Vonovia Interim Statement Q3 2023

Results of Operations

Overview

All in all, Vonovia’s performance was in line with expectations in the first nine months of 2023.

Core business in the Rental segment showed positive economic development, bolstered by high demand for rental apartments and positive rental price development.

In the other segments, the expected negative impact of the war in Ukraine, particularly with regard to energy and construction costs, as well as higher interest rates, was reflected in the business figures.

Any analysis of the figures reported for 2023 has to consider the fact that the prior-year figures are reported based on the current segmentation.

As of September 30, 2023, Vonovia employed 15,798 people (September 30, 2022: 15,851).

Total segment revenue came to € 4,232.3 million in the first nine months of 2023, down by 8.1% on the figure of € 4,606.3 million reported in the prior-year period. This decline was due primarily to lower sales in the Recurring Sales segment and lower proceeds from the sale of real estate inventories due to volume-related aspects.

Total Segment Revenue

in € million	9M 2022*	9M 2023	Change in %	12M 2022

Rental income	2,367.2	2,416.0	2.1	3,168.1
Other income from property management unless included in the operating expenses in the Rental segment	90.2	93.2	3.3	118.3
Other income from property management from the Care segment	208.0	217.1	4.4	280.1
Income from disposals Recurring Sales	392.6	204.6	-47.9	515.7
Internal revenue Value-add	856.7	809.8	-5.5	1,152.4
Income from disposal of properties	486.9	273.3	-43.9	588.4
Fair value Development to hold	204.7	218.3	6.6	433.9
Total Segment Revenue	4,606.3	4,232.3	-8.1	6,256.9

*Prior-year figures for Deutsche Wohnen adjusted to new segment definition.

The overview below shows the other key figures for the company’s results of operations, as well as their reconciliation to the performance indicator Group FFO:

Group FFO

in € million	9M 2022*	9M 2023	Change in %	12M 2022

Revenue in the Rental segment	2,363.7	2,411.6	2.0	3,163.4
Expenses for maintenance	-326.5	-311.2	-4.7	-443.6
Operating expenses in the Rental segment	-351.9	-297.1	-15.6	-486.3
Adjusted EBITDA Rental	1,685.3	1,803.3	7.0	2,233.5

Revenue in the Value-add segment	947.9	904.7	-4.6	1,272.0
thereof external revenue	91.2	94.9	4.1	119.6
thereof internal revenue	856.7	809.8	-5.5	1,152.4
Operating expenses in the Value-add segment	-822.6	-831.4	1.1	-1,145.3
Adjusted EBITDA Value-add	125.3	73.3	-41.5	126.7

Revenue in the Recurring Sales segment	413.5	209.1	-49.4	543.4
Fair value of properties sold adjusted to reflect effects not relating to the period from assets held for sale in the Recurring Sales segment	-286.2	-146.3	-48.9	-391.6
Adjusted result Recurring Sales	127.3	62.8	-50.7	151.8
Selling costs in the Recurring Sales segment	-14.5	-11.2	-22.8	-16.7
Adjusted EBITDA Recurring Sales	112.8	51.6	-54.3	135.1

Revenue from disposal of Development to sell properties	466.0	267.9	-42.5	560.6
Cost of Development to sell	-372.0	-233.4	-37.3	-440.4
Gross profit Development to sell	94.0	34.5	-63.3	120.2
Fair value Development to hold	204.7	218.3	6.6	433.9
Cost of Development to hold**	-154.2	-205.2	33.1	-340.6
Gross profit Development to hold	50.5	13.1	-74.1	93.3
Rental revenue in the Development segment	2.5	3.5	40.0	3.5
Operating expenses in the Development segment	-24.9	-23.1	-7.2	-33.8
Adjusted EBITDA Development	122.1	28.0	-77.1	183.2

Revenue in the Care segment	208.0	217.2	4.4	280.1
Expenses for maintenance	-4.7	-4.5	-4.3	-7.0
Operating expenses in the Care segment	-138.7	-158.9	14.6	-188.5
Adjusted EBITDA Care	64.6	53.8	-16.7	84.6

