Business Outlook
Vonovia can report positive business development in the first nine months of the 2021 fiscal year despite the ongoing coronavirus pandemic. All business segments showed positive development.
The forecast for the 2021 fiscal year was based on the accounting principles used in the consolidated financial statements.
Our forecast for the 2021 fiscal year is based on determined and updated corporate planning for the Vonovia Group as a whole, and considers current business developments, possible opportunities and risks, and the potential impact of the coronavirus pandemic. This does not include effects resulting from the acquisition of Deutsche Wohnen. The forecast also includes the key overall macroeconomic developments and the economic factors that are relevant to the real estate industry and our corporate strategy. Further information is provided in the sections of the 2020 Group management report entitled “Fundamental Information About the Group” and “Development of the Economy and the Industry.”
Deutsche Wohnen was consolidated for the first time as of September 30, 2021, meaning that the opportunities and risks associated with the Deutsche Wohnen Group have also passed to Vonovia. As the business activities pursued by Deutsche Wohnen and Vonovia are fundamentally similar, no significant new risks are expected to arise as a result of the acquisition. Additional risks could potentially arise from the new Care segment and from the stake in Quarterback Immobilien AG, which will be responsible for large parts of Deutsche Wohnen’s project development business. The integration process will involve Vonovia assessing the opportunities and risks associated with Deutsche Wohnen in detail and incorporating them into Vonovia’s risk management system. At the time of first-time consolidation and based on the current assessment, there are no signs of any risks resulting from the acquisition of Deutsche Wohnen that could pose a threat to Vonovia’s survival or business development. Beyond this, the Group’s further development remains exposed to general opportunities and risks. These have also been described in the chapter on opportunities and risks in the 2020 Group management report. Additional risks could result from the upcoming amendments to the German Heating Costs Ordinance (Heizkostenverordnung) and the changes to the German Real Estate Transfer Tax Act (Grunderwerbsteuergesetz) effective July 1, 2021.
We expect that the coronavirus pandemic will not have a significant impact on the key operational and financial figures and therefore will have no impact on future business development. As a result, we no longer see any risk of a long-term lockdown either.
We expect segment revenue to increase further in 2021. We are also currently observing stable demand for rental apartments and no negative impact on market values as a result of the coronavirus pandemic.
Vonovia predicts that all operating segments will contribute to the increase in Adjusted EBITDA Total and Group FFO. The biggest absolute increases are expected to be seen in the Rental and Development segments.
In addition, we expect the value of our company to increase in 2021 and predict a moderate increase in EPRA NTA per share, leaving any further market-related changes in value out of the equation. Based on the first preliminary indicators, we expect to see an effect from the valuation of investment properties as well as capitalized modernization costs in the form of an increase in value of between € 1.8 billion and € 2.6 billion in total compared with September 30, 2021.
The current forecast yet again confirms the positive development in the Sustainability Performance Index (SPI). We expect the high level of customer satisfaction to continue. The reduction of carbon emissions is working better than expected.
The following table provides an overview of our forecast, excluding Deutsche Wohnen, and presents material and selected key figures.
Actual 2020 | Forecast for 2021 | Forecast for 2021 in the 2021 H1 Report | Forecast for 2021 in the 2021 Q3 Report | |||||
Total Segment Revenue | € 4.4 billion | € 4.9–5.1 billion | € 4.9–5.1 billion | € 4.9–5.1 billion | ||||
EPRA NTA per share* | € 62.71 | suspended | suspended | suspended | ||||
Adjusted EBITDA Total | € 1,909.8 million | € 1,975–2,025 million | € 2,055–2,105 million | Around upper end of € 2,055–2,105 million | ||||
Group FFO | € 1,348.2 million | € 1,415–1,465 million | € 1,465–1,515 million | € 1,520–1,540 million | ||||
Group FFO per share* | € 2.38 | suspended | suspended | suspended | ||||
Sustainability Performance Index (SPI) | – | ~100% | ~105% | ~105% | ||||
Revenue in the Rental segment | € 2,285.9 million | € 2.3–2.4 billion | € 2.3–2.4 billion | € 2.3–2.4 billion | ||||
Organic rent growth (eop) | 3.1% | Increase of ~3.0–3.8%** | Increase of ~3.8% | Increase of ~3.8% | ||||
Modernization and new construction | € 1,343.9 million | € 1.3–1.6 billion | € 1.3–1.6 billion | € 1.3–1.6 billion | ||||
Number of units sold Recurring Sales | 2,442 | ~2,500 | ~2,800 | ~2,800 | ||||
Fair value step-up Recurring Sales | 39.6% | ~30% | >35% | >35% | ||||
- * Based on the shares carrying dividend rights on the reporting date.
