Business Outlook
The forecast was based on the accounting principles used in the consolidated financial statements, with the adjustments described elsewhere in the Group management report being made. The forecast does not take account of any larger acquisitions of real estate portfolios.
Our forecast for the 2023 fiscal year is based on corporate planning that is determined and updated for the Vonovia Group as a whole and considers current business developments, the completed integration of Deutsche Wohnen, possible opportunities and risks, potential after-effects of the coronavirus pandemic and the effects of the war in Ukraine. It 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 titled Development of the Economy and the Industry and Fundamental Information About the Group in the 2022 Annual Report.
Compared to the opportunities and risks set out in the interim report for H1 2023, the following changes in the assessment of the overall risk position had arisen at the end of the third quarter of 2023: The overall number of risks increased from 104 in H1 2023 to 115 at the end of the third quarter due to additional green risks that are not significant. The number of significant amber risks remained at 9, with the risk “unfavorable exchange rate developments” being downgraded from amber to green. With an unchanged potential amount of loss of € 40–150 million, the expected probability of occurrence was reduced from 40–59% to 5-39%. The risk “material impact of legal disputes,” previously green, was upgraded to amber. This takes account of a legal dispute with a social insurance provider. The expected potential amount of loss of originally € 40–150 million was adjusted to € 150-375 million with an unchanged probability of occurrence of 5-39%. For the amber risk “unfavorable exchange rate developments,” the expected potential amount of loss was reduced from originally >€ 750 million to € 375-750 million with an unchanged probability of occurrence of 5-39%.
We expect price increases triggered by the Ukraine crisis, particularly on the energy markets, to have a substantial impact on Vonovia and our customers. While these will have a direct impact on ancillary expenses, they will also have an indirect effect on all areas of the economy due to general price increases. We also expect prices for construction materials to remain high, which will affect our construction projects as well.
Rising interest rates and inflation continue to create increased volatility on the equity and debt capital markets, also due to, or exacerbated by, the war in Ukraine. We therefore assess the overall economic situation and developments on an ongoing basis, particularly with regard to the return requirements for investment and divestment decisions.
We expect a moderate drop in total segment revenue in 2023. We also expect Adjusted EBITDA Total to be slightly below the prior-year level. Both key figures are currently being influenced to a considerable degree by the sales risks on the transaction market.
We expect the EBITDA contribution for the Rental segment to increase moderately given the further increase in demand for rental apartments. In the Value-add segment, we expect to see a significant year-on-year drop in results due to the reduced investment volume. Due to the strong result in the 2022 fiscal year, the updated project valuations and the sales risks on the transaction market, we expect to see a very sharp drop in EBITDA in the Development segment. We also expect to see a very sharp drop in EBITDA in the Recurring Sales segment due to a similar situation on the transaction market. As far as the Care segment is concerned, we predict a significant drop in EBITDA in 2023 due to positive one-off effects in 2022.
We also expect borrowed capital costs to increase further, and current income taxes to increase due to the higher transaction volume.
As a result, we expect a moderate decline in Group FFO.
In addition, we expect the value of our company to increase further in 2023 and predict a slight increase in EPRA NTA per share, leaving any further market-related changes in value out of the equation.
Due to the increased cost of capital as described above, we anticipate a decline in modernization/portfolio investments and new construction/densification in 2023.
Due to our extended sales efforts and the associated lower share of Recurring Sales in relation to the total sales volume, we are not providing any forecast as to the number of units sold and the step-up Recurring Sales from H1 2023 onwards.
Based on the individual weighted targets and the values planned for the 2023 fiscal year in each case, we predict a total value of 105-110% for the Sustainability Performance Index.
The following table, which presents material and selected key figures, provides an overview of our forecast for 2023.
