Welcome to our earnings call for the first nine months of 2020. Your hosts today are once again, CEO Rolf Buch and CFO Helene von Roeder. We're in different locations today, so bear with us in case we have slight delays, especially in the Q&A. I assume you've all had a chance to download the nine months presentation.
In case you have not, please go to our website and you'll find it under latest publications. In case you're wondering, we have merged the earnings call presentation with the more general investor presentation to have one document for different events and situations over the next weeks when we engage. Relevant today is primarily part one. Rolf and Helene will lead you through this first part, the results presentation, on the basis of the agenda on page three, and of course, we'll be happy to answer your questions afterwards. Let's get started then with the highlights, and for that, I'm handing it over to you, Rolf.
Thank you, Rene, and also a warm welcome from my side. You hopefully will be not surprised when I tell you that the nine months result are a stable continuation of the first six months, with really no big surprises. We keep running a very predictable business, where things do not change very much from one quarter to the next. While we are reporting these numbers as per the end of September, I can tell you that even in the light of the increasing COVID-19 concerns, this will not change. Now let's go on page four, over to highlights. Organic rent growth was up 3.6% year-on-year, which was a little bit down in comparison to last year's same period. EBITDA total was up by 7%. Group FFO increased by almost 9%.
This is EUR 1.80 per share, which is almost up by 5% based on the higher numbers of shares because we had a capital increase in the period. No big changes in the adjusted NAV in Q3 because there was no valuation for Q3. We are now at EUR 55.41. We also will give you a look ahead on the H2 valuation, and we expect an overall value growth for the full year between EUR 4.6 billion-EUR 5.2 billion, which is almost between 9% and 10%. The adjusted NAV of the end of the year will be well above EUR 59 per share. The LTV is at the lower end of the range with 40.6%. If you include the perpetual hybrid, it is 42.4%. net debt- to- EBITDA is 12.1x.
We have been making good progress on sustainability. Part of this presentation will be to show you what we have been doing. More on this later. Our final guidance for 2020 sees us in an unchanged EBITDA range, like the guidance, and around the upper end of the group FFO range. The phrase is a little bit misleading. Helene will tell you that this upper end of range around the upper end can be even above the upper end. Keep in mind, in a period of COVID-19, we as a company are happy not to increase our guidance. That's why this phase is done. Also to show you our strong position, we will propose a dividend of EUR 1.69 of the next AGM, which is a little bit more than the 70% normal payout ratio if you put it on the corridor.
This will also make up a bit for the dilution from the capital increase in September. Our initial guidance for 2021 is expect an EBITDA growth of around EUR 100 million. We estimate the group FFO growth rate in line with what we have initially guided in prior years, so standard dividend payment will be again 70%. You will notice that we added to the guidance a total segment revenue. This number reflects the full growth across our four segments. More on that will come later by Helene on the guidance detail. With this, I hand over to Helene.
Hi from me, and looking at page five. Primarily because of Hembla, our average portfolio during the reporting period was about 5% larger than last year. On that basis, we grew the total EBITDA by 7.6% and the FFO by 8.9%. Per end of period shares, which is our main view because that is the relevant number for the dividend, the group FFO grew by 4.7% as the number of outstanding shares grew by more than 4% based on our scrip dividend and the capital increase in September. I know that a lot of you prefer to look at average shares. On that definition, the group FFO was up almost 6%. Let's talk about individual segments and start with the rental segment on page six.
Rental income increased by 11.8% or EUR 180 million, of which EUR 135 million came from Hembla and the remainder from organic growth by way of rent increase and vacancy loss reduction. Maintenance expense were EUR 234.9 million, very similar to last year. As I explained in previous calls, operating expenses were impacted largely by what I would call the Sweden effect. Because Sweden does not distinguish between net cold rent and auxiliary expenses, both the rental income and the operating expenses include auxiliary costs. Rough math suggests it is about EUR 75 million for the nine months 2020 and about EUR 13 million for the nine months last year. Page seven shows the main operating KPIs for the rental segment. Organic rent growth was 3.6% year-on-year, of which 0.8% came from the market, 2.2% from modernization, and 0.6% from new construction.
Given the low level of inflation, the Mietpreisbremse, various Mietspiegel coming out a bit lower, and so on, we were not really surprised to see market rent growth on the softer side. Vacancy, however, is down 30 basis points, and that is a result of three things. Fluctuation has been trending down. Demand for our product remains at elevated levels, and our team is performing extremely well, especially in the COVID-19 environment, where we often cannot do mass viewing, but have to show apartments individually and partially digitally. Maintenance expenses per square meter were basically in line with last year. Capitalized maintenance was higher than last year, as we've been carrying out some larger maintenance work that accounting wise do not go through the P&L. With that, back to Rolf.