- ** Depending on whether or not the Act on Rent Controls in the Housing Sector in Berlin (MietenWoG Bln) is found to be constitutional at the end of 2021, we expect rent increases at the upper/lower end of the forecast.
Bochum, Germany, October 27, 2021
The Management Board
Adjusted EBITDA Total
Adjusted EBITDA Total is the result before interest, taxes, depreciation and amortization (including income from other operational investments and intragroup profits) adjusted for effects that do not relate to the period, recur irregularly and that are atypical for business operation, and for net income from fair value adjustments to investment properties. These non-recurring items include the development of new fields of business and business processes, acquisition projects, expenses for refinancing and equity increases (where not treated as capital procurement costs), IPO preparation costs and expenses for pre-retirement part-time work arrangements and severance payments. The Adjusted EBITDA Total is derived from the sum of the Adjusted EBITDA Rental, Adjusted EBITDA Value-add, Adjusted EBITDA Recurring Sales and Adjusted EBITDA Development.
Adjusted EBITDA Rental
The Adjusted EBITDA Rental is calculated by deducting the operating expenses of the Rental segment and the expenses for maintenance in the Rental segment from the Group’s rental income.
Adjusted EBITDA Value-add
The Adjusted EBITDA Value-add is calculated by deducting operating expenses from the segment’s income.
Adjusted EBITDA Recurring Sales
The Adjusted EBITDA Recurring Sales compares the proceeds generated from the privatization business with the fair values of assets sold and also deducts the related costs of sale. In order to disclose profit and revenue in the period in which they are incurred and to report a sales margin, the fair value of properties sold, valued in accordance with IFRS 5, has to be adjusted to reflect realized/unrealized changes in value.
Adjusted EBITDA Development
The Adjusted EBITDA Development includes the gross profit from the development activities of “to sell” projects (income from sold development projects less production costs) and the gross profit from the development activities of “to hold” projects (fair value of the units developed for the company’s own portfolio less incurred production costs) less the operating expenses from the Development segment.
Covenants
Requirements specified in loan agreements or bond conditions containing future obligations of the borrower or the bond obligor to meet specific requirements or to refrain from undertaking certain activities.
COSO
The Committee of Sponsoring Organizations of the Treadway Commission (COSO) is a private-sector U.S. organization. It was founded in 1985. In 1992, COSO published the COSO model, an SEC-recognized standard for internal controls. This provided a basis for the documentation, analysis and design of internal control systems. In 2004, the model was further developed and the COSO Enterprise Risk Management (ERM) Framework was published. Since then, it has been used to structure and develop risk management systems.
CSI (Customer Satisfaction Index)
The CSI is determined at regular intervals by means of systematic customer surveys and reflects how our services are perceived and accepted by our customers. The CSI is determined on the basis of points given by the customers for our properties and their neighborhood, customer service and commercial and technical support as well as maintenance and modernization management.
European Public Real Estate Association (EPRA)
The European Public Real Estate Association (EPRA) is a non-profit organization that has its registered headquarters in Brussels and represents the interests of listed European real estate companies. Its mission is to raise awareness of European listed real estate companies as a potential investment destination that offers an alternative to conventional investments. EPRA is a registered trademark of the European Public Real Estate Association.
EPRA NAV/Adjusted NAV
The presentation of the NAV based on the EPRA definition aims to show the net asset value in a long-term business model. The equity attributable to Vonovia’s shareholders is adjusted to reflect deferred taxes on investment properties, the fair value of derivative financial instruments and the deferred taxes on derivative financial instruments. In order to boost transparency, an adjusted NAV, which involves eliminating goodwill in full, is also reported.
EPRA NAV/Adjusted NAV
The presentation of the NAV based on the EPRA definition aims to show the net asset value in a long-term business model. The equity attributable to Vonovia’s shareholders is adjusted to reflect deferred taxes on investment properties, the fair value of derivative financial instruments and the deferred taxes on derivative financial instruments. In order to boost transparency, an adjusted NAV, which involves eliminating goodwill in full, is also reported.
EPRA Key Figures
For information on the EPRA key figures, we refer to the chapter on segment reporting according to EPRA.