Material and selected key figures incl. forecast
Actual 2022 | Forecast for 2023 | Forecast for 2023 in the 2023 H1 Report | Forecast for 2023 in the 2023 Q3 Report | |||||
Total Segment Revenue | € 6.3 billion | € 6.4–7.2 billion | € 6.4–7.2 billion | moderately below previous year | ||||
Adjusted EBITDA Total | € 2,763.1 million | € 2.6–2.85 billion | € 2.6–2.85 billion | lower end of | ||||
Group FFO | € 2,035.6 million | € 1.75–1.95 billion | € 1.75–1.95 billion | mid-point of | ||||
Group FFO per share* | € 2.56 | suspended | € 2.15–2.39 | mid-point of | ||||
EPRA NTA per share* | € 57.48 | suspended | suspended | suspended | ||||
Sustainability Performance Index (SPI)** | 103.0% | ~100% | ~100% | 105–110% | ||||
Rental income | € 3,168.1 million | € 3.15–3.25 billion | € 3.15–3.25 billion | upper end of | ||||
Organic rent growth (eop) | 3.3% | above previous year | 3.6–3.9% | 3.7–3.8% | ||||
Modernization/portfolio investments | € 837.4 million | ~€ 0.5 billion | ~€ 0.5 billion | ~€ 0.5 billion | ||||
New construction/space creation | € 607.1 million | ~€ 0.35 billion | ~€ 0.35 billion | ~€ 0.35 billion | ||||
Number of units sold Recurring Sales | 2,710 | 3,000–3,500 | suspended | suspended | ||||
Fair value step-up Recurring Sales | 38.8% | ~25% | suspended | suspended | ||||
- *Based on the shares carrying dividend rights on the reporting date.
- **Up to and including 2022, excluding Deutsche Wohnen. From 2023 forecast, including Deutsche Wohnen (excluding Care segment and SYNVIA).
For the new 2024 financial year, we expect our key performance indicator “Adjusted EBITDA Total” to be at the same level as in 2023. We expect Group FFO and Group FFO per share to be moderately lower in 2024 than in the 2023 financial year due to higher sales-related taxes and higher interest rates.
Taking the sales into account, we expect rental income to remain at the same level as in 2023. We expect investments in the refurbishment of our housing stock, as well as investments in new construction and densification, to be moderately above the level of the 2023 financial year.
The sustainability performance index is forecast at 100%. The organic rental growth expected for 2024 will be published in the Q4 reporting.
Bochum, Germany, November 1, 2023
The Management Board
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.
Adjusted EBITDA Deutsche Wohnen
The Adjusted EBITDA Deutsche Wohnen is calculated by deducting the operating expenses of the Deutsche Wohnen segment and the carrying amount of properties sold from the segment revenue of the Deutsche Wohnen Group.
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 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 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, Adjusted EBITDA Development and Adjusted EBITDA Deutsche Wohnen.
Adjusted EBITDA Value-add
The Adjusted EBITDA Value-add is calculated by deducting operating expenses from the segment’s income.
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.
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.
EPRA Key Figures
For information on the EPRA key figures, we refer to the chapter on segment reporting according to EPRA.
EPRA NTA
The presentation of the NTA based on the EPRA definition aims to show the net asset value in a long-term business model. NTA stands for Net Tangible Assets. The equity attributable to Vonovia’s shareholders is adjusted by deferred taxes, real estate transfer tax and other purchasers’ costs in relation to the existing portfolio and the fair value of derivative financial instruments after taking deferred taxes into account. Stated goodwill and other intangible assets are also deducted.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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. Vonovia’s sustainable activities are geared towards the top sustainability topics that we have identified, which are bundled in the Sustainability Performance Index. The Customer Satisfaction Index (CSI) is included in the calculation of the Sustainability Performance Index. The CSI is determined at regular intervals in systematic customer surveys conducted by an external service provider and shows the effectiveness and sustainability of our services for the customer. Other indicators used in the Sustainability Performance Index are the carbon savings achieved annually in housing stock, the energy efficiency of new buildings, the share of accessible (partial) modernization measures in relation to newly let apartments, the increase in employee satisfaction and diversity in the company’s top management team.
Sustainability Performance Index (SPI)
Index to measure non-financial performance. Vonovia’s sustainable activities are geared towards the top sustainability topics that we have identified, which are bundled in the Sustainability Performance Index. The Customer Satisfaction Index (CSI) is included in the calculation of the Sustainability Performance Index. The CSI is determined at regular intervals in systematic customer surveys conducted by an external service provider and shows the effectiveness and sustainability of our services for the customer. Other indicators used in the Sustainability Performance Index are the carbon savings achieved annually in housing stock, the energy efficiency of new buildings, the share of accessible (partial) modernization measures in relation to newly let apartments, the increase in employee satisfaction and diversity in the company’s top management team.
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.
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.
Cash-generating Unit (CGU)
The cash-generating unit refers, in connection with the impairment testing of goodwill, to the smallest group of assets that generates cash inflows and outflows independently of the use of other assets or other cash-generating units (CGUs).