Good morning, and welcome to the earnings call of Deutsche Wohnen SE regarding the publication of the 9M Results 2021, hosted by Mr. Michael Zahn, CEO, and Mr. Philip Grosse, CFO. The presentation of the call is available on Deutsche Wohnen's website in the investor relations section. For the duration of the call, you will be on listen only. However, at the end of the call, you will have the opportunity to ask questions. If at any time you need assistance, please press star zero on your telephone keypad and you'll be connected with an operator. I am now handing you over to Mr. Michael Zahn, CEO, to begin today's conference. Please go ahead.
Good morning, and thank you very much for dialing in. I would like to give you first an overview of what has been eventful for us in the last few months. After that, Philip will take you through the financials. Please let's start with page seven of the presentation. Last week, our business combination with takeover offer was accepted by an overwhelming majority. Vonovia now holds just under 88% of all Deutsche Wohnen shares. We believe this result validates our assessment that Vonovia's offer was very attractive to the shareholders in particular. The size of the shareholding will facilitate the combination of our two companies, even without the domination and/or profit and loss transfer agreement. Vonovia has the majority that allows the company to amend the articles of association.
With the appointment of Lars Urbansky as a member of the Management Board of Deutsche Wohnen until the end of 2026, and the planned appointments of Philip Grosse and myself, almost the entire Senior Management team of Deutsche Wohnen will assume important roles within Vonovia. Deutsche Wohnen is starting the new chapter from a position of extraordinary strength. Over the years, we have well-positioned Deutsche Wohnen into a company with a clear strategy, high quality portfolio, and a strong balance sheet. As a result, Deutsche Wohnen will now become an integral part of Vonovia, the largest real estate company in Europe. In this respect, we also look back with pride on what we have achieved over the past 10 years, successful development of Deutsche Wohnen, as well as on the success we have realized for our shareholders.
Success of the past 10 years is not automatically guaranteed for the next years, sure. Rather, the course we must be set in good time and the company must be prepared for new challenges with foresight. Turning to the third quarter, we continued to further strengthen our company. We successfully set our strategic course as we had planned. First, we further developed our residential and nursing portfolio. Second, we expanded our new construction business. And third, we further strengthened our company's balance sheet. Let us first take a look at our real estate portfolio. All strategic fields in the residential segment are now served from within Deutsche Wohnen. Portfolio adjustments in the residential segment has largely been completed, and in the nursing segment it has been fully completed.
Total of just under 15,000 apartments with a value of just over EUR 2 billion has been sold from our residential portfolio this year. Excluding the sale to the state of Berlin, which took place at book value, the average sales margin we achieved is excellent with up to 35%. Particularly our portfolio in Western Germany has been focused now on attractive growth markets. Non-strategic portfolios were disposed of in both the West and the East. The sale of almost 11,000 units to the state of Berlin was the main contributor to this. We consider the sale as a great success as it sets an example of constructive and trustful cooperation between politics and housing companies. Sales have significantly reduced the portfolio's refurbishment backlog and also risks from a carbon tax.
Deutsche Wohnen portfolio does have a unique selling point in terms of quality, location, and future prospects. This year's sales enabled us to significantly improve the overall portfolio quality and further expand our share in our strategic core markets. The share of properties in metropolitan regions increased from pro forma 87%- 92%. With these sales, we also took a further step towards climate neutrality. We are working consistently towards our goal of making our building portfolio climate neutral by 2040. As part of our climate strategy, we have already identified the units that we will refurbish and upgrade in the short term. Today, the UN Climate Change Conference in Glasgow ends. Here too, it became clear that the main thing now is to take joint responsibility and implement effective measures to achieve the Paris Climate targets, and we are contributing to this.
We also have achievements to report in our assisted living segment. First, we were able to improve the overall portfolio with the sale of five nursing units. Second, we are able to start the first new construction projects in Hamburg, our most important location in this segment, even before Berlin. Our new construction program is being met with great political interest and support. With the construction of six new facilities, we are building exactly what the city of Hamburg and many other cities in Germany need. Places for people in need of care, modern, digital, barrier-free apartments for an aging society, and at least affordable housing for nursing staff. Once these measures have been completed, the portfolio will be significantly younger and of higher quality. The proportion of single rooms which are in high demand will increase from 70% to just under 80%.