Okay. Thank you. Let's move to page eight, to the value add segment. As you can see, the EBITDA came out a little bit lower than last year. There's a couple of reasons. On one hand, we are continuing to do well by expanding the value add initiatives, more multimedia supplied to tenants, more residential environmental service with our own staff, and more smart metering for customers, and energy being supplied to the delivery points. However, this was not enough to compensate three other effects. First of all, COVID-19 slowed us down on the investment side and led to less internal revenues, and therefore less value creation through our own workforce. As we said in the H1 call, extremely mild winter means that there was basically no business in the residential environmental service in terms of shoveling snow and de-icing sidewalks. The third reason is a technical one.
We have reclassified EUR 5.3 million of external income to the rental segment because this makes it just more easy. The prior year numbers are not adjusted for this effect because we decided that in the scheme of things, these numbers were too small to make a formal restatement that would have impacted almost the full set of numbers. I'm happy to repeat that for the full year, I'm very optimistic that the 2020 EBITDA for value add will be higher than in 2019, clearly showing that this part of the business also continue to be a cost machine. With this, back to Helene. Oh, no, sorry. I always have to tell you about the sales segment as well on page nine. We sold 1,803 individual apartments for a cost proceed of EUR 296 million.
The fair value step-up was 40.1% on average and well above our guidance and our new target of 30%. Similar volume, but higher proceeds and fair values. To us, this is evident of an unchanged positive market sentiment. The demand for condo units is unbroken, and that is a strong indication for the overall underlying market fundamentals. You will see this trend more precisely when Helene shows you the valuation outlook for H2.
With that, finally on to the Development segment on page 10. This segment includes all new constructions of apartments by way of entirely new buildings, it does include additions of floors on existing buildings. Income from to-sell development was down 7%, which just demonstrates that this part of our business is a little bit more volatile than the rest. It's no big deal, especially when you look at development to hold, where we had quite an increase. What you see here is a bit of a shift towards a higher share to hold, particularly in Austria, in order to ensure tomorrow's rental income. The bottom line, adjusted EBITDA was EUR 68.8 million in nine months 2020, which is up 11% year-on-year. Page 11 gives you more color on our construction pipeline and our completion.
We built 1,056 apartments to hold for our own portfolio in the first nine months of 2020, and another 381 apartments to sell. In our construction to hold, we've currently identified potential for about 40,000 apartments based on the short, medium, and long-term opportunities across our portfolio today. For 2020, we still expect to deliver around 1,300 apartments in total. The development to sell part is a useful addition for the to-hold developments. As I've explained before, we often rely on the higher margins from the to-sell projects to cross-finance the land costs and make the to-hold developments more economically feasible. The pipeline to sell includes approximately 9,000 apartments. Our target for this year is now to complete more than 500 apartments to sell. Let's move on to page 12 for the net adjusted value. Without a valuation in Q3, things did not change much compared to Q2.
We did, however, pay the dividend, including the approximately 40% scrip element, and we had the capital increase in September, which we did at a more than 7% premium to adjusted NAV. Including all impacts, the adjusted NAV at the end of September was EUR 55.41 per share. This is up 6.7% since the end of last year and 1.3% since Q2. What is probably more interesting for you, though, is a first glance of what we expect in terms of valuation for the end of the year. For that, let's now go to the next page. After our H1 valuation with the 5.6% value growth on the 2/3 of the portfolio that we revalued, we are expecting for the full portfolio valuation at the end of the year an additional value growth between EUR 2.3 billion and EUR 2.9 billion.
That would bring the total value growth for 2020 to between EUR 4.6 billion and EUR 5.2 billion. The upper end would be pretty similar to 2019. For those that like to do math, it is well above approximately a net adjusted value of EUR 59 per share. Unchanged from what we said in our H1 call in August, we continue to see no material negative impact from COVID-19, and our estimates for the year end are based on the assumption that this will not change. The value appreciation comes across all of our markets, with the exception of Berlin, which keeps lagging for obvious reasons. Even in Berlin, we are currently seeing a small value growth. We've looked at value growth from yield compression for our German portfolio, excluding Berlin over time. That is actually the chart on the lower left-hand side. That is quite interesting, we find.
We've been seeing a clear trend of substantial yield compression, but with declining momentum since 2016. For 2020, however, this trend appears to reverse, and we estimate the value growth from yield compression for our German portfolio, excluding Berlin, will actually be higher than last year. I would not want to call this probably a reversal of a trend, but it is remarkable nonetheless. While we can make no statement for 2021 or beyond, it appears reasonable to believe that value growth from yield compression will not all of a sudden fall from a cliff. With that, to page 14 and the LTV. Our LTV at the end of September was 40.6%, but the more relevant number by now is probably the LTV, including the perpetual hybrid, and that number is 42.4%, so in the middle of our target corridor.
