Ladies and gentlemen, welcome to the financial presentation call of Grand City Properties S.A.. At our customer's request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. If any participant has difficulty hearing the conference, please press the star key, followed by zero on your telephone for operator assistance. May I now hand you over to Ms. Katrin Petersen, Head of Communication, who will start the meeting today. Please go ahead.
Yes. Thanks. Hello and good morning to everyone, and thanks for joining us today. In the name of Grand City Properties, I kindly welcome you to the results call for the nine months of 2020. With me today are CEO Refael Zamir, Chairman of the Board of Directors, Christian Windfuhr, COO Sebastian Faltin, and Senior Financial Analyst Michael Bar-Yosef. Christian, Refael, and Michael will guide you through the results presentation directly after this introduction. You will find the financial results presentation for this call on the company website in the section Investor Relations under Publications. The presentation will be followed by a session with questions and answers. The management is available for questions. We already have asked you in advance to send us your questions by email. Please continue to do so that we can include your questions accordingly.
Please send your questions to the following email address, info@grandcity.lu. Once again, the email address is info@grandcity.lu. Now I hand you over to Christian to begin with the presentation.
Thank you very much, Katrin. Good morning to everyone. Sorry, we had an echo there. Thank you, Katrin. Good morning to everyone, and welcome to our financial results call for the third quarter 2020. Let us start with slide three. As we expected, the third quarter 2020 has been very much in line with the first half of 2020. It is meanwhile accepted by most that our business model is very stable, even in times of the pandemic, which has no material impact during the first nine months of 2020. The pandemic and its effects have validated the strength and resilience of our operations, also in unprecedented times. Further to slide four. Among the key information clearly is our continued like-for-like net rental growth, which came in with 2.6% in September 2020, 1.8% stemming from in-place rent growth and 0.8% from occupancy growth.
As mentioned in our last call, we managed to let apartments even during the lockdown through various internal tools, which enable us to keep the positive pace of like-for-like growth. Before I pass you on to Refael for the detailed results, allow me to address two points which are close to my heart. Firstly, during COVID times and lockdowns, and we are in the middle of them again, our team has performed at very high levels and was at all times flexible to adjust the prevailing situation without a material impact on our business. Creativity paired with extra effort on everyone's part made that possible, and this deserves a great word of thanks. Secondly, I would like to mention that we have been addressing the increasingly important topic of ESG for several years with a dedicated team, which has been and will remain under my guidance.
Dedicated ESG reports and excellent ratings from independent research are as important as our day-to-day activities towards our ESG goals, which are summarized in the appendix and are designed to meet the European goals in all aspects. We will give more information in our sustainability report for the year 2020, which will be published in H1 2021. With this, let me hand you over to Refael.
Thank you, Christian. A warm welcome also from my side, and I will remain on slide four and give you an overview of our profitability during the nine months of 2020. As mentioned by Christian already, the EUR 279 million net rental income came in 2% lower than last year, which is partially due to the COVID-19 postponed rent increase, partially Berlin rent cap effect, and partially due to the fact that we have sold properties during 2020, which have not yet been replaced with the new acquisitions. On a like-for-like basis, we were able to record overall rental growth, driving high operational profits. Partially through improvement of our efficiency and partially due to disposal of assets with a high expense ratio.
We were able to reduce operating expenses by 11% and arrive at an adjusted EBITDA of EUR 223 million, which is 1% above the previous year's adjusted EBITDA for the same period. Property revaluation and capital gains, a non-recurring item, was with EUR 272 million, slightly below last year. On a like-for-like basis, valuations are up over 3%, and we will give you more information later in this presentation. Profit for the period was with EUR 342 million, 6% below last year, and accordingly, earnings per share was EUR 1.68 and 7% below last year. The reduction in profit is mainly due to a non-recurring item. On slide five, we present both the FFO-1 and FFO-2. Following from the improvement in adjusted EBITDA, we have also improved our FFO-1 by 1% to EUR 162 million and our FFO-2 by 5% to EUR 270 million.
