Vonovia SE

XETRA:VNA

Earnings Call Transcript 2021-Q1

[Operator]

Dear ladies and gentlemen, welcome to the interim results Q1 2021 analyst and investor call of Vonovia SE. At our customers' 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, Aurelia, and welcome to our Q1 '21 earnings call. In line with tradition, your host today are once again, CEO, Rolf Buch; and CFO, Helene von Roeder. I assume you have all had a chance to download the presentation. In case you have not, please go to our website where you'll find it under the latest publications. This is once again a pretty thick book, but that is because it's really 2 parts. The first is the earnings call presentation we will be going through today, so Pages 2 through 21. And the second is the more general investor presentation plus the appendix. We have combined the 2 into 1 document to use the same set for different events and situations over the next weeks. So Rolf and Helene will now lead you through the first part of the slide deck. And of course, as always, we'll be happy to answer your questions afterwards. And with that, over to Rolf.

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

So thank you, Rene, and also a warm welcome from my side. I will start with the highlights. So I hope nobody will be surprised that we had a good start in 2021, like always. Our operating business, but also the market fundamentals are fully intact. COVID-19 is still very much a reality but by now, I think it is well understood why there is hardly no impact on our business. Our top line total segment revenue was up almost 15%. EBITDA grew by 11%, FFO by 14% or 9.4% on a per share basis. As of March 31, our brick-and-mortar EPRA NTA, this is a new EPRA guide -- new EPRA KPI, was EUR 63.22 per share. And our beyond-the-brick EPRA NRV was up with EUR 77.59 per share. The next valuation will be at the half year mark, and based on the work we have done so far, we estimate the total fair value growth to be between EUR 3.5 billion and EUR 4.5 billion for the 3 portfolios -- 3 quarters of our portfolio, which we are evaluating in the H1 evaluation process. So there seems to be no slowdown in yield compression. However, we do notice a weaker momentum in yield compressions in locations where yield has already compressed very much like Munich or Berlin or Stuttgart. The LTV at the end of Q1 was 40.8%. If we look at the professional -- at the perpetual hybrid asset and the net debt to EBIT multiple was down to 12x. Importantly, you all saw our latest issues, which was a EUR 600 million green bond for 10 years and a coupon of only 0.625%. And finally, before I hand over to Helene, about onboarding. The good news is that we now have legal certainty and that an individual state cannot pass its own rental loss. The federal constitutional court was very clear about that. Unfortunately, the story doesn't end there. We are already seeing the backlash from supporters of the rent freeze and the nationalization campaign, and there is a real risk that in the wake of Berlin local election campaigns, the sentiment even became worse. This would be the opposite what we need. I am convinced that they need a deescalation and a dialogue, not a confrontation. With regard of rent growth, we expect an -- in the indexation for the new Mietspiegel '21, which is actually indexed 2019 Mietspiegel. And on this basis, we expected a mutual growth of roughly 1% to 0.5% per year, which probably is closer to the new normal.With this, I hand over to Helene.

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

Hi from my side. We saw earnings growth across all segments with a minor exception of Development, where the project nature of this business means it is, by definition, a bit less linear than the other 3 segments. Nonetheless, we see ourselves well on track to deliver performance growth, not just in the overall top line, but also for all 4-segment EBITDA. With the exception of minor changes at the margin, we had a stable portfolio of 415,000 apartments in Q1 compared to the prior year. On that basis, EBITDA rental was up 5.8%, supported by strong year-on-year growth in value-add and recurring sales we delivered an overall EBITDA growth of 11%. Accounting for lower interest expenses and higher taxes, the FFO growth was 14.1% or 9.4% on a per share basis. The interest expenses were, of course, lower from our refinancings. At the same time, current income taxes were higher, largely as a result of increased disposals. Let's look at Page 6. For a change, this is a pretty clean quarter-to-quarter comparison, and we also do not have distortions from the season effect with warm rents more in 1 period than the other one, like we did in all -- throughout last year. On that basis, our similar portfolio volume delivered 3.1% rental revenue growth and 5.8% EBITDA growth. Maintenance expenses were very similar to that of last year, and operating expenses were down 5%, both from operational improvements, but also because of fewer COVID-related precautionary measures compared to last year. While the adjusted EBITDA operations margin of 81.7% is probably a little bit elevated, the trajectory of increasing that margin even on a stable portfolio is clearly intact. On Page 7, we show the main operating KPIs for the Rental segment. Organic rent growth was 3% up year-on-year, of which was 0.7% came from the market, 1.7% from modernization and 0.6% from new construction. Obviously, Q1 2021 was still impacted by the Berlin rent freeze. When we come to the guidance, you will see that our expectation for the year-end is quite a bit higher than the 3%. Our vacancy rate was 2.8%. As we have said several times before, you may see a few basis points shift one way or another between the quarters, but is broadly the level that we expect. Clearly, it is mostly impacted by modernization work, not by demand. The list of people interested in an apartment is actually getting longer, not shorter. Again, maintenance expenses were in line with last year, also on a per-square-meter basis. Capitalized maintenance usually involves larger maintenance work, and here, we continue to think it is better to err on the side of caution and carry out upkeep work that we can capitalize, but where we do not get more rent. And with that, back to Rolf.