The same time, we are doubling the proportion of assisted living from 10%- 20%. In addition, 80% of our target portfolio is located in metropolitan regions, thus also complementing our strategy in the residential segment. We intend to further expand the business organically, meaning asset by asset. This also brings me to our next strategic point, our construction activities. We have pooled our new construction activities in QUARTERBACK in 2021. With almost 300 employees, the platform now serves all major locations in Germany. In total, with QUARTERBACK, we now have a project pipeline of almost 24,000 apartments, mainly located in major cities in Germany. All new properties are to be certified to high sustainability standards in the future. Therefore, we are set to continue our sustainable growth. A solid balance sheet is essential for this.
In this respect, too, Deutsche Wohnen is positioned like no other company in the sector. As a result of the conversion of the convertible bond into equity and the sale of treasury shares to Vonovia, the leverage is at 35% and thus at the lower end of the target range. At the beginning of next year, we will see a further improvement as a result of the disposed portfolio. Leverage will come down below 30%. Overall, Deutsche Wohnen is therefore in a very strong position, both strategically and financially. Even so, Deutsche Wohnen will soon be turning over a new leaf. Continuity is assured. This is also essential in an increasingly challenging environment. In this respect, we have done our homework regarding the major challenges.
The organic expansion of our portfolio through sustainable new construction in markets that promise solid long-term growth is a key element of our growth strategy because real estate portfolios must increase in quality and not just in quantity. In addition, corporates in the sector must also change focus on customer satisfaction and climate protection, reposition themselves technically, and come up with an employer brand that allows them to attract the best talent. In this respect, too, we see Deutsche Wohnen as being excellently positioned. With so much tailwind, we look forward to shaping Deutsche Wohnen's successful future together with Vonovia. With that, I will now hand over to my colleague, Philip.
Thanks, Michael, and warm welcome also from my side. If you look at page nine of the deck slide, you see the average in-place rent of our portfolio is EUR 7.17 per sq m and month, which is around 7% above the level at year-end 2020. Here, after the court decision on the unconstitutionality of the Berlin rent freeze law, rent levels continue to show normalized levels. In Berlin, specifically, rent levels of EUR 7.13 with reletting rents of roughly EUR 9. Here, the reversionary potential is consequently at around 25%. Also, if we look at the transaction market, that remains vivid and dynamic.
As you have seen, we have updated the valuation model as of 31 September, and that was resulting in a valuation uplift of EUR 1 billion in the third quarter of 2021, or roughly EUR 1.5 billion year-to-date. As always, that valuation is based on transactional evidence and has been confirmed by our appraisers. The average value is at EUR 2,850 per sq m, which is an increase of around 6% compared to year-end 2020. Our Berlin portfolio is now valued slightly above EUR 3,000 per sq m, with a gross initial yield of 2.9%. Turning to the next page. Here you can see that the transaction market continues to be strong. The left-hand chart shows transaction volumes in the first nine months of around EUR 22 billion.
A similar level we have seen in 2020. Metropolitan regions continue to be a very big driver of transaction volumes, with a contribution of 40% coming from the Big eight cities. Berlin is once again the most liquid market. Following the decision of the unconstitutionality of the Berlin rent freeze law, we have actually seen some acceleration in transaction volumes. The accounted value uplift corresponds to 5% or 5.6% increase on a like-for-like basis, including capitalized investments of even almost 6%. On page 11, you can see that like-for-like rental growth came out at 1.2% for the total portfolio. This is mainly driven by new lettings, as we have suspended regular rent increases, including modernization charges during the corona pandemic.
