Vonovia Annual Report 2023

2 Adjustment to Prior-year Figures

Changes in Presentation

There were various changes in presentation in the 2023 fiscal year that also required adjustments to the prior-year figures.

The two tables below illustrate the changes as against the prior-year presentation in the balance sheet:

Adjustment to Prior-year Figures – Consolidated Balance Sheet – Assets

in € million	Dec. 31, 2022	Adjustment	Dec. 31, 2022 (adjusted)

Intangible assets	1,659.5		1,659.5
Property, plant and equipment	673.4		673.4
Investment properties	92,300.1		92,300.1
Financial assets	745.0		745.0
Investments accounted for using the equity method	240.1		240.1
Other assets	380.2		380.2
Deferred tax assets	39.6		39.6
Total non-current assets	96,037.9		96,037.9

Inventories	146.4	-114.3	32.1
Trade receivables	330.2	-169.2	161.0
Financial assets	768.2		768.2
Other assets	337.5	283.5	621.0
Income tax receivables	239.9		239.9
Cash and cash equivalents	1,302.4		1,302.4
Real estate inventories	2,156.3		2,156.3
Assets held for sale	70.8		70.8
Total current assets	5,351.7	0.0	5,351.7
Total assets	101,389.6	0.0	101,389.6

The change in presentation under assets relates to contract assets from ancillary costs (€ 114.3 million) and from the development business (€ 169.2 million). Starting in the 2023 fiscal year, these will be reported under other assets as opposed to under inventories or trade receivables as in the past.

Adjustment to Prior-year Figures – Consolidated Balance Sheet – Equity and Liabilities

in € million	Dec. 31, 2022	Adjustment	Dec. 31, 2022 (adjusted)

Subscribed capital	795.8		795.8
Capital reserves	5,151.6		5,151.6
Retained earnings	25,605.1		25,605.1
Other reserves	-221.0		-221.0
Total equity attributable to Vonovia shareholders	31,331.5		31,331.5
Non-controlling interests	3,107.3		3,107.3
Total equity	34,438.8		34,438.8

Provisions	655.7		655.7
Trade payables	5.2		5.2
Non-derivative financial liabilities	41,269.7		41,269.7
Derivatives	–		–
Lease liabilities	641.0		641.0
Liabilities to non-controlling interests	220.0		220.0
Financial liabilities from tenant financing	43.0		43.0
Other liabilities	27.9		27.9
Deferred tax liabilities	18,612.4		18,612.4
Total non-current liabilities	61,474.9		61,474.9

Provisions	549.7	-311.7	238.0
Trade payables	563.3		563.3
Non-derivative financial liabilities	3,790.0		3,790.0
Derivatives	1.3		1.3
Put options	270.9		270.9
Lease liabilities	41.5		41.5
Liabilities to non-controlling interests	15.9		15.9
Financial liabilities from tenant financing	112.1		112.1
Current income taxes	–	241.3	241.3
Other liabilities	131.2	70.4	201.6
Total current liabilities	5,475.9	0.0	5,475.9
Total liabilities	66,950.8	0.0	66,950.8
Total equity and liabilities	101,389.6	0.0	101,389.6

On the liabilities side, current provisions for bonuses and current provisions for personnel expenses amounting to € 70.4 million in total were reclassified from current provisions to other liabilities, as they are classed as accruals.

The new balance sheet line item “Current income taxes” comprises current tax liabilities and current income tax liabilities, which were recognized at € 241.3 million under current provisions in the previous year.

Disclosure of the Care Segment

As part of a strategic review of the Care segment, the management decided to discontinue and sell these operations. Endeavors to sell the Care segment have begun and it is expected to have been sold before December 2024.

The criteria for presentation as a disposal group held for sale are met. At the same time, the criteria for definition as a discontinued operation are also met. Accordingly, the majority of the segment is presented separately in the balance sheet as a disposal group held for sale/discontinued operation, and the results from the discontinued operation are shown separately in the income statement. Pursuant to IFRS 5, retrospective adjustments were made to presentation in the income statement; IFRS 5 does not provide for the restatement of the prior-year figures in the balance sheet.

The share of revenue from nursing care properties that are not part of the disposal group (2022: € 23.3 million) was reclassified from other revenue from property management to revenue from property letting, as these properties will make a long-term contribution to revenue in the Rental segment by being let to third parties. The other adjustments represent the profit share attributable to the disposal group to be hived off.

Intra-Group transactions were eliminated from the consolidated financial results in full. The eliminations were allocated to continuing operations and discontinued operations so as to take account of the decision not to continue these transactions after the disposal, as the Management Board considers this type of presentation to be useful.

For this purpose, the Management Board has eliminated the revenue resulting from transactions with continuing operations generated prior to the reclassification in the result from continuing operations, as no services will be exchanged between the continuing operations and the discontinued operations after the sale.

Income Statement

The table below illustrates the changes as against the prior-year presentation in the income statement:

Adjustment to Prior-year Figures – Consolidated Income Statement

in € million	2022	Adjustment	2022 (adjusted)

Revenue from property letting	4,724.6	22.8	4,747.4
Other revenue from property management	427.2	-280.1	147.1
Revenue from property management	5,151.8	-257.3	4,894.5

Income from disposal of properties	3,242.4		3,242.4
Carrying amount of properties sold	-3,172.0		-3,172.0
Revaluation of assets held for sale	68.0		68.0
Profit from the disposal of properties	138.4		138.4

Revenue from disposal of real estate inventories	588.4		588.4
Cost of sold real estate inventories	-460.9		-460.9
Profit from disposal of real estate inventories	127.5		127.5