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

Okay. Then let's go to the Value-add segment on Page 8. We also had a good start here as well. Both external and internal revenue is up compared to last quarter, and helped to achieve the 23% EBITDA increase. As expected, we are getting step -- better step-by-step, keeping rolling out what works and trying to come up with new ideas. Contrary to last year, the snow fall and the cold temperature in Q1 '21 also helped a bit and supported the residential environment work. This is also the reason why our modernization work has been held back very little. Neither effect is particularly meaningful to be with more exploited here. On Page 9, we have the result of our Recurring Sales. We completed the sale of 1,182 apartments in Recurring Sales segment in the first quarter. The relatively high volume was mainly driven by 2 effects: first, a bit of spillover from strong demand already in Q4 last year that got pushed into the 2001; and second, by some harder-to-sell units that we managed to sell in a block. In spite of the elevated volumes, average fair value step-ups were almost fully in line and well above our target of approximately 30%. With this, back to Helene.

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

So let's look at Development on Page 10. This segment includes all new constructions of apartments by way of entirely new buildings, but it does exclude additions of floors on existing buildings. In Q1 2021, you see how the segment is a little bit less linear overall compared to the other segments, especially Rental and Value-add. Development to sales was quite a bit higher than last year. Development to hold was a little lower. And combined with more normalized operating expenses, the overall EBIT falls somewhat short of Q1 2020. This level of volatility can probably be expected. But if I look at the remainder of the year, I'm optimistic that we will deliver more EBITDA than last year. One interesting point I want to highlight. You may have noticed that most of the completions to hold were in Sweden, where we not only finished a small development to hold project, but also converted largely unused community spaces into rent-generating residential spaces. If we go to Page 11, then we can see that including the floor additions, we completed 379 apartments overall, of which EUR 149 million were to hold and 230 were to sell. The overall pipeline has not really changed. We're still looking at the long-term potential of 38,000 apartments for our own portfolio and another 9,000 that we will be selling to third parties. So let's go to Page 12 for our investment program. As I said before, this line of business is a bit more project-based and not quite as steady from quarter-to-quarter. What is more, in Q1 this year, we still had the reduced investment amounts for Berlin because of the rent freeze as well as some COVID-19 and weather-related delays so that the overall investment volume was lower than in Q1 2020. We are still very much on track for our guidance between EUR 1.3 billion and EUR 1.6 billion for 2021. And at least equally important, our investment level is sufficient in light of our CO2 reduction goals. We have included 3 investment examples in the appendix on Page 59 to 61. So let's move on to Page 13 for the NAVs -- or actually, rather, the NTA and NRV. Without a portfolio valuation, these values don't move all that much in 1 quarter. So we are only slightly above the year-end 2020. Please note that for the NRV, we are using the same value of the intangibles that we showed for Q4 2020 as this is updated only once a year. As a