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Edited Transcript of ADJ.DE earnings conference call or presentation 14-Aug-19 9:00am GMT

Q2 2019 ADO Properties SA Earnings Call

LUXEMBOURG Sep 18, 2019 (Thomson StreetEvents) -- Edited Transcript of ADO Properties SA earnings conference call or presentation Wednesday, August 14, 2019 at 9:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Eyal Horn

ADO Properties S.A. - Interim COO

* Florian Goldgruber

ADO Properties S.A. - Interim CFO

* Ran Laufer

ADO Properties S.A. - CEO

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Conference Call Participants

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* Julius Stinauer

Hauck & Aufhäuser Privatbankiers AG, Research Division - Analyst

* Marios Pastou

Crédit Suisse AG, Research Division - Research Analyst

* Robert Woerdeman

Kempen & Co. N.V., Research Division - Research Analyst

* Sander Bunck

Barclays Bank PLC, Research Division - VP of Real Estate Equity Research

* Veronique Meertens

ABN AMRO Bank N.V., Research Division - Analyst

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Presentation

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Operator [1]

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Dear, ladies and gentlemen, welcome to the investor conference call of ADO Properties. At our customer's request, this conference will be recorded. (Operator Instructions)

May I now hand you over to Ran Laufer, CEO, who will lead you through this conference. Please go ahead.

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Ran Laufer, ADO Properties S.A. - CEO [2]

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Thank you, Angela, and thank you, all, for dialing into the Q2 2019 conference call of ADO Properties. I'm here very pleased that I am today with the senior management team, Florian, our CFO, and Eyal, our COO. You might have seen that the -- we have announced yesterday that Eyal Merdler will join us as the CFO on the 30th of September.

Before I start with the first part of the presentation, I would like to shortly introduce myself. My name is, as said, Ran Laufer. I joined ADO as the CEO a few weeks ago on the 23rd of July 2019. I am grateful to the management team of ADO presenting today with whom I worked closely and intensively over the last weeks. I also would like to thank to the Board of Directors for supporting me and giving the opportunity to lead this great company. Furthermore, I'm very pleased to have worked together with Rabin for a short period. The transition could not have been smoother, thanks to his help.

As some of you know, I worked at Grand City Properties in the early days, when the company was still small, but actively growing. This gave me the opportunity to be directly involved in operations, acquisitions, turnaround of portfolios by increasing occupancy and rents. We have started to analyze and work on opportunities to further increase value for ADO shareholders, and we will present those once there is more clarity on the outcome of pending discussions on rent legislation. I am looking forward to meeting you soon and welcome questions at the end of this call.

Now I would like to move to Page 3 of the presentation. ADO's portfolio has increased by EUR 4.4 billion as of 30th of June 2019 on the back of EUR 260 million reevaluation by CBRE. At 38% LTV, we are well below our target of maximum 40%, which is target we will commit ourselves to go in on forward with.

The 2 pies on the right-hand side of the page have often been overlooked in previous presentations, but might become more important going forward. You know that we have a Berlin residential portfolio; however, we receive 16% of our rents from commercial space and parking, which is part of our resi blocks. Furthermore, 6% of our rents are rent-restricted. As you know, both categories are not part of the pending discussions on rent legislation.

Secondly, we are privatizing units whereby 1% of our portfolio is currently being privatized. On top, some 25% of portfolio can be privatized, which has a great option value for us.

Let's move to Page 4 to show some financial and operational highlights. Rental income has increased by 10% compared to the year ago. Vacancy came down by 30 basis points since the beginning of the year, and we focus on bringing this down more going forward. Privatization of only 38 units resulted in average sales price of nearly EUR 3,900 per square meter, again, being well above latest fair market values.

Our EPRA NAV per share for the first time crossed the EUR 60 mark being at EUR 60.63, which is after payment of our EUR 0.75 of dividends in June.

Going to Page 6. Market rents have further increased resulting in reversionary potential of 48% for the portfolio. Our turnover rate is around 7.7%, which considered as a main driver for the company. The average fair value of our properties is at EUR 2,660 per square meter, significantly below replacement value.

I would like to turn to Page 7, and ask Eyal to take over.

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Eyal Horn, ADO Properties S.A. - Interim COO [3]

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Thank you, Ran. There is still a lot of uncertainty in regards to the new proposed Mietendeckel regulation. The main difficulty is that the current available information is very vague and therefore, difficult to fully assess. We see this interference in the market with great doubts and are certain that it will not limit price increases on the Berlin market as this law is not creating any additional inventory. On the contrary, it just creates more obstacles as developing new units for rent makes no economic sense.

