Ladies and gentlemen, welcome to the financial presentation call of Grand City Properties SE. At our customer's request, the 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 difficulties hearing the conference, please press 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.
Thank you. Hello, and good morning to everyone. In the name of Grand City Properties, I kindly welcome you to the results call for the nine months of 2019. With me today are CEO Christian Windfuhr, CFO and Chairman of the Board of Directors, Refael Zamir, and Senior Financial Analyst, Michael Bar-Yosef. Christian Windfuhr and Refael Zamir will lead you through the results presentation directly after this introduction. You will find the presentation on the company website under Financial Reports in the Investor Relations section. The presentation of the results will be followed by a Q&A session. The management is available for questions. We have already asked you in advance to send us your questions by email. Please continue to send them even now, so that we can include them accordingly. Please send your questions to the following email address, info@grandcity.lu. Once again, info@grandcity.lu.
I will now hand you over to Christian Windfuhr to begin with the presentation. Thank you.
Thank you, Katrin. Good morning, and welcome to our results call for the first nine months of 2019. We are happy to report that we are well on track with expected internal growth and further improvements of our portfolio, as evidenced by further increase of our book value. More detail about this later in the presentation. Of course, Berlin will take up a great part of our presentation in order to understand the impact of this on our portfolio. Allow me to say already now that due to our strong diversification into other regions with strong fundamentals and only 15% of our rental income coming from Berlin properties, the impact of the Berlin ruling on Grand City Properties will be limited and manageable. More details will come on this later in the presentation. Please turn to slide three on the presentation for our financial highlights.
We continue to produce a solid growth in all our operating KPIs, rental income, adjusted EBITDA, and FFO. While further solidifying our EPRA NAV, we maintained our very strong balance sheet ratios. I now turn you over to Refael to guide us through the financial results in more detail.
Thanks, Christian, and good morning. On slide four, we show our profit and loss information, which indicates that we continue to capture the strong hidden value inside our portfolio and continue with our value creation. In the reporting period, we sold properties at a value of over EUR 250 million, which has offset some of the growth of the rental income. In addition to disposals during 2018, which had a full period impact only in 2019. We increased the net rent income for the first three quarters of 2019 by 5% to EUR 285 million, which is a great extent the result of our like-for-like performance towards capturing the benefit of our acquisitions. The total like-for-like net rental growth amounted to 3.6% over the last 12 months, of which 3% came from in-place rent growth, reflecting the strong market our properties are located in, and 0.6% came from occupancy growth.
The profit for the first nine months of 2019 reached to EUR 365 million. Accordingly, the EPS basic is EUR 1.80 per share. The profit was lower than last year due to lower property revaluation gain during the reporting period. The revaluation in the period remained robust and amounted to nearly EUR 300 million. As a validation to our conservative revaluation, we see our recent disposal, which were sold at 8% over the net book value. Moreover, we would like to point out that our recurring profits have increased, which you can see from the growth of the adjusted EBITDA to EUR 220 million against EUR 204 million previous year. The adjusted EBITDA grew by 8% compared to 4% growth in our top line, reflecting our strong operating efficiencies leading to higher operational profits. Our adjusted EBITDA is continuously growing period over period with a CAGR of 10%.
Moving on to slide five, you will see that our FFO 1 amounted to EUR 160 million in the first three quarters of 2019, up 7% from the comparable period. The growth in FFO 1 remained in line with the EBITDA growth, with financing expense stayed stable over the period and current tax expenses slightly up. Our trailing FFO 1 grew by 11% since 2016. Accordingly, the FFO 1 per share has grown to EUR 0.96, up 5%. We continue to create attractive FFO yield to our shareholders with an FFO yield of 6%. Our FFO 1 per share after perpetual note attribution reached to EUR 0.81, up 5%. The FFO 2 amounted to EUR 256 million in the first nine months of 2019, slightly down from last year due to a lower amount of disposal.
On slide six, we present our EPRA NAV development, which has grown to EUR 4 billion from EUR 3.75 billion at the end of 2018. Compared to end of 2018, the EPRA NAV per share reached to EUR 23.7, an increase of 5%, or by 9% considering the dividend payout during the period. From here, I pass back to Christian.
Thank you. On slide seven, you can see the year to date, we have disposed 7,000 units of non-core and mature assets in the value of EUR 500 million. The assets were sold at 8% above book value and 63% margin over total cost. The disposals were located mainly in North Rhine-Westphalia, Halle, Berlin, Merseburg, and Magdeburg. These funds were to a great extent recycled into property acquisitions in better locations with higher potential. We acquired EUR 400 million of properties, primarily in London, including around 1,000 units at an average multiple of 20x, plus 400 units in London, which are in the pre-letting stage. We expect these units to be let out in the coming periods. Successful repositioning and strong market dynamics in our locations resulted in approximately EUR 300 million revaluation and capital gains. Our locations, including some detailed information, can be seen on Slide 8.
