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Dear Shareholders, Dear Employees, Dear Readers,

I want to start my letter to you today by addressing the topic of expectations. They are very important in terms of our course of action and provide the framework for it: Housing that is affordable in the long term and reliable support in everyday life. Stable value development and an appropriate dividend policy. Building new apartments and contributing to the energy revolution. Helping to solve social issues and being reliable as a state-of-the-art employer. All of these aspects are legitimate expectations that you, as our stakeholders, have placed on us. The past year has, however, demonstrated just how much macroeconomic changes impact this framework. We see it as our responsibility to deliver an active entrepreneurial response to these changes that is also in the interest of society.


from left: Arnd Fittkau Member of the Management Board (CRO); Helene von Roeder Member of the Management Board (CTO); Rolf Buch Chairman of the Management Board (CEO); Daniel Riedl Member of the Management Board (CDO); Philip Grosse Member of the Management Board (CFO)

And this is something we have already done: The decision we made in November 2022 to scale back our investments for 2023 triggered a heated public debate. This only goes to show, yet again, that as a leading real estate company, we are a particular focus of attention. It also makes it clear to me: people are counting on us.

Vonovia achieved positive development in 2022. Our company remains an anchor of stability. We were there for our tenants and did a good job of running our business. We built apartments and improved energy efficiency within our portfolio. We contributed to social issues – in our local neighborhoods, within the sector and also as part of the political discourse. And we want to show that, for all the overall situation might have changed: Vonovia is a company you can rely on.

This stable situation for Vonovia is not intended to obscure the fact that the world has been turned upside down since Russia launched its war of aggression on Ukraine. We are all feeling the consequences in the form of high energy prices and inflation. Our policymakers are taking appropriate and courageous action in this area. But as far as the topic of housing is concerned, the major challenges within society are still ahead of us.

Let me take this opportunity to set out our own expectations. After all, the housing industry will not be able to solve the tasks that lie ahead of us operating in isolation, not in the conditions we are faced with at the moment. We need everyone to do their bit, including policymakers. If Germany is to be able to build the 400,000 new homes a year that the government has set as a target, someone will have to invest € 100 billion every year. And even that is unlikely to be enough to meet the requirements. Current estimates predict that up to 700,000 new apartments are required. If the statutory climate path is to remain within reach, another € 50 billion will have to be invested in energy-efficient modernization measures every year. That is simply impossible without private investment.

It is high time for policymakers to take action. We need an appropriate level of construction standards. We need faster construction processes. We need binding overall conditions instead of more stringent tenancy law. We need subsidy programs that are set up for the long term. This is how the state creates a stable environment in which private capital helps to tackle the tasks facing our societies.

If we have made the decision not to launch any new investment projects at the moment, this is not because we did not want to launch them, but rather because we cannot ignore the development in construction prices and interest rates. When we decide to invest, we always have to consider the triad of construction costs, affordable rent and subsidies. At the moment, it is virtually impossible to implement new construction and modernization projects at reasonable conditions. Construction costs are rising dramatically, due in particular to financing costs. A large part of the population is unable to pay rising rents. Subsidy programs have been drastically cut back. In this environment, forging ahead with our large-scale investment programs would be the wrong approach.

At this point, it is very important for me to stress that the adjustments made to our investment strategy are temporary. We are not abandoning our long-term climate targets. By 2030, we want to achieve CO₂ intensity of less than 25 kg CO₂e/m² and make our portfolio virtually climate-neutral by 2045.

One thing that will benefit us in this regard is the fact that we have been making investments on a huge scale in recent years. This has given us a head start when it comes to refurbishment, with our refurbishment rate three times higher than the national average. This has improved the quality of our housing stock significantly. The fact that we have exceeded our sustainability targets is also testimony to this. Today, only just under 1.6% of our buildings have an energy efficiency rating of “H”. Incidentally, this actually benefits our tenants considerably through low energy consumption.

The cost of capital has increased threefold within the space of only a few months. An increase at this rate is unprecedented and has raised the question among financial market players of to what extent this is affecting the value development of our portfolio. The figures leave no room for doubt: The impact is limited. Our portfolio is worth around € 95 billion. The year-on-year drop of 3% is due primarily to the sale of around 10,600 apartments in Berlin to the federal state’s own housing companies. The sale of the Berlin subportfolio is part of the “Future and Social Pact for Housing”, an agreement reached with the Berlin State Government in which we are contributing to a socially responsible, sustainable housing industry.

It is important to understand that the German real estate market cannot be compared with the Anglo-Saxon markets. The real estate market in Germany is very stable: There are stringent lending standards and high transaction costs. Loans have long terms and interest rates are fixed accordingly. There are tax advantages to holding a property for longer. These overall conditions create an environment in which owners tend not to sell their properties in the short term. This is confirmed by the current calm activity on the transaction market. If we look at the German residential real estate market, we can see that demand in conurbations is higher than it probably ever has been.

I am much more concerned about the implications that could emerge from this unpredictable environment for day-to-day life within society. Many tenants in our country are reliant on affordable housing. They cannot be expected to live with the constant worry about whether they will still be able to afford their apartment in two years’ time. The construction sector is the same: Only a year ago, its order books were bursting at the seams. And here at Vonovia, we had to be very creative in order to be able to realize our projects. The market has, however, been turned on its head within a very short space of time. Because they are smart entrepreneurs, construction companies will be thinking very carefully about whether they want to ramp up their capacities to the same extent the next time there is a surge in demand. And this ultimately brings us back to the same point: We need policymakers to ensure a predictable and reliable environment.