In addition, we believe as the majority of the market participants that the current draft is unconstitutional, and therefore, not valid nor it will withstand over the course of the next 5 years. We are, therefore, reviewing and analyzing our in-place investment strategies to best cope in these uncertain times.

Looking at our vacancy split on the upper right, we see a positive trend in our occupancy development as we are currently standing at 2.9% overall vacancy, which is an improvement of 20 basis points in comparison to the last quarter.

Our average new letting rent is continuously improving and is currently at EUR 10.11 a square meter. This reflects a reversionary potential of 49% as our average in-place rents is at EUR 6.81 a square meter. 1.8% of the vacancy is currently under construction, carefully watched and supervised by our construction management, implementing new ways to be able and cope better with the upcoming regulation. The remaining 1.1% is split between our letting department holding 1% and the condo sales department, which holds 0.1% for our privatization program. The last 2 months look very promising in terms of new lettings, and we hope it will carry through the next quarters to come.

Our like-for-like rental growth graph on the upper left is indicating a 4% rental growth. When including the furniture surcharge for furnished apartments we come out at 4.2%. The main reasons for the relatively low growth in comparison to other quarters is mainly to be found with our sitting tenants' rent increases and our furnished apartments program. As the new Mietspiegel was presented in mid of May, we have deliberately postponed our rent increases from the beginning of the year to be able and increase rents to the maximum possible as the legislation allows to increase rents only once every 13 months up to a maximum of 15% over the course of 3 years. In addition, our furnished apartments program is generating high returns. But at the same time, the overall renting process is taking more time due to furnishing phase and, therefore, income from new rents is being delayed.

In difference to the rent increases, the unit CapEx contributor is still online with previous quarters, delivering a stable and solid growth of 2.4%. It is still premature to estimate the future contributions of these elements as we don't know how the new regulation will evolve and impact our future growth potential. We are looking on all options to be able and continue to generate future growth through densification projects and further business models to maintain and extract our growth potential.

Looking at the table on the bottom left, we can see the breakdown of our maintenance and CapEx investments. In the first 6 months, we have invested a total of EUR 46.7 per square meter on an annualized basis. We believe that this investment volume will slowly decrease as we are currently adjusting our investment strategy in accordance to the new regulation.

As the return on investments, especially on units modernization will most probably decrease, we will now invest only the necessary CapEx to assure a balanced cost return ratio. We invested EUR 26.1 per square meter on modernization CapEx, where we successfully completed the modernization of 789 units. The maintenance expense remained stable at EUR 7.7 per square meter as well as our capitalized maintenance at EUR 10.7 per square meter, mainly driven by safety regulation projects and property enhancements.

Energetic modernization is at EUR 2.30 per square meter, slightly lower than the past quarters where we currently assess individual projects in accordance to the new regulation and their profitability in order to prioritize and determine future energetic projects.

I will now hand it to Florian to discuss financial figures.

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Florian Goldgruber, ADO Properties S.A. - Interim CFO [4]

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Thank you, Eyal. On Page 8, you see the privatization activities, which are in line with our expectations. We see a value uplift of close to 20% compared to the average value of our central location portfolio. We see a nice value uplift, but you also need to keep in mind that due to the low number of sales, we also see some volatility in the average sales prices based on the different quality of the sold units.

Moving on to Page 10, we take a look at the balance sheet. The key changes in the balance sheet is clearly the coming with the new valuation that we've seen and the portfolio value stands now at close to EUR 4.4 billion.

We've also seen an increase in the interest-bearing debt as we closed 1 secured new financing and we temporarily, at the end of Q2, had a drawdown of EUR 30 million short-term loan under our RCF, which is already repaid.

As Ran mentioned, our EPRA NAV has clearly seen a nice boost from our valuation and stands now at EUR 60.63, after the dividend payment of EUR 0.75 in June.

Continuing on Page 11 with the portfolio valuation. Our value has increased to EUR 4.4 billion or EUR 2,660 per square meter. Around 40% of this fair value is already supported by the land value alone, multipliers have increased and stand at 31.8x for the in-place rent or 22.7x at the current market rents.

We have currently no clear visibility how the proposed new regulation might impact the values in the future, but it is important to keep one fact in mind. Our value is still significantly below new construction costs and the current demand-supply imbalance is supporting these values.

