Welcome to our earnings call for the 1st 9 months of 2020. Your hosts today are once again CEO, Rois Buch and CFO, Helene van Roeler. We're in different locations today, so bear with us in case we have slight delays, especially in the Q and A. I assume you've all had a chance to download the 9 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 with a 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 1. Oef and Elena will lead you through this first part, the results presentation on the basis of the agenda on Page 3. 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, Juve.
Thank you, Henne, and also a warm welcome from my side. You hopefully will be not surprised when I tell you that the 9 months result are a stable continuation of the 1st 6 months with clearly no big surprises. We keep running a very predictable business where things do not change very much from 1 quarter to the next. And 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-nineteen concerns, this will not change. But now let's go on Page 4, over to highlights.
Organic rent growth was up 3.6% year on year, which is a little bit down in comparison to last year's same period. EBIT DA total was up by 7%. Group FFO increased by almost 9%. This is €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 $55,400,000 But 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 4,600,000,000 to EUR 5,200,000,000, which is almost between 9% 10%. So the adjusted NAV of the end of the year will be well above €59 per share. The LTV is at the lower end of the range with €40,600,000 If you include the perpetual hybrid, it is SEK 42.4 billion. Net debt to EBITDA is SEK 12.1 billion. We have made billion.
We have been making good progress in sustainability, and part of this presentation will be to show you what we are being doing, but 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, and the phrase is a little misleading, he will tell you that this upper end of the range around the upper end can be even above the upper end. Keep in mind, in a period of COVID-nineteen, we as a company are happy not to increase our guidance. So that's why this phase is done.
And also to show you our strong position, we have we will propose a dividend of €1.69 of the next EGM, which is a little bit more than the 70% normal payout ratio if you put it on the corridor. And 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 €100,000,000 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 4 segments. More on that will come later by Helena on the guidance detail. And with this, I hand over to Helena.
So hi from me. And looking at Page 5. 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 0.9%. 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 point 7% as the number of outstanding shares grew by more than 4% based on our script dividend and the capital 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%. So let's talk about individual segments and start with the rental segment on Page 6. Rental income increased by 11.8 percent or EUR 180,000,000 of which EUR 135,000,000 came from Hembla and the remainder from organic growth by way of rent increase and vacancy loss reduction. Maintenance expense were CHF234,900,000 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 coal suggests it is about €75,000,000 for the 9 months 2020 and about €30,000,000 for the 9 months last year. Page 7 shows the main operating KPIs for the percent came from the market, 2.2% from modernization and 0.6% from new construction. Given the low level of inflation, the meat price bremsse, various meat spiel 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 the result of 3 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-nineteen environment, where we often cannot do mass viewing, but have to show apartments individually and partially digitally.
Have been carrying out some larger maintenance work that accounting wise do not go through the P and L. And with that, back to Rolf.
Okay. Thank you. Let's move to Page 8 to the Value add segment. As you can see, the EBITDA came out a little bit lower than last year, and there's a couple of reasons. On one hand, we are continuing to do well by expanding the value add initiatives, more multimedia supply to tenants, more residential environmental service with our own staff and more smart metering for customers and energy supply to deliver to the delivery points.
However, this was not enough to compensate 3 other effects. First of all, COVID-nineteen slowed us down on the investment side and led to less internal revenues and therefore, less value creation through our own work force. 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 shuffling snow and deicing sidewalks. And the third reason is a technical one. We have declassified EUR 5,300,000 of external income to the rental segment because this makes it just more easy.
The prior year numbers are not unadjusted 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. And this is back to NNE. No, sorry, I always have to tell you about the sales segment as well on Page 9. We sold 1803 individual apartments for a cost proceed of EUR 296,000,000.
The fair value step up was 40.1% on average and well above our guidance and our new target of 30%. So 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 than Helena shows you the valuation outlook for H2.
So 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, but it does include additions of floors on existing buildings. Income from 2 cell developments was down 7%, which just demonstrates that this part of our business is a little bit more volatile than the rest, but 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 €68,800,000 in 9 months 2020, which is up 11% our completion.
