Dear, ladies and gentlemen, welcome to the Annual Results 2019 Analyst and Investor Call of mode. After the presentation, there will be an opportunity to ask questions. May I now hand you over to Aurelia, who will lead you to this conference. Please go ahead.
Thank you, Aurelia, and welcome, everybody, to our earnings call for the full year 2019. Your hosts today are once again CEO, Rolf Buch and CFO, Helene von Reuter. I assume you've all had a chance to download the presentation. Just to be sure, the earnings call for today is available on our IR website in the section Latest Publication. Rolf and Helena will lead through this results presentation on the basis of the agenda on Page 2, and we'll then, of course, be happy to take your questions.
So without further delay, let's get things started. And for that, I'm handing you over to Rolf.
Thank you, Rene, and also from my side, a warm welcome. Before we get into the normal specifics of the full year 2019, allow me to paint out a broader picture on Page 34 of the presentation. Today, we are presenting the 7th full year results since our IPO. And as in the very prior years, basically, all relevant KPIs improved on the year on year once again. And while we are benefiting from a positive environment in terms of low interest rates, we are convinced that the business model we have built will be also successful in different environments.
At the heart of this fact is that we have built our business model on the basis of megatrends, namely urbanization with the supply demand imbalance, energy efficiency and the need for CO2 reductions and demographic change with an aging population. All three are no short term phenomenon of structural long term trends that present an opportunity and a challenge at the same time. We are convinced that looking on this mega trends and working to be part of the solution or to these challenges, they will bring be our future success. Whatever we do always has more than one dimension. And only if we continue to succeed in creating benefits for all stakeholders, we will be able to enjoy long term success.
Page 4 looks new, but actually, it isn't really new. It is the story you are very familiar with, presented in a fresh way and some more bought from different end, Andrew. You will find all elements of the well known 4 plus 2 strategy chart strategy the bigger picture. We've been talking a lot about these megatrends that present challenges but also provide structural tailwind for our business. As I said, how we deal with these mega strengths will be very important for our future success.
And you also know from us that we take our social responsibility very serious. As we have been demonstrating time and again, we are fully aware that our product is not a commodity, but a fundamental need and close to our customers' heart. And the relevance of robust corporate governance structure is more important than ever, see if you look on our peers in the sector. None of this is new for us, but the first time we tried to put it all in one page to show how we look on our business in a much bigger picture view. Of course, we are in to provide an adequate return to our shareholders, inform on earnings and value to say that we have been quite successful in doing so in the last years.
But if that were our only focus, we would fall short in the long run. Almost everything that we do has some or one or several ESG elements, and we are in the process of sustainably improving our disclosure on this subject because I'm convinced that we are doing already much more, but we have not been successful yet in marketing largely predictable, and unsurprisingly for us, we once again delivered what we have promised. Let me start with the highlights on Page 5 before Helena will take you through to the specifics. EBITDA for all 4 segments improved, and total EBITDA was up by 13.2%. Group FFO was up by 7.7% based on the new FFO metric, which equals 3.2 percent per share.
If you compare it to our old FFO actually up by 9% per share. Our adjusted NAV per share was 51.93, which was almost 16% higher than at the end of 2018. Adjusted for acquisitions and sales, we saw an 11 0.8 percent like for like overall value increase in 2019. We will be proposing a dividend per share of €1.57 to the Annual General Meeting in May. In line with previous years, we expect to offer a scrip dividend so long as our share trade around or above adjusted NAV.
Our LTV on the end of 2019 was 43.1% and very much in the middle of our comfort zone. Net debt to EBITDA multiples of 11.5% is in line with what we reported in the November figures. And with this, I hand over to Helene.
So thank you very much, Rolf, and a kind hello from my side, too. So in the course of 2019, we managed to grow across all four segments. This is partly due to a slightly larger portfolio, but also because of the continuous improvement we have been making to our business. To be sure, Hembla is included in these numbers for 2 months. The average number of residential units in 2019 was 3% higher than in 2018.
On that basis, we grew the adjusted EBITDA total by 13.2% and the group FFO, FFO, which is a basis for our dividend, by 7.7%. Group FFO per share was up 3.2%. As Rolf said, the 2018 comparables here are based on the group FFO metric even though we managed the business in 20 18 on an FFO one basis. If we adjust for this, the FFO per share was up 9% in 2019. Just as a reminder, we adjust all IFRS 16 effects in the line item consolidation.