We continue to believe that a range between 40% and 45% is the right level for us, especially if we include the roundabout eight-year duration for our debt and the fact that 99% of our debt are hedged or fixed. The net debt- to- EBITDA multiple was 12.1x. Similar to H1, this is a bit elevated from the end of last year, but we still think it's at a reasonable level, especially if you consider that this number already includes the full debt but not the full EBITDA potential, which is normal in a growing business. We continue to sleep well with this number. A bit more color on the debt instruments. The ratings are unchanged with BBB+ and an excellent business risk profile from S&P and an A- rating from Scope.
Between the triangle of LTV, fixed or net debt ratio, and the weighted average maturity, I think we're striking a good balance. The 1.4% average cost of debt compares to a weighted average of a little of 0.8% for the two EUR 750 million bonds we issued in July. Looking at current financing costs, we think that refinancing conditions for secured as well as unsecured instruments are currently even more than attractive than what we saw in July.
We've added the bond covenants to this page, and you see that there's ample room between where we're at and where we do not want to be. The red bar in the maturity profile on the bottom represents the perpetual or equity hybrid. After our CMD in September, we basically consider it as resolved. It is pretty safe to expect us to take it out with plain debt at the call date in Q4 2021, so that EUR 1 billion piece will be distributed one way or another nicely to fit smoothly into the schedule. With that, back over to Rolf.
We have made good progress on sustainability, and on page 16, I want to use opportunity to give you an overview. There is much more detail in the second part of the presentation on page 36- 43. We are happy to see that the progress we have made is increasingly recognized in the different ESG ratings, where we have scored better than last sessions. Additional recognitions come from our inclusion in most of the leading ESG indices. We have also identified eight United Nations Sustainable Development Goals that we believe are material for our business and where our actions can have the most positive impact. We are particularly proud to be one of the first real estate companies that has defined a binding climate path, and I will explain it on the next page.
Before we go there, however, I would like to add to the sustainability news flow that we have successfully hosted the Vonovia Climate Conference, where we brought together lawmakers, scientists, and laid our view as to what is required to make residential real estate carbon neutral. We are also in the process of developing a Sustainability Performance Index for Vonovia, which will be implemented in our management system alongside the financial and performance KPIs. This will be another big step in our commitment toward sustainability and also reporting about our sustainability's efforts. Finally, I have mentioned on previous locations, we are moving along nicely in our Energy Innovation Center in Bochum, Weitmar, which we hope to show you at the next Capital Markets Day if the crisis is coming to a better situation.
On page 17, it is the climate path for Vonovia, which we have to define together with the well-known Fraunhofer Institute. This is now the new guidelines for us, where we need to be, at what point in time, with regard of CO2 emissions in our portfolio. The top- line of the chart is the path that Germany is currently based on, based on an average 1% national modernization rate. The second line is a path based on Vonovia's modernization rate of around 3%. Quite a bit better, but clearly not good enough. To achieve the targets of Paris CO2 emissions, we are looking at three scenarios. The base case was continue to do what we are doing today, but with an increased modernization depth as demanded by the European Union. However, that alone will be not good enough, as you can see in this slide.
The hybrid case includes a more modernization depth, as I have described before, plus gas condensing, plus solar technology. Even that takes us too little more than 50% of where we are today, and it will not be sufficient. The only strategy we see to get into the target zone of the carbon neutral portfolio is to do intensified modernization, as in the cases before, and to establish a clean district heating, including sector coupling and renewable energy via heat pumps and photovoltaic. Clearly, we are not ready to implement all of this yet today in the year 2020. Some regulation adjustments still needs to be made, and some technology concept still has to develop further. The target is now clear, and we know exactly what we have to work on and what we have to deliver.
While all of this already make perfect sense in the context of climate protection, there's also a financial reason to reduce the CO2 emissions in our portfolio. As you probably know, starting next year, Germany will collect a CO2 tax of initially only EUR 25 per ton of CO2. To put it in the context, our German portfolio emits around 1 million tons of CO2 per year. It is not yet clear how this tax will be split between landlords and tenants. Whatever the outcome will be, the less CO2 emissions are better. As the asset owner, we will be doing our part to reduce CO2 in our portfolio, and we believe that the energy efficiency of the buildings should be a further determination factor to define who is paying how much. With this, I hand over to Helene.