We built 10.56 apartments to hold for our own portfolio in the 1st 9 months of 2020 and another 3 81 apartments to sell. In our construction to hold, we've currently identified potential for about 40,000 apartments based on short, medium and long term opportunities across our portfolio today. For 2020, we still expect to deliver around 1300 apartments in total. The development to sell part is a useful addition for the 2 hold developments. As I've explained before, we often rely on the higher margins from the Tuchel projects to cross finance the land costs and make the 2 hold developments more economically feasible.
The pipeline target for this year is now to complete more than 500 apartments to sell. So 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 €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 the 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 thirds of the portfolio that we revalued, we are expecting the full portfolio valuation at the end of the year an additional value growth between €2,300,000,000 €2,900,000,000 That would bring the total value growth for 2020 to between €4,600,000,000 €5,200,000,000 So the upper end would be pretty similar to 2019. Now for those that like to do math, it is well above approximately a net adjusted value of €59 per share.
Unchanged from what we said in our H1 call in August, we continue to see no material negative impact from COVID-nineteen and our estimates for the year end are based on the assumption that this will not change. And the value appreciation comes across all of our markets with the exception of Berlin, which keeps lagging for obvious reasons. But even in Berlin, we are currently seeing a small value growth. We've looked at value growth from yield compression for a German portfolio excluding Berlin over time. That is actually the chart on the lower left hand side.
And that is quite interesting, we find. We've been seeing a clear trend of last year. I would not want to call this probably a reversal of a trend, but it is remarkable nonetheless. And 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. LTV at the end 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% 45% is the right level for us, especially if we include the roundabout 8 year duration for 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. So we continue to sleep well with this number.
A bit more color on the debt instruments. The ratings are unchanged risk profile from S and P and an A- rating from scope. Between the triangle of LTV, fixed or head debt ratio and the weighted average maturity, I think we're striking a good balance. And the 1.4% average cost of debt compares to weighted average of a little of 0.8% for the €750,000,000 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 ABB in September, we basically consider it as a result. It is pretty safe to expect us to take it out with plain debt at the call date in Q4 2021, so that EUR 1,000,000,000 piece will be distributed one way or another nicely to fit smoothly into the schedule. And with that, back over to Rolf.
We have made good progress on sustainability. And on Page 16, I want to use an opportunity to give you an overview. There's much more detail in the second part of the presentation on Page 36 to 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 recognition has come from our inclusion in most of the leading ESG indices.
We have also identified 8 United Nations Sustainability 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 on the first 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 We are also in the focus of developing 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 efforts. And finally, I have mentioned on previous locations, we are moving along nicely in our Energy Innovation Center in Wukum Weitma, which we hope to show you at the next Capital Market Day if the crisis is coming to a better situation.
On Page 17, it is a climate path for Vonovia, which we have to define together with a 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 a path that Germany is currently based on, based on an average 1% national modernization rate. The second line is surpassed 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 3 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 debt, as I have described before, plus gas condensating, plus solar technology. But even that takes us too little more than 50% of where we are today, and it will not be neutral portfolio is to do, intensified modernization, as in the cases before, and to establish a keen 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. But the target is now clear, and we know exactly what we have to work on and what we have to deliver. And while all of this has already made 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 €0.25 per ton of CO2. To put it in the context, our German portfolio emits around 1,000,000 tons of CO2 per year.
It is not yet clear how this tax will be split between landlords and tenants. But whatever the outcome is, 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 how to define who is paying how much. And with this, I hand over to Annene.
Okay. So before we get to the guidance for 202020 21, I would like to explain you on Page 18, one addition we have made. We have been guiding top line growth on the basis 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, it's the full top line growth that covers cost and delivers EBITDA, FFO and ultimately dividend growth. And finally, you now also have a starting point in addition to the EBITDA total and group FFO. So on Page 19, you see our final guidance for 20 20. The new line item here is the total segment revenue I explained on the last page.
Here, we expect to see around EUR 300,000,000 more than 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 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 strong.
We've kept the guidance for the adjusted EBITDA total unchanged with a EUR 1.87 5,000,000,000 to EUR 1,925,000,000 range. And the group FFO is now estimated to be around the upper end of the range, which still EUR 1.275 billion to EUR 1.325 billion. And 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 €1.69 to next year's AGM. You may have already noticed that this is slightly above the 70% payout ratio, ratio, which is on purpose to compensate for a bit for the dilution from the capital increase.