So our FFO does not exclude include the positive impact of IFRS 16. I do understand other companies in the space do not make this adjustment, so this is probably something you want to look out for when you do peer comparisons. You also see that while recurring sales and especially development made a considerable contribution to overall EBITDA and will continue to do so. The operating business with rental and value add clearly remains the largest part of our business. So on to Page 7, looking at the individual segments and starting with the rental segment.
Rental income is up almost 9.5% on the basis of a larger portfolio and organic rental growth. The increase in maintenance expenses is partly volume driven. The increase in operating expenses is partly the result of including earnings calls, the Swedish rents include ancillary expenses, so the revenue is in rental income and the cost is in operating expenses, and this distorts the year on year comparison a bit. We obviously also have included 2 months of Hembla, which is sort of exacerbating this effect. Page Organic
rent growth was 3.9% year on
Organic rent growth was 3.9% year on year. On the upper left hand side, we are showing the main drivers that are holding back an even higher rental growth. Individually, none of the impacts we show here make a meaningful dent, but collectively, they're weighing on overall rent growth and lead to an environment where it will be challenging to get to much above 4 The vacancy rate of 2.6% is mostly the result of our investment activity. And then finally, maintenance expenses per square meter were broadly on the same level as in the prior year period, and capitalized maintenance was €1 more than in 20.18. You actually may be tired of me saying it, but given the different reporting with the peer group, I feel it's extremely important to point out protects future EBITDA, whether it is capitalized or not, separate from the investments that actually drive the growth of future EBITDAS.
Over to you, Rolf.
Thank you, Helena. Let's move on our fair value add segment on Page 9. The EBITDA from the segment was up by 21%, which was largely the result of our organic growth in this business. We simply rolled out what works to a larger part of the portfolio, but we also continue to do and to develop new ideas. We are targeting an average annual EBITDA growth of around €20,000,000 in this segment.
So obviously, in 2019, we were a little bit better than the average target. Page 10 shows the result of the recurring sales segment. We sold 2,607 individual apartments for a cost proceed of €365,100,000 The average sales price increased by 11% year on year. The fair value step up was 41 3% on average and acquired a bit higher than last year in spite of a higher basis. This is partly driven by recurring sales in Austria, where fair value step ups are considerably higher than in Germany.
All in all, recurring sales contributed €90,100,900,000 to the adjusted EBITDA. We call this segment recurring sales. Obviously, 1 unit can be sold only once by us, but we have more than 28,000 units left in this program. So at our current pace, which we don't intend to change, we easily have more 10 more years to go. As a side note, outside the recurring sales segment, we sold almost 2,200 nonrecourse units in 2019 with a fair value step up of close to 16%.
To me, this is also a good indicator for an unbroken strong demand. Non core is no longer a meaningful number in our overall context. At the end of the 2019, we had 4,200 apartments left in our noncore bucket. This is less than one percent of our total. We will continue to sell what is left in non core, but this will not move the needle going forward.
And finally, our Development segment on Page 11. The segment includes all new constructions of apartments by way of entirely new buildings sorry, so excluding additions of floors on existing buildings. We distinguish between development to sell and development to hold our own portfolio. The bottom line adjusted EBITDA was €84,500,000 in 2019. Obviously, this part of our business is less linear than the rental business, so 1 quarter can be a bit different from another one.
But generally speaking, 2019 should be a much better proxy than 2018 for what to expect going forward. Page 12 has more color on our new construction activities. We completed 1301 apartments to hold for our own portfolio and 791 apartments to sell. In our construction to hold, we now have identified potential for about 40,000 apartments based on the opportunities in our portfolio today. So we have been able to identify more medium and long term opportunities since we last reported.
For 2020, we expect to deliver up to 1500 this year. The development sell part is a useful addition to the 2 hold developments. On the one hand, it generates attractive margins, but what is maybe even more important is that you often need the higher margin from the Tuzsell project to cross finance the lower margin for whole development in order to make an entire development project actually work financially. So often, you have onethree development at some form of subsidized onethree at market rents and onethree for sales, and the for sale volume basically carries the land costs. The pipeline for To Sell is approximately 7,000 apartments.