The total value of our portfolio has grown to EUR 7.6 billion and presently comprises just over 76,000 units. The yield is at 5% and the value per square meter increased to EUR 1,474 per sq m from EUR 1,275 per sq m at the end of 2018. By the way, that is 17%. On Slide 9, you can see the breakdown of our portfolio by location based on values with North Rhine-Westphalia and Berlin being the largest regions, representing 24% each. Dresden, Leipzig, Halle make up 14%, followed by London with 12%. Focus on diversification has always been a stronghold of Grand City Properties, which, with the current rent cap discussion in Berlin, has proven to be a significant strategic advantage. On Slide 10, you see that our Berlin portfolio is well clustered with around two-thirds located in top-tier neighborhoods. The other third is located in various good affordable neighborhoods.
Our successful diversification with only 15% of our rental income derived from Berlin makes us a lot less vulnerable to the Berlin rent regulations than some of our peers. Talking about Berlin, let us stay for a moment on the Berlin rent cap proposal on Slide 11. As most of you are aware, the rent cap proposal contains various aspects. The Mietendeckel or rent cap is expected to be in force for five years and rent capped as per the rent table of the proposed law. The rent cap will have retroactive effect starting 18th June 2019. Starting nine months after coming into law, rents which are above 120% of the rent cap are subject to reduction if the tenant applies for such a reduction. Re-letting rents will be limited to previous rent levels or rent as per rent table of the proposed law, whichever is lower.
In case apartment fulfills three of five criteria, like having an elevator, fitted kitchen, low energy consumption, high quality flooring, and sanitary equipment, the rent cap can be increased by EUR 1 per square meter and modernization allocation limit is set at EUR 1 per square meter for specific measures only. We have always said and strongly believe that these measures will not cure the shortage of the flats in Berlin. On the contrary, it also will deter investors. We expect to see less supply in the market and minimal CapEx and maintenance. The need for housing is by no means addressed in this law, and apartment seekers will have particularly an impossible task to find a vacant apartment as fluctuation is expected to drop.
We do acknowledge that there is a very large supply shortage and very strong and increasing demand for housing in the cities and would suggest more constructive measures, such as setting incentives to build new apartments, shorten and ease building approval processes, free up land and building rights within the city, and set incentives to support construction of subsidized apartments in new buildings. The rent cap is strongly discouraging the only solution, which is to build and to build. We strongly believe that the options of the majority of professional and legal experts will prevail, and that the rent cap will be declared unconstitutional in time to come. We have, nevertheless, on slide 12, summarized the possible impact on the Grand City portfolio. 15% of our rental income comes from Berlin, the other 85% from other well-diversified cities with their own different economic drivers.
We do not anticipate a spillover effect into other regions, because Berlin is a very special case. For 2020, we will have a one-time negative effect, assuming 100% of the tenants apply to have their rent readjusted to 120% of the rent cap. This amounts to a decrease in rent of EUR 3 million per annum, accounting for less than 1% of the total portfolio's net rent. As a result of this decrease, the impact on our Berlin portfolio's like-for-like results is in the range of 5%-7% for 2020. The impact on the total Grand City portfolio like-for-like results for 2020, however, is less than 1%. In addition to this, as a result of the rent cap and until the proposed law may be enforced, we will revise our Berlin like-for-like rent increase assumption to zero, as compared to the previous base case of 4%-5%.
Consequently, the total portfolio like-for-like results is expected to impact it by 0.6%-0.8% per annum from 2020 onwards. Consequently, under the assumption of full effect of the Berlin rent cap, we expect the like-for-like for Grand City Properties in total to still be above 2% in 2020, and over 2.5% in the following years, as long as the current rent cap is in place. On slide 13, we now conservatively reflect the Berlin rent cap in our revisionary potential. The updated annualized market potential, including vacancy reduction, is now EUR 425 million annualized net rental income, or a potential of 20% for the total portfolio. Unwinding the Berlin rent cap effect, the number increases to EUR 553 million, a number which you will remember from our previous presentations. We clearly do not expect the Berlin potential to disappear, and will closely follow up on any developments.