Okay, before we get to the guidance for 2020 and 2021, I would like to explain to you on page 18 one addition we have made. We have been guiding top- line growth on the basis of organic rent growth, in line with traditional real estate owners, and we will keep doing that. However, just like we've gone from FFO 1 to group FFO, we're seeing that organic rent growth alone is not sufficient to reflect the full top line growth across all segments that we manage. As a result, we will start to guide total segment revenue to capture Vonovia's full growth potential. Surely, that growth is relevant as it reflects the full value creation potential of the company and, at the end of the day, is the full top- line growth that covers costs and delivers EBITDA, FFO, and ultimately, dividend growth.
Finally, you now also have a starting point in addition to the EBITDA total and group FFO. On page 19, you see our final guidance for 2020. The new line item here is the total segment revenue I explained on the last page. Here, we expect to see around EUR 300 million more than last year. Rental income guidance is unchanged from Q2, and we had to take organic rent growth down a notch to now approximately 3.1% to reflect the fact that some Mietspiegel have come out softer than anticipated, and fluctuation is still rather low. With certainty now that rents in Berlin will have to be reduced in November, we're no longer showing the range that as we know that we will reach the lower end of it.
For recurring sales, we're well underway in terms of volume, and we have increased fair value step-up expectations to now more than 35%. As Rolf said earlier, the condo market continues to perform really strongly. We've kept the guidance for the adjusted EBITDA total unchanged with a EUR 1.875-EUR 1.925 billion range. The group FFO is now estimated to be around the upper end of the range, which is still EUR 1.275-EUR 1.325. As Rene just pointed out, the range around the upper end of the guidance could be above or below as it is a range. We've decided to set the dividend already now, and we intend to propose EUR 1.69 to next year's AGM. You may have already noticed that this is slightly above the 70% payout ratio, which is on purpose to compensate a bit for the dilution from the capital increase.
Finally, the total investment in modernization and new construction to hold is expected to be around EUR 1.5 billion. On page 20, we have the initial guidance for 2021. I guess not everybody in this space is doing this so early, but we believe it is helpful to you, so we're keeping with our tradition here. Total segment revenue will grow from approximately EUR 4.4 billion to between EUR 4.9 billion and EUR 5.1 billion.
Rental income will grow to between EUR 2.3 billion and EUR 2.4 billion. We estimate organic rental growth to be approximately between 3% and 3.8%. Here, we have a range to reflect the Berlin situation. A ruling from the Federal Constitutional Court is now widely expected for Q2 next year. If the law is ruled constitutional, contrary to our expectation, we see ourselves at the lower end because there would be no rent growth again in Berlin.
If the rent-freeze is ruled unconstitutional, as widely anticipated, we expect to come out at the higher end of the range. For recurring sales, our guidance is in line with initial guidances of previous years, with approximately 2,500 units to be sold at an approximate fair value step-up of 30%. Obviously, this will come on the basis of higher fair value. Adjusted EBITDA total is estimated to grow EUR 100 million in the midpoint to EUR 1.975 billion-EUR 2.025 billion. Group FFO is expected to grow EUR 140 million in the midpoint to between EUR 1.415 billion and EUR 1.465 billion. You may have noticed that group FFO is growing stronger than the EBITDA, at least if you look at a midpoint-to-midpoint observation. The first thing is that you need to look at that we're guiding stronger FFO than EBITDA also for this year.
The other thing is that we had the capital increase, and we have raised a bond in order to replace some of the Swedish loans, which means that we have a positive effect coming through next year on the interest rates. The last one, we feel that it's a nice way to demonstrate again how we think about development to hold versus development to sell. As you have seen, we had stronger development to hold this year compared to to sell. We're expecting a slightly larger development to sell next year. As you know, in our EBITDA number, we include EBITDA from development to hold and EBITDA from development to sell. In our FFO, we are excluding the results coming from development to hold. Why?
The FFO number is a cash number, and if we have development to hold step-ups flowing through the EBITDA, that doesn't generate cash for Vonovia and hence is not flowing into the FFO. By just adjusting the mix between to sell and to hold, you can now have variations between the growth in EBITDA and the growth in FFO, which is what you're seeing through in our planning here. Our dividend policy is unchanged at approximately 70% of group FFO per share. Finally, we are going into 2021 with an unchanged expectation from last year for our investments to EUR 1.3 billion-EUR 1.6 billion. With that, back to Rolf.
Thank you, Helene. I just want to do a small wrap-up. Our business continues to perform very stable and fully in line with our expectations. Impact from COVID-19 remain marginal. The underlying market fundamentals are intact, and the environment in which we operate remains very favorable for us. We have made further progress on sustainability, including improved sustainability rankings and index inclusions. We have now a climate path, our Climate Conference, and a commitment of eight out of 17 SDGs. On the basis of all of this, we remain confident in our ability to continue to deliver growth as per our guidance for 2020 and 2021, as well as beyond. With this, I hand over back to Rene.