Value accretive disposal in the first nine months of 2020 have resulted in crystallizing gains on a non-core and mature properties, generating a profit margin of 43% over total cost. Disposal were carried out small premium to book value. Our CAGR FFO-1 per share since 2017 has improved by 5%, and our FFO-1 yield was 6.1%, and our dividend yield is about 4%. On slide six, you can see that in spite of our disposal, we were able during the nine months of 2020 to continue improving our EPRA NAV as well as our EPRA NAV including perpetual note with a CAGR of 11% since December 2017. Also, our EPRA NAV per share grew by 2% to EUR 25.1 during the nine months of 2020 and show a CAGR of 11% since December 2017. Note that the growth of EPRA NAV per share was offset by a dividend distribution.
When adjusted for dividend distribution, the EPRA NAV per share increased by 6% since December 2019. 57% of our shareholders choose to receive the dividend in shares, reflecting confidence in our investors, having our business model, and resulting in an issuance of nearly four million shares. The growth of EPRA NAV per share was offset by larger share amount. Slide seven, we show that we have crystallized value gains while at the same time enhancing our portfolio quality. During the nine months of 2020, we had revaluation gain in amount of approximately EUR 270 million, supported by both like-for-like rent and growth and decreasing yield with an average unit compression of 0.2%. Operational improvement as well as strong macro fundamental again drove this process. On a like-for-like basis, valuation increased by over 3% as compared to December 2019.
We disposed over EUR 350 million of properties at a factor of 15, which were located mainly in secondary cities in North Rhine-Westphalia and in non-core cities, which, as mentioned before, generate a profit margin of 43% over total cost. As in the past, we were able to channel those proceeds into opportunistic high-quality acquisition with significant upside potential, enhancing the overall portfolio quality and value and driving high profitability. We invested about EUR 380 million into a 500 quality units in our core locations at a factor of 21, mainly in Berlin and London, and additionally, over 700 units in the pre-letting stage in London. The acquisition did not fully impact our results and will generate high accretive operational growth in the upcoming periods. During the reporting period, we signed but did not complete further disposal and in an amount of EUR 500 million.
Those are classified under held-for-sale and are not included in the investment property portfolio as of September 2020. The handover of those properties will be completed by the end of 2020. In spite of those transactions, which reduce the overall size, but in turn enhance the quality of our portfolio, our investment property at the end of Q3 only slightly decreased to EUR 7.9 billion, compared to almost EUR 8 billion at the beginning of the year. Including the asset held-for-sale, the portfolio grew in September 2020 by 4% in compared to December 2019. Let me hand you back, Christian, now for the portfolio overview.
Thank you. Let us look at the portfolio overview, showing that we have maintained and indeed improved our portfolio in terms of location and quality of the portfolio. Our well-diversified distribution across Germany and London has remained very strong, with focus on densely populated regions with strong economic drivers. As mentioned before, we have during 2020 reduced our portfolio to 63,000 units, arriving at a value of almost EUR 7.9 billion, slightly below our value at the end of December 2019. However, on a per square meter basis, our value developed from 1,543 per square meter end of December to 1,792 per square meter end of September, an increase of 16%. With this, we have successfully followed our strategy to increase the value and with it, the quality of our portfolio.
We have also reduced the vacancies since end of December 2019 by 5 percentage points to 6.2%, our lowest point ever. On slide nine, we give you a more detailed overview of our North Rhine Westphalia, where we have 18% of our portfolio, and within North Rhine Westphalia, the largest portion is Cologne, the fourth largest city in Germany. In order for you to place our locations into proper perspective, we have given you also a breakdown of the population density in North Rhine Westphalia. The quality of our portfolio in this region has been lifted through the sale of non-strategic assets in weaker locations of this area. As a result, the portion of Cologne is now 33% compared to 24% in December 2019. Berlin, on slide 10, remains with 26% of our portfolio by value and 17% by total rent, an important location for us.
70% of our Berlin portfolio is located in top-tier locations, including Charlottenburg, Wilmersdorf, Mitte, and others, and 30% are well located, primarily in Reinickendorf, Treptow-Köpenick, and Marzahn-Hellersdorf. In our appendix, we have a slide with information on the rent regulations in Berlin. Consensus is that by mid-year 2021, we will have a court ruling regarding the Berlin rent cap, and the overwhelming majority of the expert opinion suggests that the Berlin rent cap ruling will be overturned because the ruling is unconstitutional. For more details, please refer to Slide 20, Berlin Rent Cap.