reminder, the NTA includes deferred taxes and purchases costs for our hold portfolio, but not for our sales portfolio. The ratio hold to sell for NPA purposes is 88:12. Please see our full year 2020 presentation or Page 63 in the appendix of this presentation for more detail. On Page 14, we round up the issue of value. We want to give you an understanding what we see based on market observations, but especially in terms of the H1 2021 valuation work that is underway. As in prior years, we are being pragmatic at the half year mark and only look at our 30 largest and/or most dynamic cities in Germany, plus Sweden plus Vienna, which cover about 3/4 of our overall value. Within this subset of our portfolio that we are revaluing, we are estimating the total fair value growth to be between EUR 3.5 billion and EUR 4.5 billion for H1 2021. Interestingly, but maybe not surprisingly, we see continuing yield compression, but with weaker momentum in markets where yields have already been compressed the most in the past, most notably Munich, Stuttgart and Berlin. But then there are markets where value growth appears to be running at a medium-to-strong momentum. These are mostly markets where we have seen medium-range yield compression in the past. And finally, we expect the strongest momentum in some of the largest markets like Frankfurt or Hamburg, where values have already been growing strongly for some time now, but also in market like Lübeck and Braunschweig that may have lagged a bit in the past. On Page 15, we have the LTV and the net debt-to-EBITDA multiple. Based on our standard definition, the LTV was 39.1% at the end of Q1 2021. In light of the call date for the perpetual hybrid at the end of this year, however, it probably makes sense to start looking at the LTV, including the hybrid, which is at 40.8% because we are now in a position to repay it with straight debt. Either way, the LTV is at or even slightly below our target range, which continues to be between 40% and 45%. The net debt-to-EBITDA multiple was 12x, so a little below the year-end 2020. There have been some discussions in the past, so let me reiterate our definition of the net debt-to-EBITDA multiple. In order to mitigate distortions by comparing an accumulated number like EBITDA with a spot number like net debt, we are using the average net debt of the preceding 5 quarters in relation to the EBITDA of the last 12 months. Please note that our EBITDA number is reduced by IFRS 16 effects and does not include any positive impacts from any noncore sales. Page 16 has all the relevant financial KPIs. I think many of you have heard me say that I do not think that LTV alone is a very meaningful indicator for the resilience of the company's balance sheet. And so not surprisingly, I haven't changed my mind. I'd like to look at it at least together with the fixed or hedged debt ratio and the maturity profile, and we clearly continue to be in very good shape here. Now you've all seen it, I'm sure. But in the context of the overall interest rate discussion or concern, it is still interesting to note our 2 bond issuances in Q1. We issued EUR 500 million over 20 years for a 1% coupon and EUR 600 million green bond over 10 years with a coupon of 0.6% to 5%. If I look at these terms and the current interest rate curve, I'm not really worried as it looks that refinancing will actually remain an opportunity. By the way, the coupons on our latest bond issuance were once again very honest coupons in that they mirror the actual reoffer yield very closely. So we are not moving interest costs around the FFO and through the NTA. And with that, back to Rolf.

