I'm not talking about megacities like Mumbai or Beijing or whatever. But in the German urbanization trend, I don't see any change. And by the way, if there is a change, we have -- saw a big lag in demand -- in supply in these big cities. The change must be really massive to change the parameter for our business.

[Jonathan Sacha Kownator, Financial Analyst]

Fair enough. Perhaps one last question. At the federal level, how do you see the current situation impacting the debate for politicians around what to do with housing, i.e., more regulations or more development, whatever it can be? Have you sensed any change in the regulation debate due to COVID-19 at this stage?

[Rolf Eberhard Buch, Chairman of the Management Board & CEO]

No. I think the only reaction on COVID-19 was typical for, I think, the reaction of the whole German government reacted to COVID-19 up to now, which I think was a good reaction up to now, was to ease the access to people to social welfare for housing. So there was massive easing because there was one group which was actually not well protected by welfare, which are the self-employed people with a high salary. So engineer, artists, and they -- because of the COVID-19, they lost their salaries immediately. So from a good salary to 0. And these people are not experienced of asking for welfare, and I think there was no process, which are actually also a big part of the 1% which called us, by the way, and because they just don't know how to get to the system. And I think this system was eased so the access is much simpler. So these people will find easier access for temporary help for -- to pay their rent. So this was the way how Germany actually reacted. I think the debate which we have now and which I am pushing is that it will definitely be -- we will get massive public money into the system to rebuild the country. And I think Germany can also afford it. So the state will spend a lot of billions of money not only to save us but to rebuild it. And we have to make sure that this money goes into the right directions. So to be very clear, it is important to put this money in environmental, sustainable investments and not in conserving the old ones. So in my industry, we should not get subsidies for new oil heating systems, but we got -- we should get subsidies for more innovative heating systems which are coming for renewables. That's why I think we as Vonovia, we have started before COVID-19 to invest in research and building up these renewable heating systems. I have the expectations that we will get help in this. And of course, we are pushing for this because I personally think that in a few months from now, politicians will stand up and will decide where we can spend money, and I think then the solution has to be there. And I think we, as an industry, we have to bring solutions to the table that they can pick it and say, "This is good because this is sustainable."

[Jonathan Sacha Kownator, Financial Analyst]

Okay. Very interesting. So just to confirm, no increased debate from the politicians about perhaps capping rent at the more federal level?

[Rolf Eberhard Buch, Chairman of the Management Board & CEO]

No. This doesn't make sense at all in the moment. We have this rent cap discussion which is still in Berlin. Unfortunately, to corona, there is still not an abstraction on control target in front of the court in Karlsruhe, which is a little bit surprising but I was told that it will come soon. So I expect it coming in this month, but there is, of course, a small delay. That's why I think Helene said that this is why we have to calculate most probably that the rent reduction in November will really take place because it's now very short to November. But we also see that in all the rest of the country, I think everybody is looking on what happens in Berlin if they are looking at all at rent regulation at the moment because they are very busy, rightfully, with COVID-19.

[Operator]

The next question is from Kai Klose of Berenberg.

[Kai Malte Klose, Analyst]

I've got 2 quick questions. The first one is on Page 6 regarding the profitability and the merger -- merging the operation of Hembla and Victoria Park. Could you indicate which period you expect these operations to be merged? I would expect for the full year for this year, but maybe you can be a bit more precise. And the second question would be on Page 6 regarding the split of the organic rent growth. We had the 60 bps from the new constructions after 20 bps the year before. Could you maybe indicate on how many newly built units this refers to? Yes, it would be my 2 questions.

[Rolf Eberhard Buch, Chairman of the Management Board & CEO]

So I think for the first question, it's relatively easy. We are planning, in the moment, to get the systems integrated in the end of the year 2020. For this, of course, it would be most ideal to be able to travel from Stockholm to Malmö because the Victoria Park team is in Malmö and the Hembla team is in Stockholm. So in the moment, we don't know what happens in Sweden. If there will be a lockdown in -- a fully complete lockdown in Sweden after summer, this might lead to a smaller or to a later merger of the systems, which is, of course, for the EBITDA 2020 not meaningful at all. But we don't see any fundamentals. This is just a delay. But I think we will see the whole year as due to COVID-19, we'll see some delay, but not changed in the fundamentals.

[Helene von Roeder, CFO & Member of Management Board]

And then looking at the second question, which is sort of like how many apartments does the 0.6% rent increase relate to. So ultimately, given it's a year-on-year number, it is the 122 apartments we mentioned on Page 11 plus those apartments that we have constructed over the preceding 9 months. And right now, we're just looking at each other. We don't have that number at hand, and we'll deliver it later.

[Operator]

The next question is from Thomas Neuhold of Kepler Cheuvreux.

[Thomas Neuhold, Head of Research of Austria]

I have 2 minor questions. The first one is on this 1% of tenants contacted you for COVID-19 hardship. What are pragmatic solutions? Does it mean that the rent payments are postponed? Or are you also granting rent reductions in some cases? Can you give us some color here, please?

[Rolf Eberhard Buch, Chairman of the Management Board & CEO]

Keep in mind, we have sent a letter to all our tenants telling them that we are available for discussion if they have problems. So that's why I think you have to take also the 1% into respect to this because we sent them a letter. It was not them contacting us first. I think a lot of them just wanted to know what happens. A lot of them was actually in the group of people I mentioned which were not experienced with social welfare. So the help is just telling them how they can get to social welfare, and a few of them have really financial problems. This also is related to the huge commercial business, which we have in our business, which is not meaningful, but of course, the percentage is higher. And this might be the solution of they pay the rent later. After 3 months, they pay in an installment of the next 10 months, 12 months. But this has not a standard format. But it is not -- it doesn't make any difference in our business. It's a small percentage of the 1% which really have real problems.

[Thomas Neuhold, Head of Research of Austria]

Okay. And the second question is on your...

[Rolf Eberhard Buch, Chairman of the Management Board & CEO]

I think the 1% is a different signal which I think is also important for you, and that's why we are mentioning it. It's for the politicians. Because the politician can see that the social welfare net in Germany is pretty stable because otherwise, the percentage would be higher.

[Thomas Neuhold, Head of Research of Austria]

Understood. Okay. The second question is on the developmental sale pipeline. I noticed that it is up roughly EUR 400 million compared to the end of last year. So the increase is roughly 10% in value. However, the number of apartments increased by roughly 20%. Can you provide some more details on the new projects you added here, the pipeline, which seem to have lower selling price than the rest of the portfolio?

[Helene von Roeder, CFO & Member of Management Board]

Yes. So predominantly, the effect is driven by the acquisition of Bien-Ries. Remember, we announced it in the last call. And then on top of that, we have been buying a few additional small plots, which also included developmental sales.

[Operator]

As there are no further questions, I hand back to the speakers.

[Rene Hoffmann, Head of Investor Relations]

Thank you, Alexandra, and thanks, everybody else, for joining. As a reminder, our H1 2020 results will come out on August 5. Until then, we'll be engaging quite a bit, obviously virtually for the time being. And our financial calendar on Page 50 of today's presentation shows our planned activities, and the most up-to-date version of it is always online on our IR website. As always, feel free to reach out to me or the team with any questions or comments you may have. We're looking very much forward to staying in touch. That's it from us for today. Have a great day, everyone, and stay healthy.

[Rolf Eberhard Buch, Chairman of the Management Board & CEO]

Thank you.

[Operator]

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect now.