Thank you, Helene. Thank you, Rolf. I will give it right back to Alexandra to open up the Q&A, please.
The first question is from Charles Boissier of UBS. Your line is now open.
Yes, thank you. Good afternoon. I have three questions. The first one is, given that the Constitutional Court has rejected the complaint to suspend the rent reduction in Berlin last week, I just was wondering what your reading of this announcement is? Do you interpret it as a ruling on the formality so rent reductions can go ahead on 23rd of November, but without any read-across on the substance? On a related point, are you hearing that if the rent-freeze is invalidated, it could be only potentially a partial invalidation? Thank you.
To be very clear, I think I would see this as a formality. I don't want to go in legal impact here and discussions here, but it is a formality. If you go very much in detail, I think this has no prediction for the ruling in the next year. Please keep in mind, there's different reasons for people. I know that now the whole market anticipated that the full legislation in Berlin will be torn down. There's a lot of lawyers which are saying it partly can be also existing.
There's also very few lawyers who are saying it's completely constitutional. That's why there is still some room for surprises coming in the H1 next year. I just wanted to add this. For the values, I think what the market is doing today is more or less, the market is looking through the whole rental regulation in Berlin, and that's why they keep the market, the value stable.
Okay. Thank you. On the like-for-like in 2021, you said the range is for Berlin. The way I calculate the 80 basis points range is accounting maybe 50 basis points for the rent reduction component of the Mietendeckel reversing and then possibly, in term of the rent-freeze aspect, if it's ruled in Q2, it would be roughly maybe 3% like-for-like on roughly 10% of the portfolio. Time weighted, it would be perhaps 15 basis points. I just was wondering if there is another 15, 20 basis point for some other news, either Mietspiegel or anything else that justifying this wider than usual range.
Helene, should I do it or? Actually, to be very clear, part of it is commercial. The second part is that we will then, of course, will continue to do modernizations in Berlin. There's also a catch-up for the Mietspiegel because you know we have not increased rent after the next Mietspiegel. Then, of course, after the law will be reduced or will be gone, of course, we will use the rent increase, which we have not done in 2019. Does this answer your question?
Yes. Thank you very much. I have a final question. You mentioned the addition of another new KPI that looks beyond rental segment. Looking at your acquisition target, they are still on EBITDA rental yield. I was wondering if you would align your acquisition targets as well on these new KPIs that look beyond rental aspect. Thank you.
No. This is too much interpretation. We keep the acquisition targets as they are. This is just to give you a little bit more information, as Helene has explained, because we think that just the like-for-like rental growth is showing the success of one segment out of four segments, and that's why we think the overall, the new figure actually reflects that costs are in all four segments. This is the only reason. It has nothing to do with acquisitions.
Thank you.
The next question is from Sander Bunck of Barclays. Your line is now open.
Hi. Afternoon. I got two questions, please. The first one is something that Helene mentioned on the like-for-like rental growth for this year, in which you said that Mietspiegel impact had been lower than anticipated. Is it true that the Mietspiegel increases have been lower in 2020, not just from yourselves, by not increasing rents, but just more as a market development? What is the market development for Mietspiegel and how do you expect it going forward?
The other one is on page 17, in which you obviously make some very impressive targets with regards to ESG. Basically, the way I read into it is that quite a lot more CapEx needs to be spent on the portfolio in order to get to your target. How should we read into that and what kind of CapEx programs are you thinking about basically over the next years? Is it just a difference in mix in what you're currently spending?
Probably to the last one. We are happy, and you have seen us now investing EUR 1.3 billion-EUR 1.6 billion, which is more or less the money which we can afford year by year from our cash flow profile. I think we are happy to continue to invest exactly this. With this, we can deliver the growth and do additional investment. I think there is no change in the capital need. We just have to proceed the investment, and we have to shift a little bit the investment towards more energy production. That's why there's no impact.
Okay.
On your first question about Mietspiegel, you see that we are living in a very low inflation environment. Of course, as you know, a rent increase in Germany is not directly linked to inflation. Of course, a low inflation also impacted more or less the negotiation or the part which is definable by the politicians. It is much easier to come out with a strong mixed figure in an environment of high inflation than to come out with a mixed figure in an environment of low inflation. This probably is an explanation that the mixed figures are a little bit weaker in the moment, and I think this is also correct. I repeat myself, you cannot build a sustainable business on the assumption that in the long run, in your rental cost, you are well above of your inflation.
I precisely, on the organic rental cost for existing apartments, I exclude the modernization because there we are changing the product. The normal bread-and-butter rental cost for the long run cannot be massively beyond inflation, because then sitting tenants would have to spend more money every year, a higher percentage of their income for housing, and this is not sustainable.