Fair Value
Fair value is particularly relevant with regard to valuation in accordance with IAS 40 in conjunction with IFRS 13. The fair value is the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction.
GAV
The Gross Asset Value (GAV) of the recognized real estate investments. This consists of the owner-occupied properties, the investment properties including development to hold, the assets held for sale and the development to sell area. In the latter, both residential properties for which a purchase contract has been signed and those with the intention to sell – i.e., a purchase contract has not yet been signed – are included.
Group FFO
Group FFO reflects the recurring earnings from the operating business. In addition to the adjusted EBITDA for the Rental, Value-add, Recurring Sales and Development segments, Group FFO allows for recurring current net interest expenses from non-derivative financial instruments as well as current income taxes. This key figure is not determined on the basis of any specific international reporting standard but is to be regarded as a supplement to other performance indicators determined in accordance with IFRS.
Maintenance
Maintenance covers the measures that are necessary to ensure that the property can continue to be used as intended over its useful life and that eliminate structural and other defects caused by wear and tear, age and weathering effects.
Vacancy Rate
The vacancy rate is the number of empty units as a percentage of the total units owned by the company. The vacant units are counted at the end of each month.
LTV Ratio (Loan-to-Value Ratio)
The LTV ratio shows the extent to which financial liabilities are covered. It shows the ratio of non-derivative financial liabilities pursuant to IFRS, less foreign exchange rate effects, cash and cash equivalents less advance payments received by Development (period-related), receivables from disposals, plus purchase prices for outstanding acquisitions to the total fair values of the real estate portfolio, fair values of the projects/land currently under construction as well as receivables from the sale of real estate inventories (period-related) plus the fair values of outstanding acquisitions and investments in other real estate companies.
Rental Income
Rental income refers to the current gross income for rented units as agreed in the corresponding lease agreements before the deduction of non-transferable ancillary costs. The rental income from the Austrian property portfolio additionally includes maintenance and improvement contributions (EVB). The rental income from the portfolio in Sweden reflects inclusive rents, meaning that the amounts contain operating and heating costs.
Rental Income
Rental income refers to the current gross income for rented units as agreed in the corresponding lease agreements before the deduction of non-transferable ancillary costs. The rental income from the Austrian property portfolio additionally includes maintenance and improvement contributions (EVB). The rental income from the portfolio in Sweden reflects inclusive rents, meaning that the amounts contain operating and heating costs.
Modernization Measures
Modernization measures are long-term and sustainable value-enhancing investments in housing and building stocks. Energy-efficient refurbishments generally involve improvements to the building shell and communal areas as well as the heat and electricity supply systems. Typical examples are the installation of heating systems, the renovation of balconies and the retrofitting of prefabricated balconies as well as the implementation of energy-saving projects, such as the installation of double-glazed windows and heat insulation, e.g., facade insulation, insulation of the top story ceilings and basement ceilings. In addition to modernization of the apartment electrics, the refurbishment work upgrades the apartments, typically through the installation of modern and/or accessible bathrooms, the installation of new doors and the laying of high-quality and non-slip flooring. Where required, the floor plans are altered to meet changed housing needs.
Sustainability Performance Index (SPI)
Index to measure non-financial performance. A performance indicator introduced at Vonovia in January 2021 consisting of key figures on the CO2 intensity of the portfolio, primary energy requirements in new buildings, (partial) modernization measures to make apartments fully accessible, customer and employee satisfaction, and diversity within the management ranks.
Non-core Disposals
We also report on the Other segment, which is not relevant from a corporate management perspective, in our segment reporting. This includes the sale, only as and when the right opportunities present themselves, of entire buildings or land (Non-core Disposals) that are likely to have below-average development potential in terms of rent growth in the medium term and are located in areas that can be described as peripheral compared with Vonovia’s overall portfolio and in view of future acquisitions.
Recurring Sales
The Recurring Sales segment includes the regular and sustainable disposals of individual condominiums from our portfolio. It does not include the sale of entire buildings or land (Non-core Disposals). These properties are only sold as and when the right opportunities present themselves, meaning that the sales do not form part of our operating business within the narrower sense of the term. Therefore, these sales will be reported under “Other” in our segment reporting.
Fair Value Step-up
Fair value step-up is the difference between the income from selling a unit and its current fair value in relation to its fair value. It shows the percentage increase in value for the company on the sale of a unit before further costs of sale.