The upside potential in our overall portfolio remains, of course, with limited downside risk. North Rhine-Westphalia on slide 14 remains a strong part of our portfolio with 24%, and is well-diversified over various cities in the area, with the biggest portion in Cologne, the fourth-largest city in Germany, where we have 23% of our North Rhine-Westphalia portfolio. On slide 15, you can see our London portfolio, which presents 12% of our portfolio. Over 90% of our units there are situated conveniently in a short walking distance to an Underground or Overground station, which is an important factor in a huge metropolitan like London. We continue to see strong fundamentals in London. You will note from the map of London that we focus on strong middle-class neighborhoods such as Islington, Harringay, Barnet, Hackney, Fulham, Elephant and Castle, Barnet, and Greenwich.
Our London portfolio includes roughly 1,900 units, plus approximately 500 units in the pre-marketed stage, totaling 2,400 units. On slide 16, we show further regions. In Dresden, Leipzig, Halle, we have 14% of our portfolio, and we experience strong growth as a result of the revival of this region through new companies setting up business there, making use of favorable conditions in terms of land prices and various encouragements by local governments. Lower rents and lower cost of living attract migration into this area. Hamburg and Bremen, our strongholds in the north of Germany, make up 5% of our portfolio and are the largest cities in the north, benefiting mainly from their harbors and the related business. On the following slides, Refael will summarize for you our financial key data.
On slide 17 is our unchanged and very strong financial policy with our long-term goal to achieve an A- rating, keeping LTV below 45%, keeping our debt to equity ratio below 45% on a sustainable basis. Maintaining conservative financial ratio with a strong ICR, keeping unencumbered asset above 50%, a long-term debt maturity profile, a good mix of long-term unsecured bonds and non-recourse bank loans, and a dividend distribution of 65% of FFO1 per share. On the next slide, you see our LTV, which stands at 33%, with significant headroom to our financial policy, providing us with the flexibility to quickly act upon attractive opportunities. Our cost of debt is at a low of 1.3%, and 94% of our debt hedge.
Optimizing our debt profile was supported by over EUR 700 million issuance in straight bonds during the first nine months in 2019, and the prepayment of over EUR 300 million of near-term and high-interest bank debt. Our capital structure on slide 19 shows the financial source mix, where the convertible bond portion stands at 3%, the bank debt reduced to 6% from 11% end of last year, and the straight bond portion increased to 34% from 27% end of last year. The equity portion is 57%. Our financing source mixing is well distributed, validating our strong access to all sources of capital while keeping a strong equity base. Our debt maturity schedule stands at a long average duration of 8.2 years, with no significant repayments in the mid-term future. No material repayment on debt till 2025.
This enables us to continue to focus on the business and to prepare well for the future payments. Slide 20 reflects our strong coverage ratio with 6.5 ICR and 5.4 DSCR. We also show on this slide the solid development of our unencumbered ratio, which is up to EUR 6.4 billion or 80% ratio. Our continuing effort to improve our financial structure while sticking to our conservative financial policies resulting in our current credit rating of triple B plus from S&P and Baa1 from Moody's. Our long-term goal to reach an A- or A3 rating remain unchanged, we intend to continue maintaining our conservative financial policy as well as continue and improve the quality of the portfolio.
Allow me now to move to slide 21, where we detail for you our maintenance, CapEx, and modernization cost. Our strategy is focused on improving our assets' quality and attractiveness with repositioning CapEx. This increases the property quality and supports the value creation, including upgrading apartments for new rentals, as well as common areas such as staircases, playgrounds, elevators, et cetera. EUR 11 per average square meter were invested during the first nine months of 2019 in this area. Compared to 2018, our CapEx spending has remained stable. We expect to remain in our guided spending of EUR 13-EUR 15 per square meter spending in 2019. We also invest a smaller scale into targeted modernization with the aim to generate additional rent increase drivers. These include improving standards of the apartments and increasing energy saving levels. Also included are adding balconies, upgrading insulation, façade reconditioning, upscale apartment refurbishment, and others.
We invested EUR 1.8 per average square meter during the first nine months of 2019, contributing 0.2% to the like-for-like in-place rent growth. Another aspect of CapEx spend is pre-letting modifications for the London portfolio, which includes investment in the finishing for newly built, snagging, and preparation of building prior to letting. During the first nine months of 2019, EUR 5 million were spent in this item. On slide 22, we are presenting our compliance and results with regards to ESG standards. Initially in 2018 and again in 2019, we have presented a dedicated corporate responsibility report demonstrating our commitment to sustainability. Sustainalytics, an international rating agency for ESG standards, has rated Grand City Properties to a 95 percentile amongst over 300 real estate peers and noting the company as a leader in its peer group.