That brings me to our share performance, which has been disappointing in the recent months, also as a reaction to the ongoing discussions about the Berliner Mietendeckel. We see our share currently trade at a discount to NAV, which reflects an implicit value per square meter of EUR 2,000, a value that is significantly below fair market values and far below the price point at which any new supply can enter the market.

Looking at the proposed new regulation with all the uncertainty, we expect that this will further increase the demand-supply imbalance. And by that, we'll continue to support our values despite this mentioned high uncertainty that is created.

Continuing on Page 12. Let's look at the details how we generate the value. The key drivers for the value increases are in line with what we've seen in the previous periods. We have seen yield compression deliver EUR 170 million of value growth, while EUR 120 million is coming from rent increases and CapEx investments.

Moving on to Page 13, and looking a little bit more details on the financing side. As mentioned, our interest-bearing assets increased to EUR 1.713 million (sic) [1,713 million]. But out of that, it's EUR 30 million RCF, which is already repaid. So the figure is now running slightly below the EUR 1.7 billion aspect as of today. We have no material short-term maturities, what you see on the right-hand side with only EUR 30 million of maturities in 2019 and another close to EUR 40 million in 2020.

So we're not too worried about the average duration of our debt, which is 4.3 years, which could also extend a little bit with the new financing that we closed, which has a maturity of 8 years. When you look at this new financing, it also shows you that this (inaudible) environment very attractive interest rates, which is clearly also improving our financials. We were able to secure this 8-year financing with a secured rate of 1.07%, and that has lowered our average cost of debt to 1.6%, an improvement of 10 basis points.

Our financing strategy is unchanged. We have still our EUR 200 million committed RCF line with a target LTV of maximum 40%, where we're well inside of that. And as you see on the right-hand side, all our relevant covenants have sufficient and materially sufficient headroom for -- compared to the actual figures.

Moving to Page 14, looking at the profit and loss statements. The income from rental activities compared to the same period of the last year increased by 10%. And we now see an annualized income of around EUR 143 million.

More important for us is actually that the NOI and EBITDA margins, which are lower than the average of 2018 have, as expected, stabilized because we've seen a drop in the margins in Q4 2018 due to the increased demand on the business and also the stop in growth. But as we were expecting at that point in time from Q4 going forward, we've seen a stabilization and even small improvements of the NOI margins.

Continuing on Page 15. The EBITDA from the rental activities increased by 2%, and we're now running an annualized EBITDA of EUR 96 million, so slightly below EUR 100 million figure. The maintenance is in line with our long-term average, and we see clearly, a nice addition coming from our sales activities, which is generating another EUR 2.3 million of gross profit, adding to our FFO 2.

With that, I'm coming to the guidance for 2019. We're currently not in a position to provide a forward-looking guidance for the like-for-like rental growth due to the upcoming discussions on the potential implementation of the new rent legislation in Berlin. More important, we expect our FFO 1 run rate to be approximately EUR 65 million, in line with our previous guidance. Our average cost of long-term debt to continue at 1.6%, with an LTV target of maximum 40%, and we continue to target a dividend payout ratio up to 50% of FFO 1.

With that, I'm handing back for the Q&A session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We've received the first question that is from Robert Woerdeman of Kempen.

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Robert Woerdeman, Kempen & Co. N.V., Research Division - Research Analyst [2]

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This is Robert Woerdeman, Kempen. A few questions. First of all, what is new management going to do different than, let's say, the old management? What kind of strategic change can we expect?

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Ran Laufer, ADO Properties S.A. - CEO [3]

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Robert, it's Ran. Well, on the financial side, we remain with the current strategy of a maximum 40% loan-to-value, and up to 50% dividend payout ratio for the FFO 1. Operationally wise, we identify opportunities to increase FFO via different future reduction of vacancy and increase of efficiency of CapEx. We also anticipate some potential changes of rent legislation, and we will come back on that once there is more clarity on the potential outcomes.

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Robert Woerdeman, Kempen & Co. N.V., Research Division - Research Analyst [4]

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Okay. But is there also a different objective with respect to acquisitions, redevelopments, developments going into new cities and that kind of matters?

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Ran Laufer, ADO Properties S.A. - CEO [5]

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As I mentioned at the beginning of my call, I'm here for a short period. I am evaluating all possibilities and looking at the market. And once I have this set up, I will announce it clearly.