But I now want to turn our attention back to the tasks that Vonovia is responsible for. Let’s take a look at economic development last year: At the end of the year, we were able to complete the preparatory work for the integration of Deutsche Wohnen and lay the foundation that will allow us to leverage the planned synergy potential. This synergy potential will be more extensive than expected. By 2024, it will amount to a figure of € 105 million as planned, and from 2025 onwards, another € 30 million in synergy potential can be exploited every year. Together with the Deutsche Wohnen management team, we will implement the integration process in 2023 and turn it into a success story.

Our combined income values have shown a marked improvement. Our revenue – total segment revenue – rose by 20% and our Adjusted EBITDA Total by as much as 23%. Group FFO, the key figure for the sustained earnings power of our business, increased by 20% to € 2,035.6 million.

Our vacancy rate is lower than ever before at 2.0%. We hardly have any vacant apartments – but demand remains high, especially in major cities. To help meet this demand, we once again built a significant number of apartments in 2022: more than 3,700.

Our net tangible assets NTA fell slightly as against 2021 to € 45,744.5 million. The NTA per share came to € 57.48. This also reflects the increased number of shares from the scrip dividend.

We expect the demand trend to remain positive, particularly for our market segment, which we understand as being the segment for affordable housing. We will continue to give you the security you need in the future by having our portfolio valued by independent property appraisers twice a year.

The loan-to-value ratio (LTV) is more or less on a par with the previous year at 45.1%. By making a commitment not to raise any additional debt capital, to suspend acquisitions and to restructure our investments in a way that makes sense, we have already laid an important foundation for appropriate capital allocation.

So our financing profile is also a reflection of our stability. Against this backdrop, it is only logical that the renowned rating agencies have confirmed our high credit rating. Both Moody’s and Standard & Poor’s have highlighted our diversified financing sources, balanced maturity profile and adequate liquidity.

They know that we do not just manage our business based on financial key figures. Our Sustainability Performance Index (SPI) is equally important to us and reached a value of 103% in 2022. This means that we have once again outstripped our targets – particularly when it comes to reducing carbon emissions. Our new decarbonization tool allows us to calculate current and future greenhouse gas emissions for each of our buildings today. This means that we can identify the ideal modernization measures for each individual building, allowing us to set a new standard within our sector.

Satisfaction among our customers is at the highest level seen since we started measuring it via an independent institute, up by 1.3%. This is something that makes me particularly happy and serves as motivation for all of us to keep improving.

Dear Shareholders,

what does the current environment mean in terms of dividends? And what is our outlook for the year that lies ahead?

The consequences of Russia’s war of aggression meant that central banks across the globe had to raise interest rates at an unprecedented speed. In a regulated market, our business model, which is stable in the long run, reacts to changes like these with a time delay. This also has an impact on some of our key figures.

In the medium and long term, however, the new environment reinforces the megatrends driving our business: increasingly unmet demand for homes and the focus on climate protection.

The decision on the dividend is your intrinsic right. We have identified two different sets of expectations from the various discussions we have had with you. One group of shareholders would like to see continuity with regard to dividends, while the other is calling for particular cost discipline. Both aspects are equally important to us.

We want to strike the right balance between your requirements and feel that it is appropriate to adjust the distribution ratio for the 2022 fiscal year and retain a bigger share of liquidity. On May 17, 2023, together with the Supervisory Board, we will be proposing a dividend of € 0.85 per share. Shareholders will once again be able to choose between a scrip dividend and a conventional cash dividend this year.

In general, the Management Board and the Supervisory Board are sticking to the company’s established distribution policy, which remains unchanged with a distribution ratio of around 70% of our Group FFO after minority interests. Going forward, it will continue to ensure that the income from Recurring Sales and the part of the dividend that will remain in the company provide sufficient funds to finance the investment program.

Our business model is intact. We still expect to see stable development in terms of both earnings and value development. The demand for housing will continue to rise this year, but the market environment will remain challenging. We expect that, while our revenue will increase. EBITDA and FFO are likely to be on a par with, or slightly below, the prior-year level, respectively. As far as the Development segment is concerned, we expect EBITDA to fall considerably due to the lower new construction activity.

We will be spending around € 850 million on modernization and new construction. When it comes to our investments, you will be used to rather different amounts. We genuinely hope that we can return to the sort of figures you are used to in the near future for the sake of everyone involved and society at large. We will need reliable overall conditions to be able to do so.

I would like to thank you, our shareholders, and also our partners, for supporting Vonovia on its journey. Of all the things I have learned during my time at Vonovia, which now spans a period of ten years, there are two things I would like to highlight in particular: the huge challenges facing the housing sector can only be mastered as a joint effort. And in order to be successful, we need to think far beyond short-term cycles.

Let me take this opportunity to come back to a recent event: The authorities conducted investigations on our premises in March 2023. It would seem that some employees of our subsidiaries accepted bribes with a detrimental impact on Vonovia. You can rest assured that we will be clarifying these incidents in full.

Dear employees,

Many of you have been supporting our tenants for much longer than ten years. Your awareness of the situation, your decisions and the fact that you all voluntarily go that extra mile enable us, as a company, to be reliable in meeting the diverse expectations of our stakeholders year in, year out. On behalf of my colleagues on the Management Board, I would like to take this opportunity to assure you that your efforts do not go unnoticed. Thank you for your exceptional commitment!

Bochum, March 2023


Rolf Buch

Chairman of the Management Board