EPRA has awarded Grand City Properties for the third consecutive year, the EPRA Best Practices Gold Award for its financial reports, as well as the EPRA Best Practices Gold Award, underlining the company's commitment to the highest standards of transparencies and reporting. Our 24/7 service center certified by the TÜV and also recently by ISO 9001 certified, stands alone among peers with these achievements. Finally, to slide 23, where we confirm our 2019 guidance. Judging by the good performance throughout the first three quarters of the year 2019, we can herewith reconfirm our guidance for the year. We guide for an FFO1 of EUR 211 million-EUR 213 million in 2019, resulting in an FFO1 per share in the range of EUR 1.26-EUR 1.27.
We expect the growth to be driven mainly by higher total rent growth of at least 3.5%, resulting from closing the gap to revisionary potential and from occupying apartments. Following our 65% dividend payout policy, we guide a payout in the range of EUR 0.82 to EUR 0.83 dividend per share. In parallel, we expect to keep our conservative LTV at well below 45%, providing a substantial cushion for any significant market change. With this, thank you for your attention and your time. We will now move on to the questions that you have sent to us, and thereafter, to further questions that you may have. Please, Katrin, take over from here.
Thank you. As said, we will now begin with the Q&A part. We will answer the questions that we have received by email so far. We have grouped them together for the reason of simplification. I will now start with the first question, and the answer will be given by Christian. Question number one. How likely is the rent cap to hold under the German constitutional law? What is the timeline here? Do you have any view in which other German cities regulatory pressure, as in Berlin, could arise? How does the rent cap impact GCP strategy? Are you seeking to dispose properties in Berlin and reduce the exposure to the city?
In the end of October, the Berlin Senate has agreed on the terms for the rent cap, which will enter into force in Q1. We see the legislation as harmful to the city, effectively decreasing the supply and quality for housing in Berlin, creating a larger shortage for living. Investments in existing apartments are expected to be reduced to a minimum, and new construction is expected to decrease due to the very negative investment environment. We reiterate that solution for housing shortage must come from construction and development. The city must release the [inaudible] drag, shorten the building approval process, and focus on building. Our understanding is that the majority view is that the law is unconstitutional, as the Berlin Senate does not have the legislative competence. Moreover, the law is viewed as unconstitutional due to breach of property guarantee and freedom of contract.
Court and legal procedures to revoke the law is expected to be very lengthy and is currently estimated at around two years. Up until any new development, the new law will be in our base case. We will follow the legal framework. We do not expect similar legislations in other states. The rent increases in Berlin were exceptionally high and much discussion is over the historical sale of residential portfolios from the city to Deutsche Wohnen. This is not the case in other German states. The Berlin state is considerably more socialist than all other states. The more liberal parties, CDU, CSU, and FDP, are in the coalition of most of the other states. Our strategy remains unchanged. Our Berlin portfolio produces less than 15% of the rent, and 24% by value is in Berlin.
We continue to believe in the city and in its underlying long-term fundamentals, but reiterate the importance of being diversified and not depend on single cities. The remaining portfolio outside Berlin is located across other good German cities, which are driven by different economic growth engines and from different demographic structures. The position in London is adding to the diversification of our portfolio. In addition, in our view, regulations governing increase and rents will not eliminate the potential but delay our ability to capture the market rents in the midterm. We would dispose in Berlin on an opportunistic basis and not as part of a strategic decision.
Can you please quantify the impact of the Berlin rent cap on GCP's total numbers? Have you taken any rent uplifts in Berlin since June? How much rent will be decreased for existing rents? How much rent will be reduced reletting? Will we see a decrease in the Berlin valuation? How much value growth did you see in Berlin in Q3, and what are your expectations for the year-end? Can we get guidance on the 2020 like-for-like, given that Berlin will potentially have negative rents and low rent increase? Will you continue to invest CapEx in Berlin? Will you channel modernizations to other locations?
The effect on the rents in Berlin will be in two stages, starting in 2020. We do not expect any significant change to the 2019 numbers and guidance. We have not made material rent increases in Berlin since June. Looking forward, the first impact will be a rent decrease in units where the rents exceed 20% of the rent table. This will be a one-time adjustment and will impact the 2020 like-for-like results, assuming 100% of the tenants apply for the rent reductions to the end of 2020. We expect this one-time decrease to be approximately 5%-7% of the Berlin portfolio, having a negative impact of up to 1% on the total Grand City Properties like-for-like results for 2020.