In terms of overall capacity, we were successful in acquiring a residential developer in the Rhein Main Metropolitan region. We signed an agreement earlier this week to buy 100% of the shares in the company called While the deal is still relatively small with a pipeline of 2,500 apartments, it does allow us to beef up our activities in this attractive region and acquire their excellent know how and network. UHWOG has been focusing on Berlin, Hamburg and so the Frankfurt area will be a very nice addition. In case you're wondering, this will be financed through cash flow on a corporate level and will not move the needle, so actually nothing to write home about. Page 13 shows the valuation results.
We saw an 11.8% like for like value growth in 2019, which broke down into 3.1% from performance, 2.2% from investments and 6.5% from yield compression. All in our portfolio is valued at EUR 18.65 per square meter, including the land. This still leaves a wide gap to new construction costs, which are closer to around €3,000 plus land. So while we have seen healthy valuation gains in recent years, we do not view the current level as a stretch. To give you some color of what we're seeing in the market.
Market observations in preparation for the work of our H1 2020 valuation suggests an unbroken momentum, and there appears to be no signs of the substantial slowdown of continued value growth. You know us, we do not guide to specific numbers for estimated yield compressions. And in early March, it's way too soon, but it seems fair to say that in absolute terms, H1 2020 will probably not be a disappointment compared to H1 2019. And with that, back to Rob.
Thank you. On Page 14, we have put a little bit more color to the valuation gains. We took the valuation on a more granular level by breaking it down across the regional markets in Germany and also Sweden and Austria. While the valuation costs differ a little bit between different we're very happy with the performance of all our markets. This is even more visible on the next slide because keep in mind, looking on a yearly valuation sometimes lead to disappointing elements in 1 year but to very positive elements in other years.
So on Page 15, we did a simple exercise and added the annual value cost from the performance and yield compression as well as from our investment for each of our 15 regional markets for the period 2017 to 2019, so several years. This is in the right hand side of the chart. So the average of our strategic market was 40% with a range between 30% 40% 50% across the different markets. So in contrast to that, you have the non core location, which show only a 6% during that period. Period.
So obviously, our selection was right. Combined with the analysis of the German Federal Office for Construction and Urban Development, which has been looking at the growing and shrinking regions in Germany, which you see on the left part of the slide, we feel very much confirmed in our portfolio's management strategy. 99% of our portfolio is located in these growing regions.
So with that to Slide 16, the adjusted NAV. The adjusted NAV increased by 21.1% in absolute terms and 15.7% on a per share basis in 2019. As most of you will be aware, EPRA has revised their best practice recommendations and introduced new KPIs. There will be an EPRA net disposal value, an EPRA net tangible asset netreinstatement value. We are in the process of calculating our numbers on that basis and expect to disclose the new metrics in the context of our H1 2020 results for the first time.
The net tangible asset value is probably the one that is closest that is the closest successor to the EPRA NAV and our adjusted NAV. So when it comes to looking at a proxy for our bricks and mortar portfolio, this will probably be the one. Something entirely new will be the Apera reinstatement value. The idea here is to highlight the value of the assets on a long term basis as well as attach the value to intangible assets. We expect this value to be a much better proxy for the overall business of Vonovia and hence our share price.
Because we have been arguing for a while now not only that the granular operating business like ours is more than just bricks and mortar, but also that actual cash flows are substantially higher than what is included in the portfolio valuation. To Page 17 and the LTV. Our LTV at the end of 2019 was 43.1 percent, basis points higher than at the end of 2018 and well within our target corridor. I'm, of course, aware that different market participants have different LTV comfort zones. We continue to argue that even after yield compression we have seen, the in place value of our portfolio remains conservative, if you not only look at transaction prices, but also replacement value.
And we really do not see a scenario in which these values would come under material pressure. So at this point, we believe our target range of 40% to 45% still gives investors enough of a security buffer, while at the same time not putting an undue burden on our equity yields. So we continue to feel very comfortable at that level, especially if we include the roundabout 8 year duration of our debt and the fact that 96% are fixed or hedged. Many of you also look at debt to EBITDA in addition to LTV, so do we. When you take our total EBITDA over the last 12 months and put it in relation to the average net debt over the same period, we are at 11 point 5 times, which to us is a sensible level if you look at the stability of the cash flows.