Adjusted EBITDA Total	2,110.1	2,010.0	-4.7	2,763.1

FFO interest expense	-361.9	-460.8	27.3	-493.8
Current income taxes FFO	-97.3	-96.7	-0.6	-145.0
Consolidation***	-73.1	-6.5	-91.1	-88.7

Group FFO	1,577.8	1,446.0	-8.4	2,035.6

Group FFO after non-controlling interests	1,515.8	1,376.4	-9.2	1,944.3

*In the course of the fourth quarter of 2022, the Deutsche Wohnen segment was dissolved and transferred to the Rental, Value-add, Recurring Sales, Development and Care segments. Previous year’s values for 9M 2022 updated accordingly.
**Excluding capitalized interest on borrowed capital in 9M 2023 of € 0.5 million (9M 2022: € 0.0 million), 12M 2022: € 2.5 million.
***Thereof intragroup losses in 9M 2023: € +6.6 million (intragroup profit 9M 2022: € -22.6 million), 12 M 2022 intragroup losses: € +4.8 million, gross profit Development to hold in 9M 2023: € -13.1 million (9M 2022: € -50.5 million), 12M 2022: € -93.3 million.

As of September 30, 2023, Vonovia managed a portfolio comprising 547,998 of its own residential units (September 30, 2022: 549,010), 165,123 garages and parking spaces (September 30, 2022: 163,727) and 8,737 commercial units (September 30, 2022: 8,858). 70,681 residential units (September 30, 2022: 72,386) are also managed for third parties.

Details on Results of Operations by Segment

Rental Segment

At the end of September 2023, the portfolio in the Rental segment had a vacancy rate of 2.1% (end of September 2022: 2.1%), meaning that it was nearly fully occupied.

The segment revenue in the Rental segment increased by 2.0% (9M 2022: 1.5%) from € 2,363.7 million in the first nine months of 2022 to € 2,411.6 million in the first nine months of 2023. Of the segment revenue in the Rental segment in the 2023 reporting period, € 2,068.2 million is attributable to rental income in Germany (9M 2022: € 2,014.1 million), € 255.2 million to rental income in Sweden (9M 2022: € 267.6 million) and € 88.2 million to rental income in Austria (9M 2022: € 82.0 million). Organic rent growth (twelve-month rolling) totaled 3.8% (9M 2022: 3.3%). The current rent increase due to market-related factors came to 2.0% (9M 2022: 1.0%) and the increase from property value improvements translated into a further 1.1% (9M 2022: 1.6%). All in all, this produces a like-for-like rent increase of 3.1% (9M 2022: 2.6%). New construction and vertical expansion also contributed 0.7% (9M 2022: 0.7%) to organic rent growth.

The average monthly in-place rent within the Rental segment at the end of September 2023 came to € 7.67 per sqm compared to € 7.47 per sqm at the end of September 2022 (including Deutsche Wohnen). The monthly in-place rent in the German portfolio at the end of September 2023 came to € 7.58 per sqm (September 30, 2022: € 7.36 per sqm including Deutsche Wohnen), with a figure of € 9.78 per sqm (September 30, 2022: € 9.93 per sqm) for the Swedish portfolio and € 5.42 per sqm for the Austrian portfolio (September 30, 2022: € 5.05 per sqm). The rental income from the portfolio in Sweden reflects all-inclusive rents, meaning that the amounts contain operating, heating and water supply costs. The rental income from the Austrian real estate portfolio additionally includes maintenance and improvement contributions (EVB).

We adapted our modernization, new construction and maintenance strategy to reflect the current overall financial conditions in the 2023 fiscal year. The overview below provides details on maintenance, modernization and new construction.