Moreover, taking into account our previous expectations for the Berlin rent increase prior to the rent cap discussion of increase of approximately 4%-5%, there is now a decrease of 9%-12% in total to our previous estimation for Berlin, and therefore the effect of our total portfolio's like-for-like in 2020 is in the range of 1.4%-1.8%. This will result in total like-for-like for the whole of Grand City's portfolio of still over 2% in 2020. From 2021 onwards, assuming the rent cap regulation is accepted and assume the one-time effect took place, the like-for-like in Berlin will be 0%, and the impact of the loss of rent increase potential will affect the previously assumed rent like-for-like of the portfolio by about 0.6%-0.8%. The effect is more on the alternative loss of previously expected rent increases and not from actual rent decreases.
The second effect of the rent cap will be on reletting, where rents will decrease from 20% over the table to the table levels. We expect fluctuations to be low as the competition for new lettings will be very high, discouraging tenants to switch apartments. Therefore, the total like-for-like for Grand City is expected to be reduced to a level of over 2% for 2020 and over 2.5% in the following years, as long as the Berlin rent cap remains at the current suggested legal framework. For 2019 like-for-like, we reiterate our guidance for like-for-like performance of over 3.5%. Mathematically, the effect of the rent cap in Berlin is magnified when analyzing only the marginal like-for-like effects. In terms of absolute rent, the total rent will decrease by less than EUR 3 million or less than 1% in our total rent over the total portfolio, an insignificant amount.
It is hard to estimate the effect on the Berlin valuations, and we believe it is too early to assess the impact of the rent cap. We can expect a further yield compression and believe that the actual market transactions will also have an indirect effect on valuation direction. Currently, the market is frozen in Berlin, showing a drop in transaction volumes. Recent market information released indicate that Berlin condo prices continue to increase also into 2019, but we do believe that more time is needed to determine the trend. The valuators have a conservative assumption for market rental growth and look at a longer period than only five years. As to our results in the first quarter, we recorded a 2% increase in value. Our current Berlin portfolio is valued at EUR 2,900 per sq m, significantly below market levels and actually at construction levels, not including land.
We believe that going forward, the valuation will get closer to the transaction levels. As mentioned, we still see very high potential in Berlin, which will not disappear under specific regulations. As to CapEx investments in Berlin, historically, we didn't have large scale modernization programs as many of our peers had. Going forward, under the rent cap, we will carry only the minimum of CapEx needed.
Does your rent cap guidance include any cost savings to offset potentially lost rents?
No. The effect for the rent cap on Grand City Properties is not significant, less than 1% of the rental income for the whole portfolio. Therefore, conservatively, didn't account cost savings in the guidance. We analyze the efficiency of our operation on a continuous basis and will act accordingly if savings can be achieved during this period.
Can we get an update on the residential market?
We continue to see the strength and stability of the German residential market. The market is continuing the positive trends backed by very strong economic and demographic fundamentals. Many locations in the German market are coming from a low level in terms of rent and price per square meter. The very high demand in the strong metropolitans and university regions comes from domestic and international migration and urbanization. Furthermore, the number of households are increasing even faster than the population, highly supporting the demand. Our current like-for-like rent growth of 3.6% is reflecting the fruitful letting market across our portfolio. We continue to capture the gap to market levels, which is continuously increasing. On the supply side, we expect to see construction lagging behind in large metropolitans.
The limited supply of land for development in combination with bureaucratic hurdles, along with the inflation, construction costs, and low availability of qualified construction workers, all result in a slower increase in the supply. We expect the environment will not change in the next periods, and the demand and supply gap will remain high and potentially increase. We continue to see the increasing values across the strong cities in Germany. Our value per square meter at the end of September 2019 is less than EUR 1,500 per square meter, much below replacement, which are around EUR 3,000-EUR 4,000 per square meter, including land. Therefore, we continue to have a significant upside potential to catch in the years to come. Moreover, we see the large gap to the replacement cost as a defensive downside protection.
In case of a market economic turn or economic turndown, we see the positive demographic trend to remain and sustain the values at or over the level of the replacement cost. In addition, a slowing economy is leading the ECB to extend its supporting measures, which drives positively real estate investments and further decreases the yields and the interest costs. We are certain the German residential real estate will continue to be an attractive asset class, offering high, stable, and long-term cash flows.
Can we get an update on the current pipeline? How is the pricing levels, and where is the pipeline located? How large is GCP's acquisition firepower? How much internal growth can we expect, and in what timeframe?
Our current pipeline fitting our criteria is around EUR 300 million. The pipeline is similar to our recent acquisitions in terms of quality and location and includes high-quality properties in large metropolitans. The properties are located in good cities within Germany as well as in London. We reiterate our 5% unlevered NOI yields over total cost in three to four years after acquisition in Germany, and 5% rental yields in London achieved after a year after acquisition. Our pipeline, as well as the acquisition in the recent periods, are part of reinvesting the capital from the non-core and mature profits. We continue to remain disciplined and strictly follow our acquisition criteria and yield targets while continuously improving the portfolio quality. We are very selective in the deals we execute and focus on creating accretive value. In addition, we focus on internal growth as an additional growth driver.