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

So on Page 17, I would like to talk you and give you a little bit an update about Hembla because the integration of Hembla and Victoria Park has now been completed. But let me start by repeating the most important point. The whole idea of going outside of Germany is based on the conviction that the Vonovia business model of scale, in-sourcing and efficiency will work in comparable markets. In that sense, Sweden was our showcase to prove that we are able to replicate what we have done in Germany. So we now have reached the next milestone, which is a full combination of Victoria Park and Hembla. There is now one operating business with standardized processes on a single platform with a stable service center. There is one finance department with standardized processes, and there is one scalable IT platform and no longer a subteam individual IT solutions. That is what I mean by scale and efficiency. On that basis, we intend to continue to open opportunistic external goals, roll out the value-add initiatives and building up a customer organization. After already achieving the financial synergies last year, the full EUR 30 million of synergies that has been announced with the transaction will be delivered in 2021. And as you can see on the slide, there are a few more pockets that will generate additional synergies in the year '22. So keep in mind, Sweden is a small country. It's probably 1/10 of the size of Germany. So these synergies are meaningful and they are achieved. Probably also in the question-and-answer session, it will be an interesting page. This is Page 18. Much has been said and written about the federal constitutional court ruling on the rent freeze. Clearly, it is good to have the legal certainty. The court was very clear in ruling that the state cannot pass its own rental regulation. But what has received much less attention is the fact that this ruling comes at a very critical time with elections in Germany and in Berlin, and most probably, the nationalization of referendum all at the same day in September. We have already seen in the first reactions that the ruling clearly led to escalation of rhetoric. Supporters of the rent freeze feel betrayed by the German highest court. The willingness to have a dialogue and to work towards a solution, this fact and reason, has not exactly increased. Without a certain level of dialogue and a common ground, however, the situation in Berlin will remain challenging, and I do not expect things to simply return to the way they have been before the rental cap.I think we can expect a new Mietspiegel to come out very pretty soon, but it will be probably the 2019 Mietspiegel, which will be indexed because there are no market rents and that you can use for a bottom -- normal bottom-up Mietspiegel. And our expectation is that this Mietspiegel will be -- probably give us an increase closer to 1% over for 2 years, so a relatively low increase. On Page 19. I'd like to plug our sustainability report that we will publish on May 18. We are in the final stretch, but you have an external auditor review if and provide limited assurance, it takes a little bit longer, and we think it is important to add that extra layer of reliability. As in prior years, it will be based on GRI standard, and for the first time, we will also publish SRSB (sic) [ SASB ] mapping because we know that some investors prefer that standard. In terms of progress of our sustainability performance index, we had a good start in 2021 and are currently running at a rate of more than 104% achievement. This is driven primarily by very good progress in CO2 reduction, senior-friendly apartments refurbishment and customer satisfaction. But since the SPI is a new metric, we are sticking to our guidance of roughly 100% for the full year for now. Probably, we are a little bit conservative. Speaking on CO2 reduction, you may have seen the federal constitutional court ruling again that requires that the German government has to be more specific with regard of greenhouse gas reductions beyond 2030. With our building climate, perhaps we are already ahead of the government here as we have interim targets, not only until 2030, but all the way of CO2 neutrality until 2050. It is easy to say, climate-neutral by 2050. Many of us will no longer be in the decision-making positions then. So it is very important to have measurable binding targets all along the way. While we are on the subject and update of the CO2 tax, we have spoken about it before, but the latest development is that apparently an agreement has been reached but -- by which we may see a 50-50 split of the CO2 tax between landlords and tenants starting probably next year. We understand that on this basis, a redefined proposal is to be developed, which will probably take energy-efficient consideration into account. To give you an idea that -- what 50-50 for 2020 means, in 2019, we emitted a little more than 0.5 million CO2 relevant for the taxation. Of course, until 2022, we will have seen a reduction of that number. But for now, this is the best we have. If we then apply the EUR 30 per tonne and the 50% share, we will get approximately EUR 8 million for 2022. And with this, to Helene for the guidance.

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

So on Page 20, we have the guidance for the current year, and we probably do not need to talk too much about it because actually, nothing has really changed. Just one adjustment we made, and that is we took out the lower end of the organic rent growth guidance because that was under the scenario that the rent freeze in Berlin had stayed in place. So we expect around 3.8% organic rent growth this year, i.e., as the delta between December 2021 and December 2020 on the portfolio of units that we owned on both dates.

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

So with this, it's time to wrap up. My brief summary for today's call would be: one, the first was if high resilience in our operating performance continues and the market fundamental and long-term outlook remain favorable; second, we remain confident that we can continue to deliver earnings and value growth for this year and the years beyond; and third, ESG focus and stakeholder reconciliation are more crucial these days than ever. As we have said before, most of our actions have more than just an economic dimension. So expect us to continue and to try to strike the right balance going forward. To us, there is no conflict. We have built a business that can deliver the kind of returns that you expect from us and still make sure that we do it in a way that treats other shareholders fairly. In the end, finding relevant solutions to ESG challenges will be rewarding in multiple ways, financially, but also beyond. And with is back to Rene.

[Rene Hoffmann, Head of Investor Relations]

Thanks, Rolf and Helene. And I'll pass the ball directly back to Aurelia for the Q&A, please.

[Operator]

[Operator Instructions] And the first question is from Thomas Neuhold, Kepler Cheuvreux.

[Thomas Neuhold, Head of Research of Austria]

I have 3, and I think it's the best if you take them one-by-one. Firstly, I was wondering what impact the rising raw material costs could have on your Development business. Can you share your thoughts on what kind of cost inflation you're currently seeing? And if the cost inflation could have a negative impact on the margins, especially in Development to sell segments.