Maintenance, Modernization and New Construction*

Maintenance, Modernization and New Construction

in € million	9M 2022	9M 2023	Change in %	12M 2022

Expenses for maintenance	326.5	311.2	-4.7	443.6
Capitalized maintenance	268.3	182.2	-32.1	412.6
Maintenance measures	594.8	493.4	-17.0	856.2

Modernization measures	631.3	358.7	-43.2	837.4
New construction (to hold)	513.7	169.6	-67.0	572.5
Modernization and new construction measures	1,145.0	528.3	-53.9	1,409.9

Total cost of maintenance, modernization and new construction	1,739.8	1,021.7	-41.3	2,266.1

*Without Care segment, 9M 2022 adjusted to the new structure.

In the first nine months of 2023, operating expenses in the Rental segment were down by 15.6% on the figures for the first nine months of 2022, from € 351.9 million to € 297.1 million. This is due primarily to synergies achieved as part of the integration of Deutsche Wohnen. All in all, the Adjusted EBITDA Rental came to € 1,803.3 million in the first nine months of 2022, up by 7.0% on the prior-year value of € 1,685.3 million.

Value-add Segment

Developments in the Value-add segment were dominated by the new overall conditions for our own craftsmen’s organization. The reduced volume of modernization work, general price increases for construction services and materials, as well as productivity losses due to smaller-scale investments and increased costs due to a change to new technology (switch from gas heating to heat pumps) had a negative impact on economic development.

All in all, revenue from the Value-add segment came to € 904.7 million in the 2023 reporting period, down by 4.6% on the value of € 947.9 million seen in the first nine months of 2022. External revenue from our Value-add activities with our end customers in the first nine months of 2023 were up by 4.1 % on the first nine months of 2022, from € 91.2 million to € 94.9 million. Group revenue fell by 5.5% in the first nine months of 2023 from € 856.7 million in the first nine months of 2022 to € 809.8 million.

Operating expenses in the Value-add segment in the first nine months of 2023 were up by 1.1% on the figures for the first nine months of 2022, from € 822.6 million to € 831.4 million.

Adjusted EBITDA Value-add came to € 73.3 million in the first nine months of 2023, down significantly on the figure of € 125.3 million reported for the first nine months of 2022.

Recurring Sales Segment

In the Recurring Sales segment, income from the disposal of properties in the first nine months of 2023 was down to € 209.1 million, 49.4% lower than the 2022 value of € 413.5 million due to volume-related factors, with 958 units sold (9M 2022: 1,853), 657 of which were in Germany (9M 2022: 1,455) and 301 of which were located in Austria (9M 2022: 398). Income of € 126.5 million is attributable to sales in Germany (9M 2022: € 307.8 million) and € 82.6 million to sales in Austria (9M 2022: € 105.5 million).

The fair value step-up for Recurring Sales came in at 42.9% in the first nine months of 2023, down slightly on the comparative value of 44.5% for the first nine months of 2022. This was due primarily to lower step-ups for sales in Germany.

Selling costs in the Recurring Sales segment came in at € 11.2 million in the first nine months of 2023, down by 22.8% on the value of € 14.5 million seen in the first nine months of 2022. This is largely due to the lower sales volume. Adjusted EBITDA Recurring Sales came in at € 51.6 million in the first nine months of 2023, down considerably on the value of € 112.8 million seen in the first nine months of 2022.

In the 2023 reporting period, 755 residential units from the Non Core/Other portfolio (9M 2022: 16,745) were also sold as part of our portfolio adjustment measures, with proceeds totaling € 133.7 million (9M 2022: € 2,704.0 million). At 7.3%, the fair value step-up for Non Core/Other disposals in the 2023 reporting period was higher than for the same period in the previous year (1.4%).

Development Segment

Economic development in the Development segment was hit primarily by the increased construction costs and interest rates in the reporting period.