And finally, I said it in our last earnings call and I'll say it again today, the Hemla acquisition is fully financed. We used the capital increase in May last year for the equity portion, and we Page 18, a bit more color on the capital structure and debt instruments. The interest cover ratio is now 4.9 times and thus very healthy above the minimum levels required in some of our debt instruments. Almost all our debt is fixed or hedged, so any interest rate increase would affect our numbers only slowly as no more than 12% of the total debt becomes due in any given year because of the smooth maturity profile. And thanks to the robust top line growth, there's plenty of interest rate increases we can absorb before we feel any pain on our earnings or dividend capacity.
I want to point out that the average cost of debt per year end 2019 has come down to 1.5%. And even more importantly, we now have a second rating. Europe's leading rating agency, SCOPE, gave us an A- at the end of the year. You may have noticed that the weighted average maturity went from 8.4 years at the end of September to now 7.9 years. The reason is the inclusion of Hembla.
We are currently looking at Hembla's financing structure, which is a little bit shorter than the Vonovia one, and are analyzing potential opportunities to refinance some of the secured loans on a group level. To give you some color on the incremental financing costs, our current coupon for 8 year unsecured bonds would be roughly around 50 basis points. Back to Rob.
And with this, I continue to give an update on Sweden on Page 19. I would like to start to repeat our main goal. We want to show that Vonovia's business model for a scalable operating platform and efficiencies can be replicated in a similar market and that over time, the KPIs in Sweden will develop comparable to what we have done in Germany. This is the main point. And we are well underway.
We own now more than 90% of HEMBLA. We have delisted the HEMBLA shares and all these technicalities. But given that we have done this several times before, you can be sure that we will deliver this just as we have delivered in the past. 2020 will then be mainly about harmonizing the systems we use in Sweden and building a common platform to serve as a basis for further growth. All this is well on track, and we do not see any meaningful obstacles.
The business is performing well, and we see all our expectations met and in some cases, even exceeded. And finally, before we come to the guidance, a word on the burn in on Page 20. We have spent so much time on this in our last two earnings calls and all the individual meetings that I would like to be short this time. The Bernden Rand specific regulation became law on February 20 3, as announced. And in line with our earlier anticipation, both on the state levels as well of the federal level, we will expect a fast track court ruling, which, of course, the Norman controlled flager from the Deutsche Bundesag will be the most important, which will bring actually the court ruling directly in front of the Verfassen's grade in Karlsruhe.
We will take it will take lawmakers a few weeks to actually file the suits with the court, but we are optimistic that this will happen very soon. Speaking of processes, we have implemented a process to make sure that each and every one of our tenants in Berlin received the requested letter from us informing him or her about the rental level under the new legislation. As we have said before, we think that the rent freeze is the wrong instrument that we will make which will make a very real problem actually worse. But we will we still stick completely to the rules. I am happy to reiterate what I have said before.
We continue to believe that the spillover risk into other jurisdictions is extremely low. We consider this to remain a Berlin specific situation, which will not be copied by other states and turned out to be at least largely unconstitutional.
So with that, the guidance. On Page 21, you can see the guidance for next year this year, which is unchanged from our November 2019 presentation, except for the rent growth line item. We now know that the rent reduction in Berlin, down to 120% of the rent ceiling, Obergrensen, will have to be implemented by landlords and not only at the request of tenants, as suggested in the pre final draft bill. The time to do this is 9 months after the implementation of the law, so we're looking at November and hence before the end of this year. As we have said before, this is a one off effect of approximately 50 basis points, which would take what is otherwise approximately 4% guidance down to approximately 3.5%, including this impact.
The rest is, as I said, unchanged from what we showed you last November.
Before we get to the Q and A, let me quickly summarize the main points on Page 22. But allow me to do a sidestep and allow me to do a sidestep on very on one very specific topic of this day. We have all seen the speed of which the coronavirus has been spreading and the consequences we are all responsibly. As an employer of more than 10,000 people, we have we take the potential threat very serious. We are in contact with authorities to be sure we react appropriate if there is a need.
We have taken the necessary From the business point of view, I would like to say it's obvious. We are not impacted by the coronavirus. There are no meaningful supply chains that can be disrupted. There is no facility that could be closed down and cause a revenue problem. And most important, there is no risk that demand for our product is going down.