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

So at this point in time, given most of our developments are sort of like preordered, inflation isn't hitting us at this point in time yet. What we see is like we do see a little bit of inflation both in steel and in wood. What we expect though is that, that seems to be more of a temporary situation as a result of disrupted supply chains. So, so far, we haven't seen any indications. But clearly, we're looking out for any changes here.

[Thomas Neuhold, Head of Research of Austria]

Okay. Understood. Then the second question is on the expected EUR 3.5 billion to EUR 4.5 billion in relation to gains. If I did the math correctly, your LTV could fall around 34% to 37%, well below your target zone. What is your preferred way to get back in the targets on share buybacks, acquisitions, increasing investment program? Can you share your thoughts on that, please?

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

So actually, I think Helene will tell you -- I will give it back to Helene, but Helene will tell you that LTV is probably less and less meaningful. I think I heard her several times there's other metrics, which are probably more meaningful. So I'm not nervous by being outside my corridor.

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

Yes. I mean, just to give a bit more color. We did quite a bit of -- we looked quite a bit at sort of like investments versus share buybacks and at what point a share buyback is more efficient than an investment. And today, the truth, it's really most of the time that we would use the investment opportunity over the share buyback because the overall return for our shareholders on the back of those investment opportunities that we see, and that is across all programs, be it development, optimized apartments or upgrades to buildings is much more attractive than a share buyback. Now as you also know is like that is clearly dependent on how the share price trades in relation to the NTA. But it's quite amazing how resilient that financial model is.

[Thomas Neuhold, Head of Research of Austria]

Okay. Understood. And my last question is on the upcoming election. The green party is currently in the lead and the left-hand government seems possible according to the current polls. Can you share your thoughts what the chances and/or risks of participation of the green party in the next government could be?

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

If you look on the polls, the participation of the clean government in the -- the green party in the next government is nearly sure. The question is with whom they will cover, and if the next chancellor will be clean or black. I would say it is just the poll. If the vaccination process of COVID-19 is getting better, I think you will see -- and the Christian Democrat party is getting in order again after the -- a little bit stressful selection of the potential chancellor candidate, I think they will come back. Because in the end, the majority of Germans is still in favor of this part of the political spectrum. The green party is actually, in reality, 2 green parties, which is a green party type Berlin and a green party type Baden-Württemberg, which are actually 2 different parties. And the interesting outcome will be with whom they will work together. So I'm not too much concerned. We have, of course, also a good relationship to everybody, including the green party. So this should not be as bad. Of course, you know and you will see in the past that today, there was a new demand of the green party asking for Mietspiegel on a German-wide level, but there has -- you have to be very precise. They are asking of an authorization on a German level to give local governments the right to make a Mietspiegel and a -- and Mietenstopp and Mietendeckel. So if this happens, for example, left-hand government, we will be back to point zero definitely in Berlin and in Bremen. There's other countries where we probably are not surprised, and we are not concerned at all, which is probably North Rhine-Westphalia, where actually the government is completely against the Mietenstopp. But so on the federal election, we'll also make clear if we will get back to debates about Mietendeckel and Mietenstopp volume type after September.

[Operator]

The next question is from Charles Boissier, UBS.

[Charles Boissier, Director and Property Analyst]

Actually continuing on regulation. So in Berlin, you mentioned you're not going to claw back the rent due in the current context also with the expropriation debate. I just was wondering to what extent will you still perform the 2019 Mietspiegel increase now versus waiting, sorry, next year post-election to pass both 2019 and 2022 Mietspiegel?

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

So -- and then -- yes, sorry. So I will do a question-after-question. Well this is easier for me. And then you will just start the next question. So actually, the '21 Mietspiegel will come out, as I said, in probably a few weeks latest. So there is no need to adapt to the 2019 Mietspiegel. You can immediately adapt to the '21 Mietspiegel. So we haven't taken the final decision if we do it before the election or after the election, but this will happen in due course of the year '21.

[Charles Boissier, Director and Property Analyst]

Okay. And then in terms of revaluation, you mentioned the high-yielding cities outperforming. How much is it institutional investor not preferring just relying for their IRR on yield rather than future growth? Or to what extent we should not be reading much? This time, it's Dortmund Rhine-Westphalia and maybe [ Biarritz ] Berlin outperforming again. Just wondering what we should read in this...