As a result of our good geographical diversification of our portfolio, the impact of the reduction of rents to the 120% of the Berlin rent cap amounts to a total rent reduction of EUR 3 million per year. This remains limited on an absolute basis and on a relative basis to less than 1% of our total portfolio's annual rent. On slide 11, you see London with 17% of our overall portfolio. The portfolio consists of over 3,000 units, including pre-marketed units. Approximately 90% of our portfolio is situated within a short walking distance to an underground or overground station. We continue to see stability in the London market and continue to believe in its strong and sustainable long-term fundamentals. London is benefiting and is expected to continue to benefit from an increasing population and an increasing demand.
We continue to see in the city a shift from house ownership to rental, which will provide additional tailwinds to the rental sector. We continue to have our main focus on German residential and see our London portfolio as complementing and diversifying our German portfolio. In the first nine months of 2020, our property values in London increased by over 5% on a like-for-like basis, reflecting the operational improvements the properties made in the last periods, as well as the stability of the market. Furthermore, as a result of our discounted acquisition prices and entry levels into our London portfolio, we are able to deliver strong results in outperforming the market while maintaining headroom protection in case of a market turnaround. Our North and East portfolio is presented on Slide 12, with Dresden, Leipzig, Halle in the East making up 13%, and Bremen and Hamburg in the North, 5%.
Both regions have their very unique and strong economic and demographic drivers and form an important and integral part of our well-diversified portfolio. Now let me hand you back to Refael for the next few slides.
Moving on to slide 13, you can review our unchanged and strong financial policy to which we adhere in all aspects, as you will see from the following slides. On Slide 14 and 15, you see in some details how we have implemented our strict financial policy. LTV is with 35%, well below the 45% limit, and our debt-to-debt plus equity ratio is also below the 45% rate. Debt service coverage and interest coverage ratio are within 4.7 and 5.8, very conservative. With a large pool of unencumbered assets of 79% of value, we are way ahead of our 50% minimum, and average duration of debt is seven years, with no major repayment until 2024, excluding the EUR 270 million convertible bond in 2022. We also maintain a well-balanced financial footprint.
Our dividend distribution remains at 65% of FFO-1 per share, as mentioned, the 2019 dividend was distributed during this year, with 57% of the shareholders opt for scrip dividend, supporting our cash position and equity base. Our ranking remains solid with BBB+ credit rating from Standard & Poor's and Baa1 from Moody's. Christian, continue with slide 16.
On slide 16, we give you an overview of our maintenance and repositioning capex. We have broadly seen stability and no material change compared to the previous periods, with repositioning capex at EUR 11 per square meter and maintenance at EUR 4.2 per square meter. Repositioning capex is typically spent to relet apartments at higher rents. Those include increasing overall property quality, upgrading apartments, staircases, and public areas, install playgrounds, elevators, ramps, and other similar activities, which aim to improve rents, particularly rents on newly rented units. In conclusion, on slide 17, allow me to confirm that we are on course to meet our guidance. The guidance includes the COVID-19 impact, which remains limited and immaterial, the temporary rent increase halt, and the Berlin rent cap effect, having an immaterial effect on 2020F at all, but having a larger effect on 2020 like-for-like.
Following a pickup in acquisition activity coupled with a steady reletting performance, Grand City is expected to carry the positive momentum into the following periods, achieving our business targets. The guidance for the full year 2020 is FFO-1 between EUR 213 million to EUR 220 million. FFO-1 per share between EUR 1.27 to EUR 1.31. Dividend per share between EUR 0.82 to EUR 0.85. FFO-1 per share between EUR 1.07 to EUR 1.11. That's FFO-1 per share after perpetual notes attribution. Total rent like-for-like growth between 1.5%-2%. LTV less than 45%. Thank you for your attention. Now let us turn to the questions and answers.
Yes, thank you. We are now starting with the question and answer session. We will answer the questions we have received by email so far. We have grouped them together for the reasons of simplification. The answers to your questions have been prepared by the team. I will now start with the first question. The answers will be given by Christian and by Zamir. First question. Could you give us an update on your perspective of the German residential market, including the impact of the pandemic? How do you see the London market performing in the current environment, and how do you see this evolving?