In the “Development to sell“ area, a total of 507 units were completed in the first nine months of 2023 (9M 2022: 636 units), 380 in Germany (9M 2022: 60 units) and 127 in Austria (9M 2022: 576 units). Income from the disposal of development properties to sell came to € 267.9 million in the first nine months of the 2023 fiscal year (9M 2022: € 466.0 million), with € 227.7 million attributable to project development in Germany (9M 2022: € 222.8 million) and € 40.2 million attributable to project development in Austria (9M 2022: € 243.2 million). The decline in Austria was chiefly due to a lower notarization volume compared to the previous year. The resulting gross profit for “Development to sell” came to € 34.5 million in the first nine months of 2023 with a margin of 12.9% (9M 2022: € 94.0 million, margin of 20.2%).

In the “Development to hold” area, a total of 1,292 units were completed in the first nine months of 2023 (9M 2022: 907 units), of which 822 were in Germany (9M 2022: 807 units), 296 in Austria (9M 2022: 0 units) and 174 in Sweden (9M 2022: 100 units). In the “Development to hold” area, a fair value of € 218.3 million was achieved in the 2023 reporting period (9M 2022: € 204.7 million). € 107.6 million of this amount was attributable to project development in Germany (9M 2022: € 204.7 million), with € 84.2 million attributable to project development in Austria (9M 2022: € 0.0 million) and € 26.5 million attributable to project development in Sweden (9M 2022: € 0.0 million). The resulting gross profit for “Development to sell” came to € 13.1 million in the first nine months of 2023 with a margin of 6.0% (9M 2022: € 50.5 million, margin of 24.7%).

Development operating expenses came to € 23.1 million in the first nine months of 2023, down by 7.2% on the value of € 24.9 million seen in the first nine months of 2022. The Adjusted EBITDA Development amounted to € 28.0 million in the 2023 reporting period (9M 2022: € 122.1 million).

Care Segment

The Care segment developed as expected in the first nine months of 2023. At the end of the third quarter of 2023, there were still 72 care properties in the Rental portfolio, 71 of which were still owned by Vonovia.

Segment revenue came to € 217.2 million in the first nine months of 2023, 4.4% higher than the value of € 208.0 million for the first nine months of 2022.

Expenses for maintenance came to € 4.5 million in the 2023 reporting period (9M 2022: € 4.7 million).

Operating expenses in the Care segment amounted to € 158.9 million in the first nine months of 2023, as against € 138.7 million in the first nine months of 2022. The increase in 2023 can be traced back first and foremost to higher staff and energy costs, as well as delayed adjustments to long-term care insurance payments and one-off payments associated with the COVID pandemic in the previous year.

The Adjusted EBITDA Care came in at € 53.8 million in the 2023 reporting period, down by 16.7% on the prior-year value of € 64.6 million.

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)

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

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

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

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

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

Monthly In-place Rent

The monthly in-place rent is measured in euros per square meter and is the current gross rental income per month for rented units as agreed in the corresponding rent agreements at the end of the relevant month before deduction of non-transferable ancillary costs divided by the living area of the rented units. 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.

The in-place rent is often referred to as the “Nettokaltmiete” (net rent excl. ancillary costs such as heating, etc.). The monthly in-place rent (in € per square meter) on a like-forlike basis refers to the monthly in-place rent for the residential portfolio that was already held by Vonovia 12 months previously, i.e., portfolio changes during this period are not included in the calculation of the in-place rent on a like-forlike basis. If we also include the increase in rent due to new construction measures and measures to add extra stories, then we arrive at the organic increase in rent.

Monthly In-place Rent

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)

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.

Rating

Classification of debtors or securities with regard to their creditworthiness or credit quality according to credit ratings. The classification is generally performed by rating agencies.

Rating

Classification of debtors or securities with regard to their creditworthiness or credit quality according to credit ratings. The classification is generally performed by rating agencies.

Rating

Classification of debtors or securities with regard to their creditworthiness or credit quality according to credit ratings. The classification is generally performed by rating agencies.

Rating

Classification of debtors or securities with regard to their creditworthiness or credit quality according to credit ratings. The classification is generally performed by rating agencies.

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

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).

Cash-generating Unit (CGU)