Okay. That is very clear on the mixed figure, especially. Just one quick follow-up on that investment plan. You say that basically you can live with the EUR 1.3, EUR 1.6 billion going forward. What about the return mix? Do you expect as a result of shifting that CapEx mix a change to your return profile that you're receiving on that CapEx? Or do you expect that to remain broadly similar compared to what it is now?
For assumption for your model, broadly similar is, I think, a good assumption. What actually happens is what we call fuel switch. We are replacing traditional gas by more clean heating, which comes in with high subsidies, but it's relatively low investment because it's heating system only. It's not a massive investment which we have to do the building. This is more or less unchanged.
Okay, perfect. Thanks very much, guys.
The next question is from Jaap Kuin of Kempen. Your line is now open.
Yeah. Hi, thanks. First one on the valuation gains and leverage and the way you think about things going forward. Obviously, gains are above expectation for this year. You already hinted on likely, I'm not sure what your words were, but that this should probably continue into next year. Looking at your LTV and your net debt- to- EBITDA, I think you already started posting both numbers next to each other, signaling a higher importance for net debt- to- EBITDA. With a declining LTV and faster than your net debt- to- EBITDA, based on these valuations, are you going to prioritize net debt- to- EBITDA in your decision-making and in your spending? How should we view that strategy, let's say, into the next two, three years?
Helene, this is for you.
Sorry, I was on mute. You are indeed right. With a rising yield compression, you also need to look at the cash conversion of the assets. At some point, and I'm not saying it's in the next two to three years, but at some point, LTV becomes a tricky measure because you simply don't have enough revenue generation to cover your debt levels. At the moment, I'm looking at the range around net debt EBITDA, and I'm looking at both numbers equally. It's not trending too far apart yet, but it's something that we have a watchful eye out. I think that's the way to think about it.
All right. Sure. On the CO2 tax, if I listen correctly, then your potential maximum hit is EUR 25 million if you have to pay for all of it. Is that already in your guidance, or did you somehow counter that already?
No.
Sorry, Rolf, go ahead.
No. No is right. I could not say it better. To give you a little bit more explanation and more flavor on it. Normally, the CO2 tax is something which we will pass on to the tenants. With the existing law, it will be passed to the 100% to the tenants. There is some debate in the moment in Germany, if a part of this should be paid by the landlord. This is completely open, and that's why we do not have any estimate how it is distributed. Anyhow, this is our mark. To reduce CO2 is a good thing because even if the tenant pays directly and 100%, actually, if we help him to reduce CO2, the value of the building is increasing. I think it's open, and that's why we cannot include it in the guidance.
What is probably more important is this fact is the EUR 25 is the starting point. There will be an increase in the CO2 tax in the next years, which is predefined, I think, until 2025, so 2025. After 2025, the system will be an open system like the CO2 emission trading model. Which can have actually a massive impact on the cost of CO2 for the buildings. The EUR 25 for us is only amount of money which is still in the guidance corridor. By 2025, this can be much more important. That's why we think it is now time to reduce CO2 emissions. That's why we are so happy that we are well advanced in comparison also to some of our peers of the CO2 emission targets and what we have achieved in the last years. To have efficient buildings is something which is helpful in the future.
Great. Thanks. Maybe my final question. I think it's, like you indicate, pretty helpful politically not to hike your guidance. I can see basically FFO probably comfortably be around or even at the high end, over the high end of your range. Actually the organic growth is at the low end. Even just undershooting a bit what you said at the start of the year. In that kind of bifurcation, did the kind of surprise come from finance only, or were there other positive one-offs?
I think that's why we show you the overall revenues and new figures. If you are looking on the like- for- like, you are excluding completely our development business, you are completely excluding our recurring sales business. That's why we include, I think, gave you the overall revenue figure because this gives you a good feeling what the company is really going on. Thank you very much for the question. It's a very good question. The reason is, of course, as Helene explained, there are some positive impact from financing, but there is definitely positive impact from growth of the whole business, which is not like-for-like rental growth.
All right. I will take another look at page 18. Thanks.
The next question is from Jonathan Kownator of Goldman Sachs. Your line is now open.
Good afternoon. Thank you for taking my question. Two questions if I may. One on acquisitions, if you can give us an update. You mentioned you were looking at smaller scale acquisitions in the past, any evolution there? Second question is to go back to your investments. You're still guiding to EUR 1.3-EUR 1.6 going forward. Obviously, arguably, your leverage is going to come down, at least from an LTV perspective, thanks to those revaluation gains you're pointing to this year and next year as well. Does that mean that ultimately you could probably potentially do more than EUR 1.6, particularly in light of the fact you've done EUR 1.5 this year with COVID, which has been a slowing factor? Are you perhaps having a bit more visibility at this stage on any subsidies coming from either Germany or EU on your sustainability investments and energy in particular? Thank you.