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Robert Woerdeman, Kempen & Co. N.V., Research Division - Research Analyst [6]

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Okay. That's clear. And then a more nitty-gritty, but if you look at the valuation growth of ADO, it's a bit more than 6% if you compared it to the Berlin assets of Deutsche Wohnen. I know it's not one on one comparable, but why is there such a difference in valuation? And perhaps, as a follow-up question with the Mietendeckel currently in hefty discussion, do you envisage that, for instance, that H2, the appraisers will underwrite higher cost of equity or WACC in their DCF and thereby potentially lowering the values?

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Florian Goldgruber, ADO Properties S.A. - Interim CFO [7]

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Probably a little bit difficult to answer, Robert, is the comparison with the Deutsche Wohnen. Our understanding is that Deutsche Wohnen was providing an internal valuation. We, as usual, have 100% of the portfolio valued by CBRE. And as that -- this could be already kind of -- or probably the most important difference in the valuations. Nevertheless, we had a very intensive debate with our -- the CBRE about the valuations and we must clearly say at the point of the valuation those areas of June of the reporting date, there was no law. There is also no clarity how this law will be implemented. how it will actually look like, how the impact is. And it is -- was also no impact on the transaction values in the Berlin market at that point in time. And all of that was effectively considered in this valuation of CBRE. As said, we also scrutinized that very intensively, not only we, but also our auditors did. And so we must say, at -- for this point in time, we think that -- believe that these values are correct.

But the trickier question is looking forward. And I think the only thing which we know is that the future and the future regulation is highly uncertain. We have no view at the moment that there will be a negative impact on that. We can't provide any guidance on this topic. And we also had the discussion with CBRE and I think it's the same. We all need to look first at the actual draft, also the finally implemented version of the law to be able to assess an impact and then also see how the market reacts. The -- let's say, the important point for us is clearly that whatever this uncertainty does is also it's limiting supply, and this is something that -- it might not prevent short-term volatility, but it actually supports long-term values, and this is something which gives us also some confidence when we look at this situation.

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Operator [8]

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The next question is from Sander Bunck of Barclays.

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Sander Bunck, Barclays Bank PLC, Research Division - VP of Real Estate Equity Research [9]

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It's Sander Bunck here from Barclays. And 2 questions for me, please. The first one is, one of your initial comments in the presentation, you mentioned that you -- the 2 charts were under-highlighted in previous presentations, the privatization potential and the commercial element of the portfolio. Now I understand you probably don't want to comment on the privatization, given it probably depends on the outcome of the new rent regulation. But can you say something about the commercial portfolio in terms of what is it that you're seeing here that is quite attractive and has previously been kind of missed? And how do you see that share of commercial in that case evolving over the foreseeable future? And that's my first question.

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Florian Goldgruber, ADO Properties S.A. - Interim CFO [10]

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Sander, it's Florian. I think the -- when Ran mentioned that kind of -- we overlook that it's probably rightly from -- when we look at kind of the key elements we were always presenting us. But I think the attractiveness of the commercial portfolio is something that we, on a continuous basis, highlighted, I would say, every half year, at least. I think we would also find that in the Q4 presentation one slide with more detailed split and KPIs on the commercial portfolio, where you see that the commercial portfolio developed in line with the attractiveness of the residential portfolio.

I think the worry that a lot of people at the moment have that this attractiveness of the residential portfolio is negatively impacted. And I think at least at the moment, what we clearly want to highlight, we have 14% of our income, which is similarly attractive and the details you can also find and we're going to also provide more if we're -- if needed. But this is not impacted by the -- at least our current understanding of the proposed new regulation.

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Ran Laufer, ADO Properties S.A. - CEO [11]

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Maybe just to add on, on that, Sander, is just to give a little bit flavor to the commercial portfolio. So we're currently talking about round about 1,500 commercial units, which makes round about a little bit more than 170,000 square meter. On top of that, we have over 6,000 parking spaces and so forth. And these are the things that we're currently, of course, continuously looking at in order to be able and continue to generate also from this segment further rental growth as they are currently still completely free from all kind of regulations.

And as Florian mentioned in the past, we see an in-line growth for those commercial units in our portfolio, generating also on an annual basis, a 30% reversionary potential, which is being unlocked as rents are still relatively low, round about the EUR 10 per square meter in place where we know that new rentals were charging rents as high as EUR 15 and sometimes, of course, EUR 20, depends on the location. And therefore, of course, we still see quite a potential coming out from these units.