We will, however, return to normal rent collection as of next year and have already implemented the respective processes. Vacancy continues to be very low, at 1.6%. Page 12 on investments. Here you can see that maintenance costs were stable at around EUR 67 million or EUR 9.20 per sq m, while refurbishment investments reached EUR 150 million, corresponding to around EUR 21 on a per sq m basis. For new construction, we have spent slightly above EUR 260 million compared to EUR 51 million last year. You can see to what Michael mentioned before, we are clearly gaining pace here. Overall, what we do see is some impact of COVID-19 situation leading to delays in the construction pace.
For our guidance, this means that we expect to spend around EUR 650 million for refurbishment and new construction for 2021. Here we are somewhat at the lower end of our guided range. Let's move to the financial section on page 14. Letting business. Income from rents came out at EUR 634 million, so stable on a year-on-year comparison. Considering our asset disposals in 2020, which led to a somewhat 5% lower asset base, this, in my view, is a very strong development. The income from rents include rental claims of almost EUR 30 million from the invalid rent freeze law.
Of these, we have already collected 70% that has been paid back in full, and the remaining portion is to be collected mostly by the end of next year based on staggered payment agreements with our tenants. NOI at EUR 520 million, so slightly above last year's level. NOI margin also slightly increased to around 82%. Moving to page 15, our disposal business. Here, just to remind you, on this page we show all disposals which have seen closing in the first nine months and to that extent, also form part of our segment earnings. As you can see, privatization business continues to perform well. Average gross margin is at levels of above 30%, though at very small volumes.
For the institutional disposal business, we achieved a healthy margin in the first nine months of 18% on average. Please be reminded that the disposal of 3,000 units in Rhineland-Palatinate, as well as our 11,000 units to the municipalities in Berlin, are not considered in that overview, as they will only have closing in Q4 2021 and Q1 2022 respectively, predominantly for the Berlin deal. Page 16 provides information on the signed, but not yet closed disposals of roughly 14,000 units and some nursing facilities, while the Berlin deal, as Michael mentioned, was sold at book value for a somewhat challenging asset and tenant base with a meaningful CapEx backlog, we have been able to secure an impressive gross margin of 47% for the staggered holdings in Rhineland-Palatinate.
The latter also includes a very meaningful portion of social housing stock by the way. Also in nursing and assisted living, we increased the overall portfolio quality by focusing on better quality assets in the right locations here. We have sold five externally managed facilities for a disposal price of EUR 70 million, so more or less at book value. To our nursing and assisted living business on page 17. Total EBITDA was EUR 62 million, which is stable compared to last year and well on track to actually slightly overachieve our annual guidance of EUR 70 million. We had a positive impact of roughly EUR 12 million on the operational EBITDA from the compensation by long-term care insurance in connection with the COVID-19 situation.
Here, the EBITDA margin prior to lease revenues increased by a percentage point to slightly above 20%. And the disposal of 13 nursing facilities from last year had a small but expected negative impact on the EBITDA of the assets, which came out roughly 5% below last year. On page 18, adjusted EBITDA excluding disposals is stable at EUR 547 million. EBITDA margin around 80%, more or less unchanged. The one-off are largely impacted by transaction costs in context of the combination with Vonovia. Turning to page 19 on FFO 1, that came out in the first nine months at EUR 422 million, flat on a year-on-year comparison.
Please note, though, that in the computation of FFO 1, we no longer recognize interest income from shareholder loans granted to QUARTERBACK in the FFO. Instead, we recognize that as other interest income. On the diluted share count, the performance on an FFO 1 basis is resulting in a 7% decrease compared to the same period last year. That obviously is because of the equity conversion of our nominal EUR 1.6 billion convertible bonds, as well as the sale of treasury shares, which has increased the weighted average amount of shares by roughly 8% versus last year. Excluding the dilution effect, FFO per share would have increased by 2% despite the lower asset base.
On page 20, on EPRA NTA, that came out at EUR 53.32, so 3% higher than year-end 2020. The valuation result of EUR 1.5 billion and the effects from the sale of treasury shares, as well as the equity conversion of convertible bonds, supported EPRA NTA growth on a per share basis. However, the positive impact on earnings have been partly offset by the higher share count. Adjusting for these effects, the EPRA NTA would have been some EUR 2 higher, but also the capital structure would have been different, which brings me to the next slide, 21.