For the subsidies, actually, I start with the third question. As for the subsidies, we are fighting hard. Actually, there's a lot of subsidies out already for this type of business, but there's still a problem for us to get the subsidies because this is unfair competition trading in the EU, and we are lobbying at the moment. The EU cannot push on one hand a subsidy system forward and then say we cannot give it to companies because unfair trading subsidies. I think there is a high willingness in the Commission to change it, but this has to be changed and of course this would help us enormously. For example, finding new modern energy providing systems which are highly subsidized. The second was investment. I think it is fine to assume that EUR 1.3-EUR 1.6 is a good corridor.
I would not go to speculate of a spending of more than EUR 1.6. Keep in mind that this is not only a question of availability of funds, but also availability of craftsmen, availability of management, and we are fine with our climate path. It doesn't help us if we go too fast, because we also have to wait probably for some technology development which occur in the next five or 10 years. That's why I think we are now on a clear path and this is a good path for us.
Sorry if I may interrupt you. On this EUR 1.3-EUR 1.6, will that be enough to meet your accelerated path? Does this mean that there's other investments that you won't be able to make effectively?
No, as I said before, we are happy with our investment capacity to deliver the path.
Okay. Very clear.
Again, as I said before, the remaining investment is relatively low investment. This is more intelligent business and this investment will be finally partly financed by not using gas anymore.
Yes.
This actually takes a part of the consumables which is paid by the tenant out and brings it to rental revenues. Your first question was, I forgot it.
Acquisitions.
Yes, acquisitions. I am not going to discuss with you my acquisition pipeline. As you know, we have actually three main markets and two additional markets. Two additional markets are Netherlands and France. We are actually able to do acquisitions in five different markets. We have an acquisition department which is following clearly all the acquisition opportunities which occur. We have our criteria. We are working through this. We are optimistic that we will do acquisitions in the next years, smaller, bigger ones. Again, our business, our guidance, our whole growth perspective is based on the fact that we assume that there is no acquisition. Acquisition is an additional add-on on what we are guiding.
Okay. All right.
I repeat myself, a management team with an acquisition target is very dangerous for the investors. That's why I'm not putting me under pressure, not by incentives or not by giving guidance for acquisitions because I need to be relaxed and not to be forced into acquisitions.
Sure. I understand that point about-
We are very cautious there, and that's why we will never give you a flavor that some acquisition is in the sky. We are doing our job, and we are doing acquisition only if it makes sense for you shareholders.
All right. Fair enough. Thank you.
The next question is from Andres Toome of Green Street.
Hello, good afternoon. I have a first question regarding also acquisitions and more of a conceptual. How are you thinking about larger acquisitions, seeing that your stock today trades at a discount to what is probably going to be year-end NAV of EUR 60 or maybe more euros per share?
It's very clear. We have our criteria. We have to be net asset value accretive. If we want to buy in this situation, we have to buy with a discount to NAV.
Fair enough. My second question is about your develop to sell business. Looking at the results for the first nine months, there's a bit of a shift towards Germany and away from Austria, as you mentioned as well. There's more develop to hold. Is this a permanent or is it a transitory shift in your completions mix?
I think Helene mentioned it already. This is volatile. For example, keep in mind, we are just building a skyscraper in Vienna. This will be sold one day, and then we will see a lot of development revenues and EBITDAs out in Austria. This is just because it's not as a stable pipeline every year, and this depends just about the delivery time of the building. Not to be worried at all.
Okay. You also mentioned condominium market doing really well. I think those comments were more about those older buildings that you're selling from your portfolio. Is this true also for new builds in develop to sell? Just because looking at the gross margin development quarter-over-quarter, it has come down. It's a question of whether it's because of pricing or is it because of cost inflation.
I don't think that you can really read it on the development to sell because there's also a mixture of apartments which you are selling. To be very clear, it is very simple. In cities where we have an imbalance between supply and demand, and we are only located in cities where there is an imbalance between supply and demand. Actually, as long as there is more supply than demand, the prices are going up. In combination with long-term low interest rates, this actually, I think is for me, not a surprise that the prices for condominiums are going up. There is enormous demand for condominiums in the big cities.
Actually, if I may add, we've really seen that despite the Corona crisis and even in the really dark days of the Corona lockdown, the demand for condominiums, both in Austria and in Germany, in Berlin, continues to be unabated. It's quite amazing what is going on there. Nothing to read into it.
Okay. From the cost side?