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

So I think -- yes. I would say that there is obviously the sentiment in -- at least of some investors that they need a minimum yield. And in some cities, the minimum yield is getting very minimum. So that's why I think people are buying probably a little bit better yields, and this is, for example, example, in Dortmund and other cities. So I think this is the only explanation what I can understand. And then the next is the cities where we have not seen a massive yield compression or which we don't see a massive yield compression, the ratio between purchasing power and rent is probably not the best in terms of Europe of the tenants. So Munich is high purchasing power, but for example, also very high rent. While Berlin is not so high rent, but also low purchasing power. So there might be also -- this might also be taken into consideration by the market.

[Charles Boissier, Director and Property Analyst]

Right. And then lastly, you mentioned about energy modernization. I'm just wondering, so given the carbon tax now, you mentioned you have some sources telling you that it will be shared between tenants and landlord. Also given now the subsidies from BEG in June, also seeing that a CDP, the reduced from the left from B to B-. I'm just wondering how is all these data points leading you to maybe consider accelerating energetic modernization data and getting carbon neutral sooner than 2050?

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

Actually, we have now this -- I think we have now decided the climate path. And I think we are the first and only company who has a binding climate path until 2050. I said also in the presentation to announce that we are climate-neutral by 2040. 2050 is very easy because we are not in charge anymore. So it is more important to have a binding path with a target year-by-year, which we have. So let's do now our work. Let's do go down until 2030. And we see that in the moment, we are doing very good progress. I don't exclude that we are below our target curve in the next years, and then we can set new targets. But it would be a little bit crazy to just publish a binding plan -- CO2 reduction path and 2 changes a few months later. So let's do our work. Let's see next year if we are better than we can discuss to get more ambitious. But thank you. For my knowledge, we are the only one who has a binding climate reduction path.

[Operator]

The next question is from Marc Mozzi, Bank of America.

[Marc Louis Baptiste Mozzi, MD & Head of the EMEA Real Estate team]

I have only 2 on my side. Can you please remind us what sort of impact the subsidies subvention that the German government will provide you for energetic modernization both on new construction and existing buildings?

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

Unfortunately, you will get the same answers of what you have got in the end -- year-end. We are still working on it. It will be positive, but we have not disclosed data. I think we promised you that we will be before the end of the year. The problems will be completely, new calculated, but it will improve. So it will be positive. I'm sorry. We are not -- we cannot give you data at the moment.

[Marc Louis Baptiste Mozzi, MD & Head of the EMEA Real Estate team]

And my second point is on this Berlin new Mietspiegel. Can you just explain us how that's going to impact your rental growth in 2021 and 22? Because if I recall well, you haven't applied the Mietspiegel 2019. So you've got kind of a double benefit here from 2019, plus the increase of this 2019 Mietspiegel. Am I right to say that? Or I'm missing something here?

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

No, you are right. We will actually be -- by applying the '21 Mietspiegel, which is only very little goes, we will automatically get actually the 2019 effect as well. So you will see a significant growth. That's why it's -- also our guidance is now at 3.8%. So -- but for the FFO, of course, for the year 2021, it is not too meaningful because it's just a small amount and probably coming before the election or even after the election in September, we have not taken the decision. So I think this is -- but you're completely right. We will automatically do 2 Mietspiegel. And this is -- the charm is that we are not sending out a letter to the tenant. Now we're applying to 2019. And a few weeks later, now we are applying the '21 Mietspiegel. We are just sending out 1 Mietspiegel, saying, "We are applying the Mietspiegel given by the government, actually a left senator. And we are applying this Mietspiegel." So we don't see any issues by doing this. But keep in mind, but keep in mind, it is surprisingly low. So we have a -- we will probably see a 1% increase in the 2021 Mietspiegel for 2 years. So this is below -- significantly below inflation.

[Operator]

And the next question is from Thomas Rothaeusler, Jefferies.