Our portfolio is significantly under rented and includes a revisionary potential of over 20%, which shall support future growth in the upcoming periods. As to our firepower, we have a headroom to acquire at least EUR 1 billion worth of properties and still remain at our conservative financial levels.
Please update on the status of the London assets. What's the average rent, and what's the expected rental growth for this product? When will the pre-marketed buildings be occupied? Will the London portfolio continue to grow in the upcoming periods?
Including the recent acquisitions as of September 2019, the London portfolio comprises about 2,400 units, including units in the pre-marketing stage. We continue to achieve a good track record in fitting in the properties and validate our business plan. We have a very strong occupancy trend, which increased in September 2019 to 95%. We expect this trend to continue in the next periods. The average rent per square meter is currently EUR 32. Currently, we have around 500 units in the pre-letting stage, we expect them to be ready for letting in the next periods. Once the property is on the market, we expect to fill the properties within a few quarters. At this stage, we reach approximately 5% rental yield over total investment, which is well above market levels. In total, the portfolio in London is 12%.
Currently, our plan is the London properties will reach 15% of the total portfolio while hedging our pound exposure into euros.
Can you please provide details on the acquisition in the first nine months of 2019?
The first nine months of 2019, Grand City Properties has acquired over EUR 400 million worth of properties, mostly in London. The acquisition included around 1,000 units at a multiple of 20 times and with a vacancy of 5%. In addition, during the period, Grand City Properties acquired in London 400 units in the pre-marketing stage, some of which have been already prepared for letting, and the remaining will be ready for rental in the upcoming periods. The acquisitions in London were in multiple locations across the city, such as Kilburn, Kensington, Hammersmith, Westminster, Leyton, Kensington, Ilford, St. Albans, and Brentford. In general, in London, and in particular in these locations, we see very stable demand and a robust market with long-term sustainable fundamentals. The average cost was around EUR 7,000 per sq m.
We continue to see in London attractive opportunities to acquire properties in good locations, which are generating aggressive operational profits. We reach approximately 5% rental yield over total investment after reaching full occupancy, and continue to target this level also on new acquisitions. We see long-term sustainable value in these properties and reiterate our strategy is to hold these properties long-term and benefit from the strong operational profitability.
Does GCP consider entering into a new market? Will GCP consider an M&A?
We are continuously monitoring strong European cities which meet our acquisition criteria, currently haven't made any decision. We would enter into new market only if it will be accretive and enhance the quality portfolio. Merge and acquisition follow the same criteria and approach. We are monitoring the market and the opportunities, and would consider pursuing an opportunity in case it is accretive and supportive in terms of quality, while sustaining our conservative financial profile.
Vacancy has decreased to 7% from 7.3% last quarter. Can we get more color, and what can we expect going forward? How much annual vacancy reduction do you include in your business plan?
In the last 12 months, the occupancy like-for-like was 0.6%, which has slightly accelerated in Q3 2019 compared to the periods before that. On a like-for-like basis, we have experienced decreases in vacancy across our portfolio, which were offset by disposals of mature properties with lower vacancies. The 3% in place rent like-for-like is the result of managing vacancies correctly, maximizing the rent already in the letting stage. In certain locations, especially the ones with strong increasing market rents, we set increasing rent levels for letting and are selective in choosing the right tenants, which takes more time. The selective yield management does take more time, but results in higher value creation in the long term. Going forward, we expect to see the occupancy trend to continue and increase in similar place on a like-for-like basis around 0.5% per annum, but expect an offsetting effect of acquisitions and disposals.
We continue to see the vacancy as an income driver, and our track record is validating our ability to create excess value from our properties on an ongoing basis.
Can we please get more details on the like-for-like in the period? What was the like-for-like in Berlin, Rafi?
In the period, the net rent like-for-like was 3.6%, including 3% in-place rent increase and 0.6% occupancy increase. The 3% in-place rent increase is comprised of 0.9% indexation effect, 1.9% reletting effect, and 0.2% for modernization. We continue to see very strong like-for-like performance across our portfolio, maintaining the strong trend we have seen in previous periods. The rent increase in Berlin in the first nine months of 2019 was around 1.5%, going forward, until further update, we will see minimal increase, only from occupancy improvements. As mentioned, we expect to see one time decrease in rent in Berlin in 2020, which will have a negative impact on the like-for-like in 2020. We expect the remaining portfolio, which is over 85% in terms of rents, to continue to show high like-for-like performance.