Here, as Michael said at the beginning, LTV has been significantly reduced to slightly above 35%, driven by the conversion of the convertible bonds as well as treasury shares predominantly, plus the revaluation gains. Pro forma for the closing of all disposals, but also for the conversion of the remaining convertible bonds, our LTV is comfortably below 30%. Net Debt to EBITDA, a figure I'm increasingly focusing on, is down to around 12 times. That's it, also from my side, and I open the floor for potential questions you may have. Thank you.
We do have our first question from the line of Sander Bunck from Barclays. Please go ahead.
Hi team. Good morning, and thanks very much for that. Two quick ones for me, please. The first one is on the like-for-like rent growth, which remains at around 1.2%. I think that's largely driven because you are, during the corona pandemic, not increasing rents for existing tenants. I'm keen to understand your thoughts there, how long will the situation persist? I.e., when do you think about increasing rents again for existing tenants? The second question I had was on the development pipeline. It looks like you're maybe slightly trailing your investment target for new construction by the end of this year.
I was just curious, like your thoughts there, how it is going, if everything is still going to plan, and also what construction cost inflation is doing within that. Thank you.
Hi Sander, thanks for your questions. On like-for-like, the 1.2% is really for 2021. It's we have purely focused on relettings to capture the reversion. We have put in place the respective procedures to return to normality. We continue to see ordinary course of business as of 2022. To that respect, in the regulatory environment we are currently facing, also a normalized like-for-like rental development, which I would expect to be in a magnitude of 2.5%. On your second question, development.
Yes, I mean, here, if I look at the cost side, we do for part of the construction work see cost inflation. However, that is being fully compensated, but by what we see on the market side, in terms of price expectations we have to take it on our own balance sheet or to sell new developments. If I look at the entire pipeline of QUARTERBACK , where we have bundled, as you know, our development activities. The average gross margin we do expect is unchanged against that backdrop at roughly 30%. 25% of that pipeline has actually already been sold.
The purchase price, or the disposal price, has been locked in. There are ongoing negotiations within QUARTERBACK to increase that percentage.
Okay, great. Just on the, I think currently you've spent around EUR 269 million on new construction so far this year, versus the target, I believe, that sits around EUR 400 million-EUR 500 million. Just looking at the first nine months and kind of making it an annual number, it looks like you'd be falling slightly below that target or definitely below the midpoint. Is there an acceleration expected? Is there a reason for it? Is there an acceleration expected basically in Q4?
Yeah. I mean, our expectation is that for new construction, we will end up slightly above the lower end of the guided range of EUR 400 million-EUR 500 million. What we in fact see is some delays that is to a lesser extent in the construction work itself. That is more related to a postponement where we can actually start with the construction work for certain sites. Given that, administration in Germany unfortunately is not as quick as you would have hoped for.
Okay. That's very helpful comment. Thanks very much, Philip, and good luck with the new business combination. Thank you.
Thank you very much. Our next question comes from the line of Thomas Rothäusler from Deutsche Bank. Please go ahead.
Yeah. Good morning, everybody. Just two questions. Sorry if I touch any point you might have mentioned already, as I've unfortunately missed the first 10 minutes. The first question is actually on Berlin politics. It all looks like the left-wing coalition will make it again. Maybe we can get your assessment on that. What are your expectations, specifically, with regards to expropriation initiatives?
Yeah. Thomas, I mean, first, congrats on your new role in Deutsche Bank. On Berlin politics, you're right. It looks very much a continuation of the existing local government with a left green coalition. Our assessment of the expropriation threats remains unchanged in that it will not happen. It is, however, in the negotiations the big point of discussions. The designated mayor of Berlin, Franziska Giffey, was very clear in the run-up to the election that there is not going to be an expropriation with the involvement of the social democrats.