The German residential market, in particular, the main German cities, has continually displayed strength and resilience also during this period, with rents continuing to increase while prices have remained steady. Demand for affordable housing continues to be robust and much above supply, which has remained low and contributed to the increase in market rents in Germany. We witnessed strong demand for apartments. Therefore we were able to continue decreasing vacancies and increasing rents. This is reflected in the 2.6% like-for-like performance. Due to the agile and resilient nature of our business platform, operations have returned to pre-corona performance after seeing a minor impact in the second quarter of 2020. Grand City Properties agility and adaptiveness was vital in minimizing the impact of the pandemic by creating new processes, leading to increased efficiency preparedness, benefiting the company in the long run.
Therefore, we remain confident of being able to continue the strong business performance in the coming periods with a second wave and set off increasing restrictions as a result of the pandemic. At a fundamental level, we see no change in the long-term fundamentals of the German residential market as a result of the pandemic. Demand for affordable housing remains very strong, supported by increased population, urbanization, and decreasing household size, while supply is too far behind to match the required demand. The London residential market is also benefiting from strong long-term fundamentals. Demand remains strong, driven by an increase in population. The supply is very low and is expected to significantly lag behind the demand.
In terms of house prices, the strength of the London residential market is evident in recent market reports, which present a strong market with no material negative impact due to the lockdowns, and with increasing transaction levels compared to the previous year. We see an increased demand for rental apartments driven by a lower home ownership rate. Home ownership is becoming more and more difficult than it used to be, with affordability of housing decreasing significantly in the past years, and with tenants preferring to have the flexibility of renting an apartment. The ratio of house prices to earnings has almost doubled since 2002, which has proven to be distinctive for prospective homeowners, and has supported the increasing demand for rentals in London. We believe that the market for rentals will continue and increase significantly in the upcoming years.
The pandemic effect had marginal impact our operations in London, which is the direct result of the effects of the lockdown, which we believe was temporary. Accordingly, we have seen a slower pace of new lettings while we experienced a higher amount of terminations, mainly students and young professionals. As we have reached high occupancy rates prior to effects of the pandemic with tenants signing lease agreements for one or two years, our portfolio remains relatively stable with the vacancy staying flat at 8% compared to similar rates as of June 2020, and slightly increasing compared to 4% in December 2019. Compared to Germany, the pandemic related restrictions in London in the first wave were stricter and longer, which inevitably impacts all activities in the market.
Moreover, the temporary surge in supply coming from short-term rentals such as Airbnb, which came into the market as tourism in the city has stopped, had a certain impact on the entire rental market in London. We expect this increase in supply to be a short-term event that will disappear once the restrictions are lifted and our occupancy levels to continue and to increase to pre-corona levels.
How is the Berlin market performing, considering the Berlin rent freeze law is in place and rental decreases will come into effect in November 2020?
The Berlin market continues to show stability and value growth despite the Rent Cap law, which became effective at the beginning of the year. The growth in values is driven by the very high demand and very low supply. The Rent Cap is widening this gap. We see market transactions and valuations pricing at lower yields and at lower discounts and cap rates, which supports value stability also when the rents are restricted under the Rent Cap. Since the Rent Freeze is not the result of an economic imbalance, as a high potential of Berlin not only remains, but is also increasing period over period, we expect investor demand to remain robust for the foreseeable future. As to the operational results in the first nine months of 2020, the rents in Berlin remained broadly flat.
The Rent Caps for existing tenants will become effective from the end of November. The rents in Berlin will be one time adjusted under the Rent Cap to meet the regulations. The total impact of the Rent Cap is approximately EUR 3 million less rent in Berlin, which is less than 1% of total portfolio's rent. The tenant fluctuation remained very low. We expect these levels to remain given the very low supply in the market.
How do you see the second wave impacting the business and operations?
We don't see a material negative impact on our business, our most recent letting report indicates strong performance, maintaining the good letting momentum we had so far. Our rent collection is not impacted by the recent government restriction. Since the beginning of the pandemic, 1% of the tenants requested rent deferral. We learned a lot during the first wave in March and April, and put in place systems and processes which enable us to continue and operate our business smoothly during another lockdown. Our IT system remained well-equipped and prepared to move to remote working and continue operational smoothly. The virtual tour of apartment, guided videos, electronic verification, and identity checks through the German post office put in place during the lockdown, have continued in parallel to our normal processes and have contributed to the improved business efficiency.