Another question for Rafi, please. Can we get more information on the revaluation gains? Why did they decrease compared to the comparable period? What was the like-for-like valuation? What portion of the portfolio was revaluated in the first nine months? What was the effect of yield compression in this result? What can we expect in terms of valuations for the last quarter of 2019?
In the last first nine months of 2019, we had recorded about EUR 300 million of valuation gains, with a strong momentum in all our core locations. In the comparable period in 2018, the revaluation gain amounted EUR 380 million. Revaluation gain don't follow a linear increase, especially in an interim reporting period. We see the valuation developing with the improvement of portfolio and expect the trend to continue in the upcoming periods. We take a conservative position with our valuation, which is mirror into 8% disposal gain over the net book value recently achieved.
The valuation gain reflects positive operational development over the period, as well as the strong market dynamic in our location. Two-thirds of the revaluation gain is performance-related, driven by operational improvement, with the rest attributed to yield compression of below 0.2% during the period. The yield compression reflects strong market environment in our core location. The valuation increase on the total portfolio was over 3%. Around three quarters of the portfolio was reevaluated in the first nine months of 2019.
GCP has raised substantial amount of debt in 2019. What are the planned uses for the proceeds?
Grand City has captured the low interest environment, which reached historic lows during the period, and has raised, year to date, over EUR 700 million of bonds in the capital market. The proceeds were partially channeled into repayment of approximately EUR 350 million of shorter and/or more expensive bank debt. As a result, the cost of debt decreased to 1.3% on an average from the company, down from 1.6% in December. Moreover, the long-term debt maturity of over eight years was sustained. The remaining of the proceeds will be used to further optimize our debt structure as well as to external growth purposes.
Do you see in Berlin a negative impact on the values and the prices of land and new construction given the rent cap? Can we please get an update on the progress of the main projects again?
We continue to see an increase in land value in strong cities in Germany, driven by the high demand. In particular, Berlin has experienced significant increases. We have not yet seen any evidence for a decline in Berlin and have reason to believe that the demand for housing will continue, especially for new buildings, and that the land values in Berlin will maintain the momentum. In Berlin, the number of building permits declined year-over-year, which in relation will contribute to the increasing demand and low supply. We continue to extract the value from our portfolio and see this as an additional value-add driver. Identifying, optimizing, planning, and obtaining permits are the most crucial stages for this value-add driver.
Once we advance with the building permits, we have the option to decide whether to sell the land and capitalize on the profits, to build and hold, or build and sell. We see high value in keeping all three options open and working in parallel so we can maximize our profits. In the development project via Volkspark, in Berlin in City Park, we are progressing according to our business plan. For one plot, we are expecting to get all the building permits in the coming months and to have the option to start construction in 2020. The plot is planned for 600 units. As to the second plot, which is larger and shall include higher amount of building rights, we are continuing negotiations with the city and working on the zoning plan.
Can we please get more information on the disposals? What were the multiples and where were they located? Why did the held-for-sale portfolio increase, and what can we expect going forward in terms of disposal volumes? How many units remain held-for-sale as of September?
In the first nine months, we have sold properties in the amount of EUR 250 million, and including signed disposals, we have sold 7,000 units at the amount of EUR 500 million. The properties sold are either non-core or mature properties sold on an opportunistic basis and enable the company to realize the accumulated profits. The disposals were done through several transactions, and the proceeds will be channeled into higher quality properties. The properties were sold at 8% over the net book value and generated 53% profit over the total cost. In total, the disposals were carried at an average multiple of 17 times and at a vacancy below the portfolio average. The properties sold were located mainly in North Rhine-Westphalia, Berlin, Halle, and Kaiserslautern. Grand City Properties will continue to sell a certain portion of the portfolio on an opportunistic basis, which will enable us to further recycle capital.
Our assets held-for-sale balance amounts to over EUR 400 million, of which over EUR 200 million were signed and expected to be completed during this quarter. We expect to sell the remaining amount in the next 12 months. There are non-core properties, which are either in locations which are not our main focus or have already achieved most of the potential. The held-for-sale portfolio is not included in our EUR 354 million annualized rent as of September 2019. We would like to point out that the total portfolio rent hasn't decreased significantly since 2019 annualized rent due to strong internal growth and through external growth. Our current portfolio has an increased quality and is well positioned to continue to show strong performance. As of September 2019, we have about 8,000 units classified as held-for-sale, of which half are already signed disposed.
Your portfolio units are coming down quite strong. Do you have a minimum size you want to maintain, and which number is required by rating agencies without triggering a negative rating impact?