Net income from fair value adjustments of investment properties	-1,269.8	92.2	-1,177.6
Capitalized internal expenses	673.3	-0.2	673.1
Cost of materials	-2,501.5	55.7	-2,445.8
Personnel expenses	-863.8	150.1	-713.7
Depreciation and amortization	-1,279.1	98.9	-1,180.2
Other operating income	218.8	-28.7	190.1
Impairment losses on financial assets	-49.8		-49.8
Net income from the derecognition of financial assets measured at amortized cost	-2.6	-0.3	-2.9
Other operating expenses	-397.5	17.0	-380.5
Net income from investments accounted for using the equity method	-436.6		-436.6
Interest income	115.5		115.5
Interest expenses	-367.6	0.7	-366.9
Other financial result	10.3		10.3
Earnings before tax	-732.7	128.1	-604.6
Income taxes	63.3	-33.5	29.8
Profit for the period from continuing operations	-669.4	94.6	-574.8
Profit for the period from discontinued operations		-94.6	-94.6
Profit for the period	-669.4	0.0	-669.4

Attributable to:
Vonovia’s shareholders	-643.8		-643.8
Non-controlling interests	-25.6		-25.6

Earnings per share (diluted) in €	-0.82		-0.82
Earnings per share (basic) in €	-0.82		-0.82

Segment Report

In the 2023 fiscal year, Vonovia continued with the 2022 management system unchanged for the time being. Vonovia’s business was managed via the five segments: Rental, Value-add, Recurring Sales, Development and Care. For detailed information, please refer to the chapter entitled Corporate Governance in Vonovia’s published 2022 Annual Report.

At the end of the fourth quarter of 2023, the presentation of earnings contributions from the Development to hold sales channel was adjusted within the Development segment. In the 2023 annual financial statements, the earnings contributions from development to hold are recognized exclusively in net income from fair value adjustments of investment properties, i.e., outside of the Adjusted EBITDA Total. The adjusted presentation is due to the greater transparency and traceability of the key figures that are relevant to governance. Furthermore, the adjustment results in a more balanced presentation of the earnings situation in the Development segment now that market conditions have changed.

The majority of the current Care segment, which is to be discontinued, is presented as a discontinued operation. This means that the Care segment is no longer included in the segment reporting.

As part of a strategic review of the Care segment, the management decided to discontinue and sell these operations. Endeavors to sell the Care segment have since begun and it is expected to have been sold before December 2024. A small part of the segment, with a business volume of € 23.3 million in segment revenue, was transferred to the Rental segment. Specifically, this relates to rental income for 25 properties operated by third parties. The previous year’s figures were adjusted accordingly:

Adjustment to 2022 segment figures

in € million	Rental	Value-add	Recurring Sales	Develop- ment	Care Business	Segments total	Other*	Consolida- tion*	Group

Jan. 1–Dec. 31, 2022 changes
Segment revenue	23.3			-433.9	-280.1	-690.7	-0.5	433.9	-257.3
thereof external revenue	23.3			–	-280.1	-256.8	-0.5		-257.3
thereof internal revenue				-433.9		-433.9		433.9
Carrying amount of assets sold							-20.5
Revaluation from disposal of assets held for sale
Expenses for maintenance	-0.3				7.0	6.7
Cost of development to sell
Cost of development to hold**				340.6		340.6		-340.6
Operating expenses	-2.2			0.1	188.5	186.4	9.5	–
Ancillary costs							11.5
Adjusted EBITDA Total	20.8			-93.2	-84.6	-157.0	–	93.3	-63.7

Non-recurring items									0.1
Period adjustments from assets held for sale
Income from investments/‌ amortization in other real estate companies
Net income from fair value adjustments of investment properties									92.2
Depreciation and amortization (incl. depreciation on financial assets)									98.8
Net income from investments accounted for using the equity method
Income from other investments
Interest income
Interest expenses									0.7
Other financial result
EBT									128.1

Income taxes									-33.5
Profit from continuing operations									94.6
Profit from discontinued operations									-94.6
Profit for the period

* The revenue for the Rental, Value-add, Recurring Sales and Development segments constitutes income that is regularly reported to the Management Board as the chief operating decision-maker and that reflects Vonovia’s sustainable business. The revenue/costs in the “Other” and “Consolidation” columns are not part of the Management Board’s segment management.
** Excluding capitalized interest on borrowed capital of € 2.5 million.

Adjusted EBT

Adjusted EBT is the Group’s leading indicator of profitability as of 2024. The IFRS profit for the period is reconciled to earnings before taxes (EBT). This EBT is adjusted to reflect special effects based on the definition that has applied to date (effects that do not relate to the period, recur irregularly or are atypical for business operations). The net financial result is also adjusted to reflect non-cash and actuarial valuation effects that recur irregularly. The further adjustments to reflect the effects of IAS 40 measurement, writedowns, other (Non Core/Other result), net income from non-current financial assets accounted for using the equity method and effects from residential properties held for sale produce the Group’s Adjusted EBT.

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 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.

MFH Sales

We also report on the Other segment, which is not relevant from a corporate management perspective, in our segment reporting. This portfolio involves the sale of multifamily homes that are not proving profitable (MFH Sales).

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)

Net Debt/EBITA

Net Debt/EBITDA reflects average adjusted net debt in relation to the Adjusted EBITDA Total.

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.

Operating Free Cash-Flow

The Adjusted EBT will be used as a basis for a reconciliation to the Operating Free Cash Flow (OFCF) as the leading indicator of internal financing. Depreciation and amortization will be added to Adjusted EBT, and the liquidity contribution made by the Recurring Sales segment, as well as the change in working capital, will be taken into account. Capitalized maintenance and dividend payments made to parties outside of the Group, as well as income tax paid, are subtracted from this figure. This operating free cash flow is a measure of the Group’s operational capacity to generate cash surpluses and, as a result, of its internal financing power.

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)

Non-core