23 Segment Reporting

Vonovia is an integrated residential real estate company with operations across Europe. The company’s strategy is focused on sustainably increasing the value of the company. This is achieved by managing the company’s own portfolio sustainably and with a view to enhancing its value, investing in existing residential properties in order to create value, building new residential buildings and selling individual apartments as well as by engaging in active portfolio management and offering property-related services. For the purposes of managing the company, we make a distinction between four segments Rental, Value-add, Recurring Sales and Development at the end of 2023. We also report 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/Other) 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. Ancillary costs are also reported under “Other.”

The majority of the current Care segment, which is to be discontinued, is presented as a discontinued operation. As part of the strategic review of the Care business area, the management had already adopted a plan to sell the Care segment back in the 2021 fiscal year. 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 Care 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.

The Rental segment combines all of the business activities that are aimed at the value-enhancing management of our own residential real estate. It includes our property management activities in Germany, Austria and Sweden. The consolidation of our property management activities in Germany, Austria and Sweden to form one single reporting segment is based on the similarities that we see in the property management business in these three countries. This applies to the way in which services are provided and the individual service processes that form part of the property management business as well as to the customers in the residential rental market and the type of customer acquisition used.

Overall, the residential rental market in all three countries is characterized by a shortage of housing and is regulated by statutory requirements, resulting in return expectations that are similar in the long term.

The Value-add segment bundles all of the housing-related services that we have expanded our core rental business to include. These services include both the maintenance and modernization work on our residential properties and services that are closely related to the rental business. We allocate the activities relating to the craftsmen’s and residential environment organization, the condominium administration business, the cable TV business, metering services, energy supplies and our insurance services to the Value-add segment.

The Recurring Sales segment includes the regular and sustainable disposals of individual condominiums and single-family houses from our portfolio. The consolidation of our sales activities in Germany and Austria to form one single reporting segment is based on the similarities that we see in the property management business in these two countries. It does not include the sale of entire buildings or land (Non Core/Other). These properties are only sold as and when the right opportunities present themselves, meaning that the sales do not form part of the Recurring Sales segment. We report these opportunistic sales in the Other column of the segment report.

The Development segment combines cross-country development activities and includes the project development of new residential buildings. The consolidation of our development activities in Germany, Austria and Sweden to form one single reporting segment is based on the similarities that we see in the business in these three countries. The business covers the value chain starting with the purchase of land without any development plan/dedicated purpose and ending with the completion and sale of new buildings and new construction measures on our own properties. These properties are either incorporated into our own portfolio or sold to third parties.

In the previous years, the Adjusted EBITDA of the Development segment included the fair value step-up for properties that were completed in the reporting period and had been added to our own portfolio. At the end of the fourth quarter of 2023, the presentation of contributions to earnings made by the Development to hold sales channel was adjusted within the Development segment. Details are set out in the Notes under Adjustment to Prior-year Figures. In the future, all earnings contributions made by Development to hold will be recognized in the valuation results, i.e., outside of segment revenue and Adjusted EBITDA.

This brings the management approach into the IFRS standard governing the measurement of investment properties (IAS 40). The previous year’s figures were adjusted accordingly.

Planning and controlling systems ensure that resources are efficiently allocated and their successful use is monitored on a regular basis. Reporting to the chief decision-makers and thus the assessment of economic performance as well as the allocation of resources are performed on the basis of this segmentation. Asset and liability items are not reported separately by segment. Internal reporting is based on the IFRS reporting standards in general.

As chief decision-makers of Vonovia, the Management Board members monitor the contribution made by the segments to the company’s performance on the basis of the segment revenue as well as the Adjusted EBITDA.

The following table shows the segment information for the reporting period:

To show the development of operating performance and to ensure comparability with previous periods, we calculate adjusted EBITDA for each of our segments: Rental, Value-add, Recurring Sales and Development. The sum of these key figures produces the Group’s Adjusted EBITDA Total (continuing operations).

The adjustments made include items that are not related to the period, items that recur irregularly and items that are atypical for business operation. The non-recurring items include the expenses for pre-retirement part-time work arrangements and severance payments, the development of new fields of business and business processes, acquisition projects including integration costs, research and development and expenses for refinancing and equity increases (where not treated as capital procurement costs).

In the 2023 fiscal year, the non-recurring items eliminated in the Adjusted EBITDA Total (continuing operations) came to € 147.9 million (2022: € 127.4 million). The change is mainly attributable to positive non-recurring items in the previous year, as well as higher expenses for pre-retirement part-time work arrangements and one-off effects linked to the Südewo transaction in the 2023 reporting period.

The following table gives a detailed list of the non-recurring items:

The breakdown of non-Group revenue from contracts with customers (pursuant to IFRS 15.114f.) and its allocation to the segments referred to above is as follows:

External revenue and non-current assets, excluding financial instruments, deferred taxes, post-employment benefits and rights under insurance contracts, are distributed among Vonovia’s country of origin and other countries as follows. The revenue and the assets are allocated based on the registered office of the unit providing the service.