It is no surprise when markets undergo a correction that individual stocks will find it almost impossible to escape. But if you stop and think about the actual impact of the coronavirus on our business, you will quickly see that there isn't really an impact. Each of our 4 segments continue to perform strongly, and we are confident not only with regards of 2020 guidance but also on the longer term. As I said in the beginning, the megatrends that drive our business are a challenge and an opportunity at the same time. We are fully committed to be part of the solution, and we are optimistic that this will enable us to continue
our
and it has also enabled us to mitigate much of the political and regulatory influence. And finally, we are convinced that our efforts in stakeholder reconciliation and ESG are crucial for our long term success. And with this, I let you to ask your questions.
And the first question is from Jonathan Collinader of Goldman Sachs. Your line is now open. Please go ahead.
Good afternoon. Thanks for the presentation. I have four questions, if I may, please. The first one, which is quite a broad question actually is, given the political debate nationally around the rent freeze, can you please help us understand how this debate has moved on over the last 3 months? And if there are wider discussions about what would be actually the solution to improve the housing market?
So that's the first question. And as a corollary to that, I'd be very interested to understand how you're looking at your development strategy at this stage. I mean, obviously, you argue that this is part of the solution, but it seems you've substantially increased your pipeline, you've bought a developer. So can you please help us understand your ambitions there and how you can perhaps accelerate if that's what you want to do this strategy?
Sorry, can we question by question because otherwise I will forget the first question. I will not respond.
All right. So,
take a couple of questions and then you will start the next one. Sure. So, I think the political debate have not massively changed. So I think now we are in a period where the law is active in Vernon. So everybody is now waiting for the constitutional court.
This might take 18 to 24 months. So I don't expect any meaningful and an additional, as I said, other lender in Germany to follow. In Berlin, I think the government gets aware that they started a mess, which will most probably will end up in a bigger mess. But this is now too late. So I think we have to see now what will happen.
So there is no massive political debate anymore about this topic because this is law and it's done and that is what we will see. It's still to repeat, the left party in Berlin still wants to do the nationalization. So this comes up again, but this is only the left party, the Social Democrat Party and the Green Party explicitly say that they are against the nationalization. So did the mayor with whom I talked on Friday. So for the development, we believe and this has also an ESG element.
By the way, to do development, we earn EBITDA, and it's a very attractive business. Strategically, the development business for us is also the possibility to show that we are constructing new apartments and solving some problems. So we earn money with this. We are getting support from the government, and this is all over very important for our ESG strategy. By developing the apartments to hold, we are not massively from 1 year to the other changes in the portfolio because just of the size of business which we are building.
But slightly, we are generating additional EBITDA. But the development to hold cannot replace bigger portfolio acquisitions in our strategy.
Okay, sure. And so you said that you had previously a sort of target of 2,000 units perhaps per annum, but now you have a land bank, which is around 40,000 units. So 20 years of that if you keep your target. Do you have a plan to potentially increase that target of 2,000 a year? And if so, how that would work?
So definitely, and again, this is not too much driven by the FFO, but this is more driven by the pressure we get. So yes, we would like to increase the speed of building new apartments. We still have to overcome the normal hurdles, which are construction permissions and construction capacity. That's why we are in the moment with the 2000s. But of course, our ambition is to do more in the future.
But this is not completely in our hands. It is more in the hands of the construction permission departments of the municipalities.
And that was perhaps also the aim of my first question is, are you seeing the political debate evolving towards what could actually be the solution if the freeze is not the solution? And does that make the political class a more aware of those planning constraints and that they should actually solve?
I think the political class is well aware about the constraints. The constraints are mainly on the municipality level. And the debate about the rental regulation is more German or lender wide debate. So you know the municipality has no right to do any regulation on rent. So yes, actually, everything is said, everything is understood.
Unfortunately, and allow me to remark, like in some other cases, Germany at the moment is not able to take the necessary decisions. Fair enough.
Perhaps the 2 additional questions then. In Services, so you said that you've beaten your targets of EUR 20,000,000 per increase. And obviously, you're continuing to grow. You're continuing to develop new services. You rolled up a new app.
Should there be a new target
that we should think about in the next exceptional year? $20,000,000 And I think we had made a little bit more this year. It might be also even in a year where we probably do a little bit more initial investments and it can be a little bit lower. So €20,000,000 is a good target.