And finally, the total investment in modernization and new
construction to hold is
expected to be around and new construction to hold is expected to be around €1,500,000,000 On Page 20, we have the initial guidance for 20 21. 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 and rental income will grow to between €2,300,000,000 2,400,000,000 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 growth again in Berlin. But if the rent freeze is ruled unconstitutional as widely anticipated, we expect to come out at 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 €100,000,000 in the midpoint to €1,975,000,000 to €2,025,000,000 Group FFO is expected to grow €140,000,000 in the midpoint to between €1,415,000,000,000 and 1.46 €1,000,000,000 Now you may have noticed that group FFO is growing stronger than the EBITDA, at least if you look at the mid point to mid point observation. So the first thing is that you need to look at that regarding stronger FFO than EBITDA also for this year. The other thing is that like 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.
And 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 sell this year stronger development to hold this year compared to sell. We're expecting a sell. We're expecting a slightly larger
development to sell next year.
Now 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? Because 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.
So 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. Going into 2021 with an unchanged expectation from last year for our investments to EUR 1,300,000,000 to EUR 1 point 6,000,000,000 And with that, back to Rolf.
Thank you, Elena, and 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-nineteen 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 Pass, our Climate Conference and a commitment of 8 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 2021 as well as beyond. And with this, I hand over back to Rene.
Thank you, Elena. Thank you, Alf. And I will give it right back to Alexandra to open up the Q and A, please.
The first question is from Charles Bautier 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 reintroduction in Berlin last week. I just was wondering what's your reading of this announcement is, do you interpret it as a ruling on the formality so rent reductions can go ahead on 23rd November, but without any recourse on the substance?
And on a related point, are you hearing that if the rent freeze is invalidated, it could be only potentially a partial invalidation? Thank you.
So 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, it's just I think this has no prediction for the ruling in the next year. But I keep in but 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 teared down.
There is 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. But so that's why there is still some room for surprises coming in the H1 next year. I just wanted to add this. And 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 value stable.
Okay. Thank you. And then 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 reduction component of the mid and decal reversing? And then possibly in term of the rent freeze aspect, if it's true 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. So I just was wondering if there is another 15, 20 basis points for some other news, either mid to Pivotal or anything else that you're justifying this wider than usual range?
Sorry, Helene, should I do it? So actually, to be very clear, part of it is reversal. The second part is that we will, of course, will continue to do modernizations in Berlin. And there's also a catch up for the rent Mitspiegel because you know we have not increased rent after the next Ranch Mitspiegel. And then, of course, the law is will be reduced or will be gone, of course, we will use the rent increase, which we have not done in 2018 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. But looking at your acquisition target, they are still on EBITDA rental yield.
So I was wondering if you would align your acquisition targets as well on these new KPIs that look beyond rental aspect? Thank you.
No, no, no, 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 Elena has explained, because we think that just the like for like rental growth is showing the success of 1 segment out of 4 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 acquisition detail.
Thank you.
The next question is from Samba Boong of Barclays. Your line is now open.
Hi, afternoon. I got some questions, please. The first one is something that Helen mentioned on the like for like rental growth for this year, in which you said that the mid to beagle impact had been lower than anticipated. Is it true that the Mitsubigal increases have been lower in 2020, not just from yourselves by not increasing rents, but just more as a market development? So Michbigots?
And how do you expect that going forward? And 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?
Or is it just a difference in mix in what you're currently spending?
So probably to the last one, we are happy and you have seen us now investing SEK 1,300,000,000 to SEK 1,600,000,000, which is more or less the money which we can afford year by year from our cash flow profile. And I think we are happy to continue to invest exactly this. And with this, we can deliver the craft and do additional investments. So 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.
So that's why there is no impact. Okay. On your first question about Mitspiegel, you see that we are living in a very low inflation environment. And of course, as you know, rent increase in Germany is not directly linked to inflation. Of course, low inflation also impacted more or less the negotiation or the part which is definable by the politicians.
Environment of high inflation than to come out with a mix figure in environment of low inflation. So this probably is an explanation that the mix 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 on the long run, you are well above in your rental growth, you are well above of your inflation. I precisely on the organic rental growth for existing apartments.
I exclude some organization because there we are changing the product. But the normal bread and butter rental growth for the long run cannot be massively beside deflation because then sitting tenants would have to spend more money every year, a higher percentage of the income for housing, and this is not sustainable.