Costs in the development to hold area are pretty stable and according to plan. As a CFO, I'm actually looking at it and I'm not worried at all. The team is really delivering point on.
Okay. Thank you very much. That's all for me.
The next question is from Thomas Rothäusler of Jefferies. Your line is now open.
Hi, good morning. I have a question on rental growth. You have further reduced guidance and basically referred to lower rent tables. It seems that investment driven rent growth can't compensate for this. Considering this, what rental growth can we expect more in the longer term? Would you say is it a 3% level we currently see, or could it be even lower?
I think you are asking, I would probably see the 3% is fine. Probably we will also see if inflation would go up, we would see a higher level. There's still a lot of volatility due to the Berlin effect. There is, of course, of COVID-19, this fluctuation has gone down dramatically. Literally, I talked to our rental, our colleague from the board, Arnd Fittkau, yesterday. He told us actually that now he needs really desperate new apartments because his letting out organization has nothing to do anymore. This, of course, has some impact on the rental cost. If COVID-19 is gone, I would think and assume that fluctuation will go up, and then we will see also higher rental cost in the normal better business.
Can we see actually or expect higher contributions from the investment driven rent growth?
I think this is a function. The investment driven rent cost is actually a function of how much we do for modernization, how much we do for new construction. I think we have discussed it before. The nature of new construction is that you have a relatively low initial yield, and then because of rental costs in the new construction, the yield will go up in the further years. While in the modernization, you start with a higher initial yield, but then the yield stays the same.
Mm-hmm. Okay. Thank you.
The next question is from Manuel Martin of ODDO BHF. Your line is now open.
It has to do with your property valuation gains. Do you think it is likely to see a goodwill write-off in the second half of the year in the course of the property valuation gains?
Hi. I can take that question. We've basically written down most of the goodwill, so there's really nothing more to come. I'm pretty relaxed on that one.
Okay. Thank you.
The next question is from Christopher Fremantle of Morgan Stanley. Your line is now open.
Hi. Good afternoon. I just had a follow-up on the CapEx chart that you show on page 30. I appreciate you've already told us that the return on CapEx is broadly similar, despite what looks like quite a material change in CapEx mix. Specifically for construction to hold, could you just be a little bit more specific, please, with what we should assume for your gross rental yield on investment from that piece, please? I know there is a different mix for Austria versus Germany. If you could just help us understand the difference between the gross yield on the new construction to hold relative to the gross yield on CapEx from modernization, please.
Helene, do you want to do it? This is a very long debate.
Isn't that the same question or another way to ask us around the yield and then we keep answering around to actually look at an overall IRR target on our overall investment program?
I'm not so interested in the IRR. As we try to model rental growth, how strong the rental growth is relies on what the yield on the CapEx is. Because the mix in the CapEx is changing, I'm trying to understand whether the rental yield on the total CapEx envelope should change and how quickly it should change given the change in the mix.
To tell you the truth is, again, we don't guide that number. I know it's annoying, and we keep giving the same answer because if we look at initial yields and if we look at IRRs and we look at the overall CapEx mix, I want to retain the freedom around deciding what goes into what bucket, which is why we continue to give you a lump sum and always the same answer.
Also to be very on the operational front, really should we not do an acquisition of a new building because we have given you the wrong guidance. I think we have to run our investment program also a little bit based on opportunities. We have a normal underlying investment program, which comes from the energy efficiency and from the preparation of apartments for elderly people. In the end, we actually do different things, development to hold and other things. This is very difficult, and this can change from year to year. This is also opportunity-driven.
Okay. Thank you.
There is also a difference in initial yields in new construction. I can tell you, if you are buying a new construction in Munich, you will have a very low initial yield. While you would buy a new construction somewhere in Salzgitter, you will have a high very initial yield. This is too much mixture to give you a guidance.
No, that's fine. We were just trying to model rental yield-
I understand your model.
Value creation from CapEx. Yeah, that's fine. All right. Thank you.
I understand your model, the problem is that it's probably very difficult to guide. It should be a long-term guidance, which is even more difficult.
Okay. Thank you.
As there are no further questions, I hand back to the speakers.
All right. Thank you everyone for joining today. As a reminder, the full year 2020 results will come out on March 4. Until then, we'll be engaging quite a bit, obviously virtually for the time being. Our financial calendar is on page 76 of today's presentation, and the most up-to-date version is always on our IR website. You may have also seen our save the date for the 2021 Capital Markets Day on June 29 next year. At this point, we're not sure about the format yet, but we do hope you'll be joining us either physically or online. As always, feel free to reach out to me or the team with any questions or comments you may have. We're looking forward to staying in touch. That's it from us today. Have a great day. Stay happy and healthy. Thanks.
Thank you. Bye-bye.
Thank you.