Can we get more information of the drivers behind the valuation gains? What were the like-for-like valuation results in London? How much is related to yield compression? How much of the portfolio has been reevaluated in the reporting period, and what can we expect for the last quarter of 2020?
We recorded EUR 270 million revaluation gain in the first nine months of 2020. Reflecting the good operational growth we have seen in the last period, supported by strong market trends reflected in earnings compression of around 0.2%. Earnings compression is the result of the increased demand and continuing slow supply in our locations, is also due to the overall improvement and repositioning of the assets. On a like-for-like basis, valuation increased by more than 3% for the total portfolio. Three-quarters of our portfolio was externally revaluated in the reporting period, the remaining amount, together with the properties which will make an additional significant change in the nine months of 2020, will be revaluated in the next quarter, in line with our policy to revaluate our portfolio at least once a year.
As we have revaluated a relatively small portion in Q3, the revaluation gains are as expected, lower in Q3 compared to Q2. With a larger evaluation to be carried out with annual results, we expect to see gains for the last quarter of 2020 higher than in the third quarter, coming from the good operational results, the market rent, from capital gains from the disposal of the last quarter. We continue to see positive revaluation gain across our portfolio. Specifically, the most significant increase were in Berlin, London, N.R.W., and Mannheim. The London valuations increased over 5% on a like-for-like basis.
Looking ahead, how do you see the pandemic impacting the portfolio's fair value?
We see no material adverse impact on our portfolio fair value due to the pandemic. In fact, the portfolio continues to reflect very robust fundamentals, leading to strong valuation even during this period of disruption. The demand for affordable housing remains unaffected across many locations in Germany, while supply has stayed low, and we do not see any change in either of those underlying factors as a result of the pandemic. Overall, as the valuation of German affordable housing are far lower than replacement value and comes from very low levels, they remain strong and with increased potential. Additionally, the existing low interest rate environment, as well as the lack of stable investment opportunities, continues to do not only support, but also to increase real estate valuation in the coming periods.
Our revaluation gain and disposal are both net book value, give a sense of where the market is and where the market is heading, while also validating the valuation of our portfolio.
Do you expect the pandemic will create different living patterns permanently? Do you expect the urbanization trend in Germany will reverse?
Currently, we do not expect to see a significant change, if any, in the housing trends from prior to the pandemic. Working from home, which naturally become more and more common during lockdown, has initiated theoretical discussions on such urbanization trends as the physical presence of employees in the office may be reduced. We do not believe that working from home completely could become a long-term trend, but if so, it will support the demand for more housing space as tenants will need permanent office working space at home. Therefore, there could be an increase in demand of living space per household. However, we are at a very early stage, and at this point, it would be difficult to say with any degree of certainty how this situation will actually pan out.
As for urbanization, we do not expect the demand of housing in cities to decline and believe that the positive trend of urbanization and migration into cities will continue. Proximity to office space is not the only consideration when living in a city, and even in the scenario that remote office work will become sustainable, we see the city amenities clearly outweighing suburban living. Examples of these include a variety of public amenities like educational institutes, childcare services, improved connectivity through quality public transport systems, easily accessible healthcare, and different kinds of recreational experiences that are available to residents. In fact, companies have their offices in central city locations because that is where they have access to quality talent and not the other way around.
Could you provide some color on the rental like-for-like results? How much was achieved due to indexation, and how much of it was a result of reletting? In which regions did you see the most significant changes?
As already mentioned, net rental income increased on a like-for-like basis by 2.6% as of September 2020. In-place rent increase results in an increase of 1.8%, while occupancy increase led to a further 0.8% growth in the net rent. The in-place rent increase can be further divided into 1.1% from reletting and 0.7% from indexation. We know that the impact of indexation in this period is lower than previous periods, as we have postponed rent increases in the first month of the pandemic as a solidarity act to our tenants at the outbreak of the crisis, and resumed rent increases in August. Accordingly, we will see the impact of those rent increases in the next period. Further, Berlin had no material impact on the like-for-like results, as rents in the period remained flat.