[Thomas Rothaeusler, Equity Analyst]

Just a follow-up on politics. On the green housing program, which at least exists in draft form, to my understanding, it seems they are not in favor of a rent freeze at federal level, but might tighten modernization charges to tenants and also tighten relets. Maybe you can comment on the key points here. What's your key take out of that?

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

No, I think -- so you have to understand. Actually, what the key -- green party just says is they say, "Okay. We have understood that a land cannot pass rental regulation." And they have now explicitly written in their program that what actually they want is the right given by the federal government to the -- all the lender to pass their own rent regulation, which is, of course, what will -- if summary of these people are in charge, will happen. So it's very easy. The Bundestag can decide like with Mietpreisbremse, that there is a framework agreement, which allows actually every state to pass its own Mietendeckel and Mietenstopp. So this is relatively easy done. And the constitutional court just said, "It's only not possible that a state without this permission can pass a regulation. But of course, if the permission is given by the Bundestag, this is -- can be done." So if this happens, we are back to step 1 in Berlin because then definitely in Berlin, we will see the Mietendeckel and the mieten -- and the miet freeze again because the government is asking for it. So -- and then the story starts anew. So this is actually -- so that's why the ruling of the constitutional court is good because it is clear that we can have not contradicting rental regulation. But in fact, it has not changed too much because it just has said that, "Bundestag has to pass a law, like it has done with the Mietpreisbremse, to allow the states to do their own rental regulation. So this, I think, is -- in the moment, the discussion is postponed, but it is not finalized. Then the green party, you're right. They actually have -- they want to have a reduction in the modernization program. But in the same time, they have understood that then they have to compensate the reduction by higher subsidies. So actually, we don't care. If we get a subsidy -- if we get the money from the tenant, it's fine. Or if we get it as a form of subsidy, it's fine as well. In the end, getting it in a form of subsidy, it's even more easier for us because then we have no conflict with the tenant.

[Thomas Rothaeusler, Equity Analyst]

And the point you referred to actually was published today, was it right?

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

Yes. But this was published today, but in the end, it was a debate of the last weeks. So nobody -- and I think this has to very clear because not everybody of you is German-native. Nobody is asking for a Mietenstopp and a Mietendeckel German-wide, even not the left party. They're only asking to have the permission to pass a Mietendeckel and a Mietenstopp on a local level in cities where they actually have a critical situation. Because everybody is aware that there's places in Germany where you have no imbalance between supply and demand. And in these places, a Mietendeckel would be a disaster because with a Mietendeckel, you stop all investments.

[Thomas Rothaeusler, Equity Analyst]

So would you regard this news as the key driver for today's negative share price performance?

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

I'm -- it's not my job to interpret -- to do any interpretation of what you are doing and your customers are doing. But no, I cannot judge on this. I don't understand it. But this is not my job.

[Thomas Rothaeusler, Equity Analyst]

Very helpful.

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

My job is to deliver -- our job here is to deliver a stable FFO and value growth, and the rest is what the capital market has to be done.

[Operator]

The next question is from Kai Klose at Berenberg.

[Kai Malte Klose, Analyst]

Just 2 quick questions from my side. The first one is on the slightly higher cash tax rate in the first quarter. You mentioned that it was due to the disposal in Q1. It could indicate that this -- if this might also sustain for the year that we may have a slightly higher cash taxes for the full year 2021.And the second question would be on Page 64 of the presentation. Could you give us a little bit more color on the split on the properties you were offered for potential acquisition, kind of a regional split or it's like Germany or Sweden? Or if -- and if this also included, for example, land which you might want to buy for development?

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

Let me do the taxes, and Rolf will try to decipher Page 64, I think. So look, indeed, as we have sold slightly more properties in the Recurring Sales segment, we have seen slightly higher taxes. Now in a way, this will come more or less in line with -- if we have a higher recurring result -- Recurring Sales results. We will distribute slightly higher taxes in the same vein. That has nothing to do with the cash taxes in all of the other businesses.

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

And coming to your second question on Page 64, I think this is a page which we published regularly. If I look on this page, actually, there's not too much new to be explained. So you'll see that this is actually a relatively stable pipeline of volume, which is offered to us. And it is coming from institutional investors, mainly because just of the size, so from professional landlords. But there is not -- no change in comparison to the previous years. And this is, of course, Germany and Sweden, mainly.