All right. Fair enough. And sorry, last question. Can you comment perhaps a bit on valuations in Berlin? Obviously, your values were up 11%.
But if you can provide a bit of color on the
environment, that would be helpful. Thank you.
So what we've seen in Berlin is that the valuations were flattish after the announcement of the rental cap. We've seen that valuations in the outer level of Berlin, so which is not Berlin City, is going up and now really reaching Berlin levels. I think what I find really interesting is that the valuation for individual flats in Berlin is rising strongly, showing that already you can see people being pushed out of the rental market into needing to buy properties.
Thank you very much.
And the next question is from Charles Brasseur, UBS. Your line is now open. Please go ahead.
Yes. Hi, good afternoon. Thank you for taking my questions. I have three questions. The first one is just on the guidance where you mentioned 3.5% to 4%.
So at 9 months, you were pointing to 4% without the impact of the rent reduction back to the ceiling. And then you were pointing to 50 basis points, so that would bring to 3.5%. Now because the law is that the landlord have to automatically decrease or notify the tenant of the potential for decrease of rent, Why is the guidance 3.5% to 4% as opposed to 3.5% do you have additional elements? Or is it just that you're making assessment of the potential and you're still assessing how much the rents could be close back to the $1,200,000,000 Yes, okay.
I'll take this one first. So let me just walk this through because I saw there's some confusions in the questions. So everything being equal, we would expect rent growth of around 4%.
Yes.
That is actually totally unchanged from our previous reporting.
Yes.
However, given we have the Berlin specific rent freeze, which was adopted in February 23, We now know that this one off, onetime reduction of rents will come in November. And that's, as you correctly point out, 50 basis points. Now it's not certain that the new law will be in place November this year because as Ralf already pointed out, we have a number of legislative initiatives that could maybe lead to the law being turned over before this November date. So as a result, we're sort of like not too sure whether it's those 3.5% or 4%. It just sort of depends on how this is now panning out.
But important, for 2021 beyond, we would obviously not have this one off effect and would be back to our expected 4% growth rate.
Okay. That's clear. So the spread of the 50 basis point adjustment is the potential success of the parties applying for the normal control challenge in core?
Yes, that's exactly how it is.
So but still keep
in mind what I have said, that we think the probability to be also clear about probabilities that the normal control plan will be ruled out until November is very low. So that's where we are playing as open as we can. We are saying results will be in effect. It is more visible and effect becomes 3.5. But this is a Okay.
So it's very easy. We should make guidance in those parameters and that's why it is very obvious. It didn't want to the market. There's no change. There's also because I have seen some comments that are saying now that we have decreased the rental guidance.
This is not the case. This is a onetime effect, which was onetime included in Berlin or is not included and this depends on the regulation.
Sure. Very clear. And then you mentioned acquiring a small developer and you said nothing to write about it. Can we just ask what pricing are you paying for? So I'm just thinking in terms of EBITDA multiple or price per square meter or however you looked at it.
So we are doing this kind of acquisitions and an IRR criteria, but I have to tell you openly that the amount we paid was below the improvement level on our supervisory board. So this was not a big deal. That's why Helena said it's not necessary to write home about. In this case, it means home meets our supervisory board. So we are really this is a small deal, but we have agreed not to disclose the price, but this has nothing massively and
we will not
Okay, sure.
And that we have access to the Frankfurt region because the Frankfurt region is also a very hot region where I think there's a lot of demand and where you can have very nice development business. So this is more so.
Okay. And then just would you anticipate obviously, the developer market in Germany is extremely fragmented. Do you anticipate to potentially maybe not consolidate because that could be a strong world here, but acquire more and play that market a little bit more?
No. What is also clear, we are and this was also the case in the small acquisition. We are not paying more than the value of the development project. So we are not paying a strategic premium for developer, to be very clear. And with this policy, you cannot consolidate the development market today because every developer expects a premium, except for the situation where somebody was old, wants to give the business in good hands.
So we probably better get the business because we are in good hands and not because we paid the full price. So to be very clear, in this case, we would anticipate, especially if we open a new region, but we are not on the way to consolidate the development market.
Very clear. And then you often mentioned the screw risk in German, is it not sure regulation, the rates, reputation, obviously, regulation. We know very well about, right, probably less of an issue. Just on the reputation points, you often in the past the customer satisfaction index. And then in your annual report, it's down for the 2nd consecutive year by a larger extent.