Leipzig, London, as well as Mannheim, Kaiserslautern, Frankfurt, and Mainz show significant improvement on the like-for-like basis, while as just mentioned, the Berlin portfolio remains steady due to the rent freeze law being in effect. Overall, the business continues to perform well and deliver high-quality like-for-like results on a sustainable basis.
How do you expect the vacancy levels in London to evolve going forward? Has the Brexit made a difference to the results? Was there any negative impact on valuations?
The impact of the pandemic on the London rental market was more pronounced as compared to Germany. The first lockdown took longer and was also stricter, thereby slowing down the pace of new lettings. The lockdown has further resulted in the temporary lower demand for students, as educational institutions were closed. However, those are temporary effects, and based on our strong track record of reducing vacancy from double digits to about 6%, we expect the current vacancy to be reduced to the level prior to the pandemic, following the lifting of the restrictions. In addition, we have seen that an end in the restriction results in occupancy increases, and we expect to reach almost full occupancy once restrictions are completely lifted. Though there has been a second lockdown implemented recently, we remain confident of maintaining a stable letting performance.
As to the Brexit, we did not see a material change to the demand for our properties, and we had no noticeable effect on our letting performance. We do not expect to see a change impacting our assets and expect most of the impact to be on the office market in London. We do not see an adverse impact on the London valuation. The market continues to display very strong long-term fundamentals. This is also evident in the fact that we have seen valuation in London increase by over 5% on a like-for-like basis since year-end 2019.
What level of CapEx and maintenance do you expect going forward? Can we get an update on the development portfolio?
We expect to continue and see CapEx revenue on an annual basis at around EUR 15 per square meter and maintenance at around 6 EUR per square meter. As to our development rights and new building portfolio, over half of this portfolio is located in London, and those planned projects are progressing as planned. We expect to finalize the snagging works on those properties and start letting in the next months. Once those units will be ready for letting, we expect to see them fast, driving additional rental income and higher EBITDA and FFO. The rest of the development portfolio is mostly in Berlin, which we see a significant value riser. Our largest project is in central Berlin, where we have submitted the building rights for the first plot and expecting to get approval very soon.
Construction is planned to start in H1 2021, we are still considering to either develop the project or to sell the land with the building rights. We see a good rent potential with approximately 5% net rent yield over total cost and rent value, which is exceptionally high for a new build in Berlin. We would either develop and hold this portfolio long-term or dispose the land in price that reflects the quality and potential of this portfolio. For the second land plot, we are still in the planning stage and aim to start construction in 2022 or 2023.
Are you looking at any other locations besides Germany and the position in London? Are you still comfortable with the proportion of your London portfolio? If not, how do you see this changing in the coming period?
Our primary focus remains on Germany. However, as opportunistic buyers, we are always on the lookout for attractive deals such as our position in London, which amounts to 17% of the portfolio. In our view, the coronavirus pandemic could be a catalyst for new opportunities, and we are always analyzing deals across major European cities. Of course, all opportunities are being explored as always and are subject to our acquisition criteria. As far as our London portfolio is concerned, we would consider increasing its share to about 20% of the total portfolio once the right opportunities will come.
Can you provide us with some more details on the acquisitions completed so far? What can we expect going forward? How large is your pipeline and where is it located?
During the first nine months of 2020, Grand City Properties acquired assets amounting to EUR 380 million, including over EUR 200 million acquired in the third quarter of 2020. Acquisitions include over 500 units acquired at a multiple of 21 times, which are nearly fully let and over 700 units in the pre-let stage. Acquisitions are mainly located in London and Berlin. The London acquisitions include affordable housing units located in middle class areas such as Greenwich, Hillingdon, Hackney, Ealing, Bexley, Ilford, Croydon, and Hounslow, including properties that are newly refurbished, properties in the pre-let stage, as well as social housing. In addition, we signed acquisitions in the amount of over EUR 100 million, which will be taken over in the next period.