[Operator]

And the next question is from Manuel Martin, ODDO BHF.

[Manuel Martin, Analyst]

I heard the word FFO, and heard okay. I have to clarify something. Maybe I'm confused. If we extrapolate the FFO in Q1, that would meant that it would be an overshooting on a full year basis. Is -- what will happen in the next quarter to slow down the FFO?

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

So I think it is also a question if you -- first of all, we have this -- the sales activity, which you probably cannot take 4 times. I think this is a very good argument. And the second is that probably to look on the guidance and revise the guidance in the first quarter is probably not the moment where you have to do it even if you are positive.

[Operator]

And the next question is from Chris Fremantle, Morgan Stanley.

[Christopher Richard Fremantle, Executive Director]

I'm sorry, I just want to come back again on the political situation just so that non-Germans can understand. I appreciate that you have been specific about the fact that states will have the option rather than the obligation to adopt a Mietenstopp under the green party's proposals. But do you not feel or should we not fear, should the market not fear that just like the Mietpreisbremse, where this was also just an option to adopt by individual states, the vast majority of Bundes lender feel pressurized to adopt that option. Is that not something that becomes a fait accompli, so to speak? Or have I misunderstood?

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

I think the Mietpreisbremse and the Mietendeckel is 2 different worlds of regulation. The Mietpreisbremse actually is putting a limit to the new letting 10% above the Mietspiegel, which, to be very clear, if I would be in -- a politician, I would do the same in these hard markets. This is more or less a market-adopted process. So you're putting a cap that you don't want to let the market be completely free. This is what I call a regulated market. The Mietendeckel actually is reducing rent of existing contracts and putting a cap or actually is not allowing any modernization. This is a completely different tool. While the Mieten -- Mietpreisbremse is a tool of social market, the Mietendeckel is a tool of a socialistic market. So this is to completely different concepts. And if you look, for example, North Rhine Westphalia, where we have a black -- yellow, so little democrat and Christian Democrat government, by the way, probably the new chancellor of Germany, they are very clear that even the Mietendeckel is out of debate and out of range and the Mietpreisbremse was in debate. And in the end, they said, "We will not stop it immediately, but a little bit later." And this was with the support of the industry and not to stop it immediately. So I think we have published before a slide where we have shown you what is the combination of the different governments. And you can see that of Berlin and Bremen, actually, if the states will have the right to pass their own legislation, if this right will be given by the Bundestag, then Berlin and Bremen, we can expect a Mietendeckel again in Berlin and newly in Bremen. But for Northern Westphalia, Saxony, Baden-Württemberg, Hessen, Schleswig-Holstein, actually, these governments have explicitly said that they think that the Mietendeckel is the wrong way. And if you look on the results, what the Mietendeckel has generated in Berlin, it has just generated a mess. In Berlin, there is less apartments available now than it was 1.5 years before. There's less new construction. So I think there's a lot of arguments against the Mietendeckel. There is only a very few arguments -- and even for me, it will be very difficult to argue against the Mietpreisbremse.

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

And sorry, to just add because it's a little bit breaking news. The greens have asked for the politicians in Berlin to open the ability to do a Mietendeckel, but the green party leaders, Habeck, has said that he does not want to have the Mietendeckel, but wants to find other alternative to sort of limited rental growth. So it seems like it's not a fait accompli so within the greens. It's a debate. And it's pretty clear that the greens in Berlin sort of like ruling the German party are taking a different stance than the Berlin greens, which is, I guess, not surprising.

[Operator]

And there are currently no further questions. [Operator Instructions] And we haven't received any further questions at this point, so I'll hand back to the speakers for closing remarks.

[Rene Hoffmann, Head of Investor Relations]

Okay. Thanks, Aurelia, and thanks, everyone, for joining. As a reminder, our H1 2021 results will come out on August 6. Until then, we'll be on a virtual tour with a number of roadshows and conference attendances. Our financial calendar on Page 78 of today's presentation shows our planned activities for the coming weeks, and the most up-to-date version is always available on our IR website. So much for today. As always, let me or the team know with any questions or comments you may have. We're looking forward to staying in touch. That's it from us for today. Stay happy and healthy, and have a great day, everyone.

[Operator]

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