I think in the annual report, you mentioned you will investigate the exact reason for the decline. But just wondering if you would potentially soften the rent increases or do any measure to work on that customer satisfaction metric? Or do you anticipate that there is no particular financial impact in pulling it back to its higher historical level? And I think also that index is part of your long term comp plan. Just wanted to check at that point.
So that's why it hurts. That's why it hurts. No, of course, we have and but this we have not disclosed in the annual report. Of course, we have a much deeper analysis. And you can see, and this is not a surprise, that there is a direct relationship between reporting in the press about the residential markets.
So it's not necessarily about Vonovia, but even for example about Deutsche Bohn or LAG. And there's a direct relationship between this reporting, narrative reporting and the CSI. You can follow the lines. So we are impacted by the CSI not only by the satisfaction of our tenants with our caretakers and with our services, but also the overall impact on Germans looking on the industry. So yes, this is the main factor, which we can distinguish.
So that's why I think this is a clear understanding. I think it is right that it hurts because we think that it is also our task to make sure that is the industry and not only Vonovia, but the Vonovia and the industry is well respected in Germany. And that's why it's good that it hurts and we have to improve it. But it we cannot solve it by increase of rent because if you look on the figures, actually, Vonovia is not driving the rent in Germany. So we have a very modest renting policy.
So the origin is not the rent level.
Okay. Thank you.
And the next question is from Kai Klusz, Berenberg. Your line is now open. Please go ahead.
Yes, hello. Good afternoon. I've got three questions. The first one, I saw in the press release that the modernization volume was about 4% of the portfolio after 5% in the last year. Could you indicate what would be the rough volume here for 2020?
Second question would be talking to the NAV of 1865 per square meter. Do you have an idea what was the change Sorry,
can we do question after question? Sure. I think, yes, you are right. We are coming down from 5% to 4%, which is still massively above the market because the market has 1%. So but of course, this is a consequence of the regulation, the new regulation in 2018.
So the cap of €2,000,000 3, which is of course has an impact on our modernization. So in 2020, we will have an issue because modernization in potential for modernization. But we still stick with the target our target on the long term is above 3% modernization rate. So it will be in the corridor of between 3% 4% also in the next
single year.
Great. Thank you. Second question would be on the NAV on Page 13. We had 1865 per square meter. Could you indicate, if you have the numbers, how much the value the land value has picked up?
Just as in the year and what's the composition between properties and land value and land value changes?
So unfortunately, no, we can't split out these numbers. But I think it's rough to say it's roughly a third, 2 thirds land versus properties.
Okay. And then the last question on the debt expiry schedule. Could you indicate how you intend to extend the upcoming the upcoming debt? Will it mainly be on an unsecured basis or a mix of asset based mortgage based and unsecured? Unsecured?
I think you should know us by now. It's like we keep things very tactical and try to optimize for cheapness of funding. So don't know yet. It will be cheap. I can promise you that.
Thank you.
And the next question is from Thomas Meyhall, Kepler Cheuvreux. Your line is now open. Please go ahead.
Good afternoon. Thank you for taking my questions. I have a couple of follow-up questions. I would like to start with the Development business. The increase from 31,000 to 40000 units in the pipeline, which both is driven by acquisitions, Hembla and Penreas and which is done organically?
And where did you add the new apartments from a regional perspective?
I don't know. So actually, Hemla, of course, has nothing because we will need probably a few years before we start in Sweden real development business. And Ben Rees was after the closing, so that's why of course is not included. It was acquisition. We are constantly buying land in the moment.
I think every month we are taking a decision to buy a piece of land for the development. So this is normal increase of the pipeline, which was, I think, announced with the acquisition of BUWOG. So we are just doing what we have announced.
Okay. And from a regional perspective, any focus regions? Or is it a crop?
It's very simple. We are doing the 4 countries for the 4 cities, which is Hamburg, Berlin, Leipzig, Vienna and since yesterday Frankfurt.
Okay, understood. And can you give us an indication where construction costs are for the development of the whole portfolio versus the development to sell, which is I think at €4,500 per square meter and then what kind of roughly average rent level you're achieving with the new constructed apartments?