As far as our pipeline goes, we are evaluating a large pipeline of half a billion euros, with approximately half of that located in Germany and the other half in London. We continue to maintain, as always, a good financial discipline, and all investments are subject to them passing our acquisition criteria of achieving a 5%-7% unlevered NOI yield on total costs within three to four years from acquisition, both in Germany as well as in London. Our very strong liquidity position enables us to pursue opportunities swiftly when they show up. External growth aside, the portfolio continues to display a very robust internal growth potential as the portfolio is under-rented. Considering the Berlin rent freeze, the portfolio has a rent revisionary potential of 20%, which increases to 28% if the rent freeze was to be reversed.
Can we expect a share buyback program given the high cash balances and the low leverage? What may trigger GCP to execute a share buyback?
After a short period of uncertainty and cash retention in the second quarter of 2020, we have resumed acquiring properties and repaying expensive and shorter-term debt, and therefore have utilized our cash, which in return will create aggressive top and bottom line growth. In addition, we repaid a few loans in October and will continue to repay shorter and more expensive debt. Looking forward, we still see a big pipeline and potential in the market for additional growth. We have prepared the possibility to carry out a potential share buyback program within the next five years, which was concluded in the recent AGM. Once a decision is made to carry out the buyback program, we are able to act very fast. A buyback would come in parallel to property disposal above book value in order to use the discrepancy of the transaction market to the capital market.
Those disposal proceeds would fund back-to-back a potential buyback and therefore we will maintain our conservative financial policy and strong financial metrics.
Can we get more info on the disposals? What was the pricing of these disposals, and what was the average vacancy of the units sold? What is the impact of the disposals on the 2020 guidance? Would you continue disposing properties?
In the nine months of 2020, we completed the disposal of approximately EUR 350 million at a factor of 15, with a solid profit margin of 43% over cost generated in this process. Those disposals were carried out primarily in the first half of 2020 and were a mix of mature and non-core properties. Those disposals were sold over net book value. The sales include over 7,000 units with an average vacancy of around 15% and were primarily located in the secondary cities between NRW and in non-core cities. The overall quality of the portfolio improved, and more room for higher quality properties with upside potential is made. During the reporting period, we signed disposals amounting to over EUR 500 million.
The disposal will have a slight impact on the 2020 result, but does not change our guidance, as the disposal impact is offset by acquisition and are carried throughout the end of the year. The signed disposals are located in secondary locations in NRW and in the medium and small cities in the east of Germany. The assets were mainly a non-core property sold at a factor of 18 and above their book value. With disposals being sold at the premium, we continue to recycle capital, enhancing the quality of the portfolio, while crystallizing gains extract over the past period and delivering strong and sustainable shareholder value creation. Looking ahead, we expect to dispose our held-for-sale portfolio within the next 12 months, which amount to over EUR 600 million. We would dispose additional properties if the right opportunity will arise.
We would sell where we see a large part of upside potential has already been captured, with the aim to recycle the gains into acquisition with higher potential and quality.
Can we get an update on the Berlin rent cap? When will the Berlin rents adjust to the Berlin rent cap, and what will be the impact?
Starting from the end of November, the rent cap will be implemented and effective for our existing tenants. New renters are already under the rent cap. The total impact of the rent cap on Grand City's portfolio is approximately EUR 3 million per annum, which is below 1% of total rents. The impact on the 2020 numbers is low, as it has an effect only on one month, but the impact will be included in the 2020 rental income like-for-like results. We continue to share the opinion of most of the legal and professional minds with regard to the unconstitutional nature of the law. We view the rent cap as a counterproductive measure, which shall only increase the housing shortage in Berlin. Clearly, the only solution to the increase is construction and provide a positive investor environment.
Our base case business plan is that the rent cap will remain and any reversal of this regulation is an additional upside in terms of revisionary potential. We will have more clarity when the Federal Constitutional Court has announced a final decision on the rent cap, which is expected during the first half of 2020.
When will GCP publish the new EPRA net asset value KPIs?
We will publish the new EPRA KPI along with our full-year results, in line with EPRA's requirements.
Are there any updates on the A-minus credit rating goal?
In terms of our financial metrics, we are very well positioned to reach an A-minus rating, and are committed to remain in this position. We follow very closely our conservative financial policies, which is rating supportive. However, the main hurdle to reach the rating upgrade is the total portfolio size, which S&P expects an A-minus rating company to have a portfolio of over EUR 10 billion. We will continue to grow our portfolio if attractive and if it supports shareholder returns.