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Sander Bunck, Barclays Bank PLC, Research Division - VP of Real Estate Equity Research [12]

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Okay. That's understood. The second question I had was on the like-for-like rental growth, which was, I think, 5.3% in the first quarter, 4% for the first half, implying that like-for-like rental growth was below 3% in the second quarter. I appreciate that you were mentioning that you haven't been pushing rents as much as you did previously. And at the same time, it looks like some of the positives that you achieved in Q1, i.e., some vacancy reduction, although it doesn't really show in your headline numbers, the contribution from that dropped away entirely with this set of -- with the breakdown that you currently provide for that like-for-like rental growth. So can you just give a bit more flavor in terms of what happened in the second quarter with rental growth because it does appear already to be quite a material slowdown?

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Florian Goldgruber, ADO Properties S.A. - Interim CFO [13]

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I think probably before Eyal can give you a little bit more detail on Q2, I think one important thing in this change in like-for-like is actually the base shifts. So by clearly moving the baseline from Q1 to Q2 2018 that was the period when we've seen actually a significant improvement. There is something just from a kind of analytical perspective, you need to keep in mind that the base was shifting. And so it's very difficult to...

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Sander Bunck, Barclays Bank PLC, Research Division - VP of Real Estate Equity Research [14]

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Yes, I'm not sure because it was -- in both cases, it was around 5%. It looked like -- because I checked it and it looked, it was pretty -- there wasn't that much of a base impacts.

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Florian Goldgruber, ADO Properties S.A. - Interim CFO [15]

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From a rent like-for-like growth, not, but from the absolute figure that is in there, there was an addition there also to the portfolios coming still in and now, we're actually more stable. But I think the more important factor is exactly what Eyal, I think, already tried to explain around the rent kind of the Mietspiegel that we were delaying the rent increase -- the regular rent increases because due to the German regulation, you only can increase rents once a year. And what you want to avoid is that you send out end of Q1 or during Q2, rent increases of, let's say, 3% or 5%, then the new Mietspiegel is coming out and you can increase 15%. And this is something that is absolutely normal that you see there a quarter shift and that you actually push that behind the new Mietspiegel.

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Operator [16]

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The next question is from Marios Pastou of Crédit Suisse.

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Marios Pastou, Crédit Suisse AG, Research Division - Research Analyst [17]

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It's Marios here from Crédit Suisse. I've got a couple surrounding Slide 7, regarding your CapEx investment. So firstly, my question really is, you mentioned that you're expecting a decrease in the overall investment. How quickly should we likely see that going back to average levels, especially on the modernization side of things? And are you still progressing with modernization CapEx as you move through Q3, especially in light of the proposed rent freezes coming through?

And then also, secondly, I noticed there's been a bit of a pick-up in your investment in new build activities in Q2. So should we take the first half as a good run rate for your second half? And will you likely see more investment into this area?

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Eyal Horn, ADO Properties S.A. - Interim COO [18]

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Marios, this is Eyal. Well, regarding the CapEx and maintenance, what is currently also to be seen as we said, we do expect -- and I would say, like a slow reduction of this CapEx cost. And of course, we are currently looking at the market. We're looking at the new legislation that is about to come. We still don't exactly know how it will evolve. But of course, we are already currently trying, of course, to adapt as much as we can into that legislation.

And in terms of, of course, units modernization, this is something we're looking at very carefully as we, of course, currently continuing to invest into those units, but we're looking maybe at different kind of investments, not going all the way into higher end. But of course, making sure that the units is, of course, holding to all kind of technical regulation, meaning we are giving the units to the letting department a completely technical freeze, so to say, but perhaps not doing all the things we've done in the past as we have to look, of course, at returns. And if returns, of course, are not there, then we would like to, of course, reduce our CapEx investment on these specific units.

As for when is it going to be shown in the numbers, I think, due to the fact that, of course, there are a lot of projects which are still running down and one has to imagine, of course, while doing CapEx some projects are a bit bigger than the others, and they're still going on. It's nothing that you will stop from today to tomorrow. Then we, therefore, feel and think that we will gradually see in the coming quarters, that those figures will come down and will stabilize at a lower range that we see them currently.

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Marios Pastou, Crédit Suisse AG, Research Division - Research Analyst [19]

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Great. And then just on the investment into the new build activities. Is this something we're likely to see picking up into the second half? Or would it be a similar investment level to the first half?