However, she has to somewhat acknowledge the outcome of a referendum with a very comfortable majority supporting that. What we are hearing between the lines is that they want to first engage in a comprehensive legal assessment of that ask and are steering towards postponing the decision on how to actually precisely go about the outcome of the referendum for the next 12 months or so. That's kind of reading between the lines. It is, as I said, a big point of discussions in particular between the Social Democrats and Die Linke.
Do you expect a major push of new supply in the affordable segment from them?
We should wait and see what happens in the federal. I think key topic in the federal and also in Berlin is simply to speed up supply in affordable living. Therefore, I think it's not the key topic to have more regulation. It's more the idea to have, as I said, more affordable living in or housing in the markets. This is something which is highly discussed, and this is something which looks very interesting, especially for our new construction business.
Okay. One question on property valuation. I mean, most of your peers have provided already a guidance for the rest of the year. I mean, could you share your thought on that?
Yeah, look, I mean, we've engaged in a fully-fledged valuation exercise involving Jones Lang LaSalle for our residential units as well as our project developments and involving Wüest Partner for our nursing facilities. The valuation uplift reflects what we currently see. To that extent, no guidance for a potential additional value uplift with year-end numbers. That obviously remains to be seen based on potential additional transactional evidence in the remaining two months. For now, the valuation reflects our market view.
Michael, Philip, all the best for your time at Vonovia.
Very much.
Thanks.
Thank you very much. Our next question comes from the line of Kai Klose from Berenberg. Please go ahead.
Hi. Yes, good morning. I've got a quick question on page 12, regarding the refurbishment and maintenance spending. Looking ahead after you have sold some units in Berlin, could we expect a somewhat lower amount of maintenance spending, a bit more for CapEx? Then just a general question on the portfolio. Do you still think there are some more non-core units which you would like to sell en bloc due to somewhat more challenging tenant structure and maintenance backlog? Thank you.
Look, I think you should wait and see what happens after the combination. I think, as I said, on the residential side, I think we did a big step this year, especially if you see all the discussions about climate strategy and CO2 tax. Therefore, I would say more or less the portfolio in Deutsche Wohnen is cleaned up. Let's have a look for the next months and see what we as a combining company then present to the market. What you definitely can say and see is we have over years a situation that price increases in the privatization business. Yeah, we have prices we never have seen in Berlin, on average up to EUR 6,000.
Also for smaller portfolios, you have multiples in the market, which is unbelievable. It's, for me, more a situation, do we need to sell portfolios? No. Is there an opportunity in the market? Yes, indeed.
Very clear. Many thanks and all the best.
Thank you very much. Our next question comes from the line of Jaap Kuin from Kempen. Please go ahead.
Hi, good morning. Yeah, basically just one question on the healthcare portfolio. Given also that you performed a full valuation, could you comment on the specific value for the healthcare portfolio? Or if you're maybe reluctant to put an exact number on it, what do you think is the appropriate EBITDA yield for this type of the asset?
Jaap, you can actually see that in our disclosure. We have EUR 660 million fair value for the nursing properties, which we also operate through our own platforms. We have another EUR 600 million for those which are externally managed. Year- to- date, if I look at the valuation result, roughly EUR 60 million is the value uplift we have seen. Thereof, EUR 20 million, which we have accounted for in Q3. Now, I mentioned that a book value of EUR 70 million to the disposal of five facilities will go away, so that you have to adjust on a pro forma basis.
If I look at EBITDA, we have guided for EUR 70 million. For our nursing business, we will most likely slightly overachieve that. That's probably also a good number to focus on going forward. That's benchmark of EUR 70 million. That much in terms of EBITDA yield.
All right. Appreciate it. Well, I think that's pretty much it from my side. Also, thank you for this call and for the past calls. I think a big thank you to Sebastian Jung and the IR team for excellent work over the past years. Thanks.
Thank you.
Thank you very much. There are currently no further questions in the queue. As a final reminder, if you are still wishing to ask a question on the call, please now press star one on your telephone keypad. Okay, thank you very much for your patience. There are no further questions, so I'd like to thank everybody for joining today's conference call. For any questions in the meantime, please feel free to contact the IR team. Have a good day and bye-bye. You may now replace your handset.