Okay. That is very clear as well on the niche people especially. Just one quick follow-up on that investment plan. You say that basically you can live with the $1,300,000,000 $1,600,000,000 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, actually we are replacing traditional gas by more clean heating, which comes in this 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.
Yes, hi. Thanks. First one on the valuation gains and leverage and the way you think about things going forward. So obviously, gains are above expectation for this year. You already hinted on likely not sure what your words were, but that this we should probably continue into next year.
Then 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. So with a declining LTV and faster than your net debt EBITDA based on these valuations, are you going to prioritize net debt EBITDA in your decision making and in your spending? How should we view that strategy, let's say, into the next 2, 3 years?
On mute. So you're indeed right with rising yield compression, you also need to look at the cash conversion of the assets. And at some point, and I'm not saying that's in the next 2 to 3 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 sort of looking at the sort of like range around net debt, EBITDA, and I'm sort of looking at both numbers equally. It's not sort of like 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. And then on the CO2 tax, if I listen correctly, then your potential maximum hit is €25,000,000 if you have to pay for all of it. Is that already in your guidance? Or did you somehow account for that already?
No. Sorry, Ralf, go ahead.
No, no. No is right. I could not say it better to be very good to give you a little bit more explanation and more flavor on it. Normally, CO2 tax is something which we will pass on to the tenants. So with the existing law, it will be passed to the 100% to the tenants.
There is some debate in the moment in the German Germany if a part of this should be paid by the landlord. But this is completely open, and that's why we do not have any estimate how it is distributed. Anyhow, and this is our remark, to reduce CO2 is a good thing because even if the tenant pays directly 100%, actually, if we help him to reduce CO2, the value of the building is increasing. So I think it's open, and that's why we cannot include it in the guidance. What is probably more important in this fact is that EUR 25,000,000 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 CO2 emission trading model, which can have actually a massive impact on the cost of CO2 for the buildings. And so the €25 for us is probably an amount of money, which is still in the guidance corridor. And by 2025, this can be much more important. And that's why we think it is now time to reduce CO2 emissions.
And that's why we are so happy that we are well in terms in comparison also to some of our peers of the CO2 emission targets and what we have achieved in the last years because they have efficient buildings is something which is helpful in the future.
Great. And then maybe my final question. I think it's like you indicate pretty helpful politically not to hide your guidance. And so I can see basically FFO probably comfortably be around or even at the high end over the high end of your range. But actually, the organic growth is at the low end.
So or even just undershooting a bit what you said at the start of the year. So in that kind of bifurcation, did the kind of surprise come from finance only? Or were there other positive one offs?
No. 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. So that's why we included we, I think, gave you the overall revenue figure because this gives you a good feeling what the company is really going on.
So thank you very much for the question. It's a very good question. And the reason is, of course, as Helena 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.
Growth. All right. I will take another look at the Page 18. Thanks.
The next The next question is from Jonathan Komator of Goldman Sachs. Your line is now open.
Good afternoon. Thank you for taking my question. Two questions, if I may. 1 on acquisitions, if you can give us an update. I mean, you mentioned you were looking at smaller scale acquisitions in the past, Any evolution there?
And second question is to go back to your investments. So you're still guiding to 1.3 to 1.6 going forward. And obviously, aren't you, your leverage is going to come down, I think, 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 1,600,000,000 particularly in light of the fact you've done 1,500,000,000 this year with COVID, which has been a slowing factor. And 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.
So for the subsidies, actually, I'll start with the 3rd 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 in the moment. So the EU cannot push on one hand a subsidy system forward and then say we cannot give it to companies because unfair trading subsidies. So I think there's a high willingness in the commission to change it, but this has to be changed.
And of course, this would help us in moments, for example, of finding new modern energy providing systems, which are highly subsidized. The second was the investment. I think it is fine to assume that EUR 1,300,000,000 to EUR 1,600,000,000 is a good corridor. I would not go to speculate of a spending of more than EUR 1,000,000,000. 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 5 or 10 years. So 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 EUR1.3 billion to EUR1.6 billion, will that be enough to meet your accelerated path? Or does this mean that there's other investments that you won't be able to make effectively?
No, we are happy. As I said before, we are happy with our investment capacity to deliver the parts.
Okay.