So I think you quoted the right figure. So to sell is 4,500. To rent is, of course, lower because this 4,500, you cannot get an appropriate rent return, which has also to do something with the land because you have an allocation of land, extra of the land cost more to sell apartments. So but this is a normal you deliver your normal real, but it's very difficult to say no. This is the ever trend because this is the first by project.
Okay. And the last question is on the value add business. You mentioned are confident to increase EBITDA contribution roughly $20,000,000 annually. Where do we stand in terms of ramp up of existing and new services? And for how many years you think you can add this $20,000,000 additional EBITDA?
So I would not say for the next 100 years, to be very clear. Not for the next 100 years, I think for the foreseeable future. I think in the moment in this field, we are working very much on the energy field because the energy is our key to succeed to get our buildings CO2 neutral by 2,050.
Because if
15 by 60% to 90%. So but there's still remaining 10% a little bit more than 10% of CO2 remaining open. So therefore, we have to develop new solutions. And that's why we are working on a CAT E close to here in Bochum to actually test different technologies, which in all cases combine electricity production and heating. You know heating is today a part of our business, electricity production is normally not.
To fulfill it, we have to become the electricity provider for our tenants. And that's why we are investing a lot. But of course, this is a challenge because we have to find solutions. But if we find the solutions, this is a big chance because then we are not talking only a part of the money tenants are spending for housing, but we are also talking about the part that the tenants are spending for electricity. And if you think a little bit longer, also for petrol stations.
So this has an enormous potential power out for our business. Of course, in the moment, as always, we do it step by step. So we are more in the research and development phase there. But that's why I'm very convinced that you will see us growing very long in this value add segment. But again, don't take the €20,000,000 year by year.
We have seen a year where it's a little bit more. It can also be in the next years where we have a year which is less. The €20,000,000 is a nice guidance.
Okay. Thank
And the next question
clear something up, the target of completions is without the developer interest, right?
Yes, that's the case. It's just such breaking news that is not included in our new guidance.
Okay. And can you already give us an indication on how much the target would be increased?
So in total, they have 2,500 apartments. Exactly how it breaks down over the years, I don't know, but just expect it to be roughly linear.
Okay, perfect. Because I noticed that the target has decreased significantly since in the last 6 months. Is that purely due to the permits? Or is it also just a scarcity of craftsmen, of construction? Or what's caused that?
Yes. In general, it's the permits are an issue like before, and the availability of construction capacity in all fields is an issue as well. So but also looking on quarters, by achieving the target is tricky because construction is a longer period business.
Okay. Thank you. And then last question is on the revaluations. Correct me if I'm wrong, but on the normally the half year figures you revalued 2 thirds of the portfolio and then on the full year, it's the complete portfolio. So in the last years, we've always seen that revaluations that the full year figures were higher than the half year, but I noticed that this year they were lower.
Is there a is it Berlin driven or
But this is clear. And Linda said it, it's Berlin only effect because we see no valuation uplift in Berlin and Berlin is a significant source of a was a significant source of value uplift.
Actually, if you exclude Berlin from the valuation, you have exactly the same levels than you had last year.
Okay. But because you mentioned that in the next half year, do you expect some same absolute level? Do you expect Berlin resilience to increase a bit then again or?
No, we do. So again, a, we said like we're pretty optimistic about the next half year. We didn't say anything like we expect the same level. So a, that and Berlin, as long as the rent ceiling is in place, we expect it to be roughly flat. It's pretty unlikely that you will see a massive uplift.
But let's see what happens. Okay. It's uncharted territory.
Okay. Thank you very much.
There are currently no further questions. So I'll hand back to the speakers for closing remarks.
Thanks, everyone, for joining. As a reminder, our Q1 2020 results will come out on May 5. Until then, we'll be engaging quite a bit. Our financial calendar on Page 30 of today's presentation shows our planned activities and the most up to date version of it is always on our IR website. With regards to the roadshow meetings tomorrow or next week, we have taken the decision to turn them into a virtual roadshow.
We do not want to be overly cautious, but conversations we've had with the sell side and the buy side over the last few days suggest that this was simply the prudent thing to do at this point in order to avoid any potential problem, plain and simple. So for all the meetings we scheduled, we're looking forward to connecting with you by video or audio conference calls. As always, feel free to reach out to me or the team with any questions or comments you may have, and we're looking forward to staying in touch. That's it from us today. Have a good day.
Bye bye.
Thank you very much.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.