Yes. Thank you. I think these were the questions so far, we will now start the open Q&A part. If you have several questions, we kindly ask you to ask us all your questions together right at the beginning of your question, please. I think we are now looking forward to your questions, please. Thanks.
Thank you. We will now begin our question and answer session. If you have a question for our speakers, please dial zero one on your telephone keypad now to enter the queue. Once your name has been announced, you can ask a question. If you find your question is answered before it's your turn to speak, you can dial zero two to cancel your question. If you're using speaker equipment today, please lift the handset before making your selection. One moment please for the first question. Our first question is from Kai Klose, Berenberg. Your line is now open.
Yes. Good morning. I just have two questions. The first one is regarding page four of the presentation. On an annual basis, we saw the net rental income down by 2%, operating expenses decreased by 11%, and admin went up by 7%. Could you explain the reasons for the different developments in the cost items? I have a question regarding the CapEx spending, which you show later in the presentation on page 16. Could you indicate how much of that was spent for the so-called energetische Sanierung or energetic refurbishment of properties? Thank you.
Hi, Kai Klose. Thank you for your question. As to the P&L items, there was a decline in operating and other income. This is a result of operational efficiencies and disposals of non-core assets which have a higher proportion of operating costs. In parallel, the effect of acquiring properties with a lean cost structure. As to your CapEx question, the vast majority of the CapEx was not channeled into energetic efficiencies. It was into rather regular repositioning efforts of CapEx. Thank you. Next question, please.
Our next question is from Manuel Martin, ODDO BHF AG. Your line is now open.
Good morning, ladies and gentlemen. Two questions from my side, if I may. Question one is regarding the valuation of your portfolio. As far as I understood, as of 9M, you valued 75% of the portfolio. Am I right if I can suppose that you're going to value 25% of your portfolio in Q4, or are you going to value a larger part of the portfolio? That's the first question. Second question on your like-for-like rental growth. This was an adjusted number for us. If you adjust the 2.6% growth by the pandemic, that means that you were nice to your tenants and also by the Berlin rent freeze. That's the second question. Thank you.
Let me answer the first question regarding the valuation. It is correct that we will value the full portfolio during the full year, meaning 25% during the remainder of the year will be revalued. The second part of the question, maybe Michael can take.
Yeah, sure. The 2.6%, you are correct, Manuel. It's after the Berlin effect and the postponement of rent increases. We believe that if it wouldn't be the effect, we would be over 3%, like we've been in our previous period. In any case, the rent postponement we did will have an effect next year and give us a bit of tailwind for further like-for-like increases. Thank you. Next question, please.
Our next question is from Paul May of Barclays. Your line is now open, sir.
Hi, everyone. Can you hear me okay?
Yes, we can hear you well. Thank you.
Hi. Just a couple quick questions. You mentioned that London, I think, is the strongest revaluation you've had year to date. Just wondering if you could break down the drivers of that, given it seems it's quite in contrast to what others have reported in London and everything that's going on with the lockdowns and then sort of rent progression hasn't been particularly strong. Just wondered if you'd give a little bit more color on that. Also on the like-for-like valuation movement, just wondering what the drivers were of the slowdown from the half year into Q3. If there's anything particular in there, given, I presume, that the first half would have been more impacted by the pandemic. Just any color you can give would be greatly appreciated.
Hi, Paul. Thank you for your question. Actually, the London value like-for-like, yeah, we've seen over 5%. In London, we came from a relatively low level, we still have to catch up to the current market. Personally, we have come into properties and we manage them very well. We're still protective in the valuation. In general, we've seen the markets, London being rather positive, there's no headwinds here. Our price results and the other channel into value like-for-like. Generally, your question is a like-for-like in our total portfolio. Yeah, we had over 3% in the nine months. Q3 was a bit lower. This is direct connection into the fact that we reevaluated less than we did in the six months. We do see potential for the next quarters, we believe we will remain around the same pace. Thank you very much.
Next question.
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Thank you very much for your questions. Thank you very much for attending the call. We wish you all well, good health, and hopefully be able to see you face-to-face not too long from now. Meanwhile, obviously, we will remain available to your questions via internet, via phone calls, as and when you need our help. Thank you so much and have a good day. Bye-bye.
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