Part of our capital recycling transactions, with the aim to increase the portfolio quality, review the portfolio size in terms of value and not in terms of units. Therefore, don't have a minimum number of units. In our view, it is also the view of the rating agencies. Accordingly, of our portfolio, regardless of decline in units, increased from Q2 2019 and from 2018.
GCP has over EUR 1 billion cash and liquid assets and has a low LTV ratio of 33%. Will the company increase the payout ratio or consider a share buyback, [Yosef]?
The high cash levels of GCP provide the company with the firepower to pursue opportunities, and the low LTV is part of our conservative financial policy. The high operational profitability gives us the comfort to consider to increase the payout ratio from the FFO, but this will be subject to the size of our pipeline and to the opportunities in the market. In any case, we believe that we provide our shareholders with attractive dividend yields of 3.9% of the 2019 guided dividend. Also, we would consider deserving share buyback. We see a market failure where we see a substantial arbitrage in the event where our share will be traded significantly below the NAV, while we continue to see our properties being disposed well above NAV.
In any event, we will maintain our low leverage and sustain our conservative financial policy and will not make a move which will have a negative impact.
Can you please provide a view on what the TAG Aroundtown merger could mean for Grand City?
For Grand City Properties, there's no impact and business as usual. As to the shareholding in Grand City Properties, we can only comment on public information. Aroundtown continues to reiterate that its stake in Grand City Properties is strategic investment, which supports their business through diversification in one of the strongest asset classes in Germany. The potential merger does not change this strategy.
How do your current average rents in Berlin compare to the average rents in your Berlin portfolio according to the new rules from the rental freeze law?
Taking into account the full impact of the rent table, our total Berlin rents will be down to around EUR 7.4 per square meter. This is taking into account the age of the buildings, the location of the properties, and the effect of the additional quality criteria. Note that this is only on relettings where the rents are lowered to 100% of the rent table.
Okay. 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. We are now looking forward to your questions, please.
Thank you very much. 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 is 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. We've received the first question. It is from Ellis Acklin of First Berlin. Please go ahead. Your line is now open.
Yes. Good morning, gentlemen. Thanks for the rent clarification. Just one follow-up on my side to make sure I'm understanding it correctly. When you refer to the 3 million, is that factoring both the potentially capped rents and also potential rent decreases according to the table, nine months into next year? Thank you.
Hi. Good morning, Ellis. The EUR 3 million refers only coming down to the 120%. This is the one-time effect we will see already starting in the end of 2020. Thank you.
Thank you. The next question we've received is from Marcus Klaffka of Bank of America. Please go ahead. Your line is now open.
Good morning. Could you clarify that you say that the impact of relettings will be completely offset by a reduction in vacancy in Berlin? Can you maybe guide us through the figures of how much you would need to reduce the vacancy in Berlin to offset this impact, and what would be the CapEx needed to achieve this?
Thanks for the question. It's correct. The relettings will be offset by vacancy reduction. We believe now we will reduce the vacancy faster in Berlin, approximately 2%-3% per annum. We expect the fluctuation to be very low. Accordingly, it's hard to estimate now, but in any case, we see an insignificant effect. As for the CapEx, we will invest the minimum needed. We won't carry anything above. Therefore, no more CapEx than planned for that case. Thank you.
Thank you. The next question we've received is from Manuel Martin of ODDO BHF. Please go ahead. Your line is now open.
Thank you, gentlemen. Two questions from my side. One little question concerning the P&L. I noticed that in the third quarter, you had minority interests of -EUR 19 million, which is higher than in the past. Maybe you could give some color on that. That's question number one. Question number two, concerning potential expansion. Do you have any particular countries in mind where you would like to expand? Would it be Netherlands or Poland or other countries? Maybe also some color on that. Thank you.
Good morning, Manuel. Thanks for your question. As to your first question, actually, the total impact of the minority is coming from the revaluation gains, which is a non-recurring item. In the reporting period, we've seen revaluation profits coming from properties with minority shareholders, which accordingly led to an increase in the profits related to minority. This is more of a one-time effect. Please note that the operational minority share in the profit, therefore, was much lower at around EUR 3 million in the nine months.
To the second part of your question, Manuel, we are looking for opportunities in Central European countries, which have a similar safe rule of law and similar rental habits. This includes Holland, Benelux, Poland, et cetera. We haven't found opportunities yet which do meet our acquisition criteria, but we are definitely on the look also in these countries. Thank you for the question.
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Okay. There doesn't seem to be any further questions. Therefore, I would like to thank you very much for joining the call and wishing you well, and hopefully meeting up in the near future and discussing further on the progress of our company. Thank you very much and have a good day.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.