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Ran Laufer, ADO Properties S.A. - CEO [20]

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I think these investment activities actually associated more one new build, real new build activity in Karl-Marx-Straße where with (inaudible) the building construction start. And I think the -- what you see in the first half year, the construction is actually running in this project. So I would expect that this is -- it's one project so that is the reason why I'm a little bit cautious saying there will always be a little bit of volatility, but this should continue during the construction phase. If that is really equally distributed over quarters, it is a different question.

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Operator [21]

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The next question is from Julius Stinauer of Hauck & Aufhäuser.

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Julius Stinauer, Hauck & Aufhäuser Privatbankiers AG, Research Division - Analyst [22]

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This is Julius from Hauck & Aufhäuser. On Page 8, you're speaking about the disposals, and I was wondering if you can give some more color on your disposal pipeline? Because you're also saying that there are some buildings with limited upside and they could be sold. So do you have any more color on this, please?

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Florian Goldgruber, ADO Properties S.A. - Interim CFO [23]

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Julius, it's Florian. I think we're -- need to differentiate clearly, 2 things. One is here, we're looking really at the project base and activities, which means it's really only condominiums, which we're showing. When Ran mentioned that we're obviously looking also at selling buildings which have limited upside in comparison to a potential sales price that is clearly more associated with whole buildings, that is something we're continue to look at, and opportunistically and are open to that. We also clearly look at the privatization portfolio and see potential to start one or the other projects, but all of that is driven by a kind of the thought to optimize the final profit you're generating.

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Julius Stinauer, Hauck & Aufhäuser Privatbankiers AG, Research Division - Analyst [24]

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Okay. But you have nothing, no pipe on your building up currently, it's more like an opportunistic approach then?

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Florian Goldgruber, ADO Properties S.A. - Interim CFO [25]

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Yes. Yes.

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Operator [26]

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The next question is from Veronique Meertens of ABN AMRO.

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Veronique Meertens, ABN AMRO Bank N.V., Research Division - Analyst [27]

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This is Veronique from ABN AMRO. 2 from my side. First, on the commercial part of the portfolio. This week, I believe it was in the news that the Berlin Senate is now also discussing a rent cap on commercial units. And I was hoping that maybe you'd have some more insights on the status of that discussion.

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Ran Laufer, ADO Properties S.A. - CEO [28]

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Veronique, it's Ran. Thank you for this question. Well, we don't know, it's the first article about it or this is a first discussion. As we can see Berlin as a magnet for increasement of office buildings, new companies are coming in. There is also additional activities in segments that are coming into the Berlin market like co-working spaces. And you see a very low vacancy in those office segment. So I cannot see that a regulation related to pure business location is the one that might come. But we need to see how it involves, as we look also currently, we think that it doesn't make sense to promote in this way.

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Veronique Meertens, ABN AMRO Bank N.V., Research Division - Analyst [29]

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Okay. Second question is the graph below the privatizations. Just a question, how do you distinct the mid-term and long-term privatizations from the 1%?

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Florian Goldgruber, ADO Properties S.A. - Interim CFO [30]

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I think when we look at all our buildings, I think we give them different categories for where they stand from a kind of privatization potential, so the easiest and cleanest one is the active privatization portfolio because that is something we are actually selling out. Then you will have different legal steps to take to actually split multifamily buildings into condo buildings. There is no hard differentiator that we have a much more granular steps behind that. The split between medium- to long-term potential is, I would say, a little bit an artificial one because it's a sliding scale. And -- but the important thing is that we push through with the -- with kind of this legal separation of the buildings for all of the buildings, which we believe that there is value in -- or potential value in privatizing them.

Another important factor might be that also the market is shifting. So building a lot of this what we have here, not shown as potential, is also building which theoretically, you would -- from our perspective, be able to sell because the demand has been growing significantly, but it's something which we believe as not economical. So that is also something important to keep in mind that the buildings which are not shown here, it's not that you can't privatize, it might just be that at the current situation, we don't believe it makes sense, but it could actually be that they're shifting into the potential, and that is something that is continuously adapting based on the regulations, what you can -- what you are allowed to sell, what you are allowed to split up into condominiums and also clearly, the market demands.

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Operator [31]

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Thank you. As there are no further questions, I would hand back to you.

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Ran Laufer, ADO Properties S.A. - CEO [32]

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Thank you all for attending this Q2 2019.

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Florian Goldgruber, ADO Properties S.A. - Interim CFO [33]

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Thank you very much.

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Eyal Horn, ADO Properties S.A. - Interim COO [34]

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Thank you very much.

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Ran Laufer, ADO Properties S.A. - CEO [35]

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Thanks. Bye.

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Operator [36]

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