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Report on Economic Position

Key Events During the Reporting Period

The 2023 fiscal year was characterized by challenging overall conditions in the residential real estate sector. On the one hand, the ongoing shortage of housing pushed rents up, while on the other, it proved impossible to close the macroeconomic supply gap due to restrained new construction activity. There was a very low volume of transactions on the market in 2023, not including Vonovia’s transactions.

Higher interest rates and inflation also had clear effects on the assessment of business models and the valuation of assets, in particular holdings measured at fair value and goodwill.

In the 2023 fiscal year, total value adjustments of around € 10.7 billion were recognized for investment properties at Vonovia. The value of the investment properties as of December 31, 2023, adjusted to reflect investments, amounts to around € 81.1 billion. As impairment losses were recognized on goodwill and trademark rights in the fiscal year, only the Value-add cash generating unit still reported goodwill in the amount of € 1.4 billion as of December 31, 2023.

As a result, the capital structure and capital allocation were the main focal points of the management system due to the changes in return requirements and the interest rate environment. Strengthening the company’s internal financing was another priority issue.

Despite the sluggish transaction market, Vonovia successfully strengthened its capital structure in the 2023 fiscal year with two joint ventures and two block transactions.

As per a publication dated April 26, 2023, Vonovia, through an investment vehicle that is advised and managed by Apollo Capital Management L.P., agreed to a direct minority stake of 34.5%, or an indirect participation of 27.6%, in a selected Südewo portfolio comprising around 21,000 residential units in the German federal state of Baden-Württemberg. The investment vehicle is financed by holding companies, insurers and other long-term investors that are advised and managed by Apollo Capital Management L.P. The net consideration amounted to around € 1.0 billion. The transaction was closed in the second quarter of 2023.

In the fourth quarter (contract signed on October 27, 2023), Vonovia also reached an agreement with an investment vehicle that is advised and managed by Apollo Capital Management L.P. in respect of an equity holding of approx. 30% in a selected portfolio comprising around 31,000 residential units in northern Germany. The investment vehicle is financed by holding companies, insurers and other long-term investors that are advised and managed by Apollo Capital Management L.P. The net consideration amounted to around € 1.0 billion. The transaction was closed on December 31, 2023.

On May 4, 2023, Vonovia and Deutsche Wohnen reached an agreement with funds managed by CBRE Investment Management on the sale of five properties in Berlin, Munich and Frankfurt with a total of 1,350 apartments and a purchase price of around € 560 million. The properties were three newly constructed properties belonging to the company’s old stock and two new construction projects that were in the final phase of construction. The share deal component was closed on May 31, 2023.

On November 3, 2023, another transaction was announced as an asset deal involving Vonovia and Deutsche Wohnen together with funds managed by CBRE Investment Management regarding new construction projects with a volume of € 357 million. The transaction had not yet been completed by December 31, 2023.

Transactions in the other sales categories were also implemented successfully. One transaction particularly worthy of mention is that announced on October 7, 2023 between the City of Dresden and Vonovia relating to a total of 1,213 apartments. The package also includes undeveloped land measuring roughly twelve hectares. This total price amounts to € 87.8 million. The transaction is expected to be closed in the course of 2024.

In the first quarter of 2023, Vonovia had sold its 10% stake in the French company Vesta SAS for a net amount of € 95.7 million, marking its withdrawal from the French market. 

As part of a strategic review of the Care segment, the Management Board of Deutsche Wohnen 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. Accordingly, the majority of the Care segment is presented as discontinued operations.

The high demand for residential real estate, positive rental price development and synergies realized as part of the merger with Deutsche Wohnen promoted positive development in our core Rental business in the 2023 fiscal year.

As of December 31, 2023, Vonovia’s portfolio was virtually fully occupied with a vacancy rate of 2.0%. The Customer Satisfaction Index (CSI) was 0.4 percentage points below the value seen in the previous year in the fourth quarter of 2023. Looking at the average for the year as a whole, customer satisfaction was down by 2.4 percentage points year-on-year.

The sustained high customer satisfaction values in the 2023 fiscal year confirmed our efforts in property management and, together with the low vacancy rate, provided a solid foundation for our business. At the same time, this means stable positive cash flows in the long run and, as a result, a stable basis for the income from our real estate portfolio.

The other business segments were negatively affected by higher interest rates in the reporting period and by inflation, in particular by the marked uptick in construction costs.

Higher return requirements meant that investment projects had to be reanalyzed, reassessed accordingly and reprioritized. As a result, restraint was exercised with plans to launch new projects in particular. Requirements related to the company’s capital structure and internal financing were also, however, key aspects influencing decisions. In this respect, transactions with a focus on reducing the leverage ratio were successfully realized in 2023.

The higher return requirements, primarily due to higher interest rates, also had an impact on potential transaction partners and translated into lower sales in the Recurring Sales segment and with regard to projects in the development to sell area.

The Adjusted EBITDA Total (continuing operations) came to € 2,583.8 million, a drop of 0.9% as against the prior-year figure of € 2,606.1 million. At € 2,401.7 million, Adjusted EBITDA in the Rental segment was up by 6.5% on the previous year’s figure of € 2,254.3 million, while Adjusted EBITDA in the other segments fell by 16.7% for Value-add, 53.1% for Recurring Sales and 85.3% for Development.

The Annual General Meeting held on May 17, 2023, resolved to pay a dividend for the 2022 fiscal year in the amount of € 0.85 per share. As in previous years, shareholders were offered the option of choosing between being paid the dividend in cash or being granted new shares. During the subscription period, shareholders holding a total of 44.87% of the shares carrying dividend rights opted for the scrip dividend instead of the cash dividend. As a result, 18,795,001 new shares were issued using the company’s authorized capital for a total of € 303,539,266.15. The total amount of the dividend distributed in cash therefore came to € 372,933,231.30.

The Annual General Meeting also voted on the election of eight Supervisory Board members. Dr. Daniela Gerd tom Markotten was elected as a new Supervisory Board member. As planned, the size of the Supervisory Board was reduced from twelve to ten members. The Supervisory Board elected Clara-Christina Streit as its Chair at its inaugural meeting.

Effective October 1, 2023, Ruth Werhahn assumed responsibility for Vonovia’s new HR executive division and is now a member of the Management Board of Vonovia SE.

As reported, on March 7, 2023, Vonovia was informed by the public prosecutor‘s office in Bochum during the course of necessary search measures connected to an ongoing investigation that former and, at that time, current technical employees were being investigated on suspicion of corruption. The persons under suspicion may also have caused damage for Vonovia by overriding and circumventing controls and compliance policies.

Vonovia continues to cooperate fully with the work of the investigating authorities. The auditing firm Deloitte and the law firm Hengeler Mueller have been commissioned to perform a forensic assessment of all the facts of the case. It is not currently possible to arrive at any conclusive assessment regarding the amount of any damages. For 2022, it is estimated to come to a maximum of 1% of the order volume awarded by Vonovia. At the most, this amounts to a low single-digit million amount.