Very clear. Because again, as I said before, the remaining investment is relatively low investment. This is more intelligence, more intelligent business. And this investment will be finally partly financed by not using gas anymore. So this actually takes a part of the consumables, which is paid by the tenant out and brings it to rental revenues.
And your first question was I forgot it.
Acquisitions.
Yes, acquisition. So I'm not again, I'm not going to discuss with you my acquisition pipeline. As you know, we have actually 3 main market and 2 additional markets. Two additional markets are Netherland and France. So we are actually able to do acquisition in 5 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 acquisition in the next years, smaller, bigger ones. But again, our business, our guidance, our whole growth perspective is based on the fact that we assume that there is no acquisition.
So acquisition is an additional add on on what we are guiding.
Okay. So
I repeat myself, a management team with an acquisition target is very dangerous for the capital 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, which is Sure, sure. I understand that point about We have a strong stick there, and that's why we will never give you a flavor that some acquisitions are 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. Your line is now open.
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 €60,000,000 or maybe more euros per share?
It's very clear. We have our criteria. We have to be net asset value accretive. So if we want to buy in this situation, we have to buy with a discount to NAV.
Fair enough. And my second question is about your develop to sell business. Looking at the results for 1st 9 months, there's a bit of a shift towards Germany and away from Austria. As you mentioned as well, there's more developed to hold. But is this a permanent?
Or is it a transitory shift in your completions mix?
I think Helene mentioned it already, this is volatile. So 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. So this is just because it's not as a stable pipeline every year, And this depends just about the delivery time of the building. So not to be worried at all.
Okay. And 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. But is this true also for new builds in Developed 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 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. And 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. So nothing to read into it.
Okay. And from the cost side?
Costs in the development hold area pretty stable and according to plans. So as a CFO, I'm actually looking at it and I'm not worried at all. It's the team is really delivering point on.
Okay. Thank you very much. That's all for me.
The next question is from Soma Forteuser of Jefferies.
Yes, I have a question on rental growth. You have further reduced guidance and basically referred to lower rent tables. So it seems that investment driven rent growth can't compensate for this. What rental growth I mean, considering this, what rental growth can we expect more in the longer term? Is it, would you say, is it a 3% level we currently see?
Or could it be even lower?
So I think you are asking a very so 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 burn in effect. So there is of course, of COVID-nineteen, the fluctuation has gone down dramatically. So literally, I talked to our rental our colleague from the Board, Fitko, yesterday, he told us actually that he has to now he needs really desperate new apartments because his letting out organization has nothing to do anymore.
So and this, of course, has some impact on the rental costs. If COVID-nineteen is gone, I would think and assume that flocculation will go up, and then we will see also higher rental growth in the normal beta beta business.
And can we see actually expect higher contributions from the investment driven rent growth?
No, I think this is a function the investment driven rent growth is actually a function of how much we do for modernization, how much we do for new Okay. The nature of new again, the nature, 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.
Okay. Thank you.
The next question is from Manuel Martin of OTO
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 devaluation gains?
So I can take that question. You've basically written down most of the goodwill. So there's really nothing more to come. So I'm pretty relaxed on that one.
Okay. Thank you.
The next question is from Chris Fremantle of Morgan Stanley. Your line is now open.
Hi, yes, 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, but specifically for construction to hold. Could you just be a little bit more gross rental yield on investment from that piece, please? I know there is a different mix for Austria versus Germany.
But 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?
Do you want to do it? Very long
we look at an overall IRR target on our overall investment program.
I'm not
so interested in the IRR. I'm just as we try to model rental growth, how strong the rental growth is relies on what the yield on the CapEx is. So 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.
And to tell you the truth is like, again, we don't guide that number. And 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, 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.
And 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. So I think we have to run our investment program also a little bit based on opportunities. So we have a normal underlying investment program, which comes from the energy efficiency and from the preparation of early partners for elderly people. But in the end, then we actually do different things, development to hold and other things. So this is very difficult, and this can change from year to year.
This is also opportunity driven. And there is also difference in initial yields in new construction. I can tell you, if you are buying a new construction in Munich, you will have a low very low initial yield, while you would buy a
new construction somewhere in Salzgitter,
you will get a high very initial
yield. So guidance.
That's fine. We're just trying to model rental yields and value creation from CapEx. Yes, that's fine.
Yes, I understand your model, but the
problem is that it's probably very difficult to guide. And this is long it must should have 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. Thanks 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.