Economic Development of Vonovia SE

(Reporting on the basis of the German Commercial Code [HGB])

Foundation

Vonovia SE has been entered in the commercial register of Bochum Local Court under HRB 16879 since 2017. Vonovia SE was established as Deutsche Annington Immobilien GmbH on June 17, 1998, with its registered headquarters in Frankfurt am Main, to serve as an acquisition vehicle for the purchase of residential properties by financial investors.

Following its initial listing in 2013 and further successful acquisitions over the course of time, it now forms the Vonovia Group together with its subsidiaries and is one of the leading German, Austrian and Swedish residential real estate management companies. Following the successful integration of the BUWOG Group, Vonovia also ranks among the leading real estate developers in Germany and Austria. Deutsche Wohnen SE and its subsidiaries have also been part of the Vonovia Group since September 2021.

Vonovia SE performs the function of the management holding company within the Vonovia Group. In this function, it is responsible for determining and pursuing the overall strategy and implementing it in the form of the company’s goals. It performs property management, project development, financing, service and coordination tasks for the Group. Furthermore, it is responsible for the management, control and monitoring system as well as risk management. To carry out these management functions, Vonovia SE also maintains service companies to which it has outsourced selected functions, allowing it to realize corresponding harmonization and standardization effects, as well as economies of scale.

The description of the company’s net assets, financial position and results of operations is based largely on the reporting of the Vonovia Group. The net assets, financial position and results of operations of Vonovia SE as the management holding company are ultimately determined by the assets of the Group companies and their ability to make sustainable positive contributions to earnings and generate positive cash flows. The company’s risk profile is therefore largely the same as the Group’s. The preceding reporting for the Group of Vonovia SE therefore also expresses the company’s position.

The Vonovia SE annual financial statements have been prepared in accordance with the provisions of the German Commercial Code (HGB) taking into account the supplementary regulations of the German Stock Corporation Act (AktG) and the SE Regulation. As a listed company, Vonovia SE is classed as a large corporation.

The annual and consolidated financial statements as well as the combined management report are published in the electronic business register.

Overview of Business Performance in 2024

The residential real estate sector is still faced with complex overall conditions characterized by high demand for housing and homes that are in short supply, also due to an insufficient number of real estate development projects. Demand is being driven to a considerable degree by migration and sociological aspects, while supply is being influenced primarily by higher construction costs, regulatory issues related to construction, and interest rates.

Also in light of the current overall conditions, the successful strategy defined at the time of the company’s IPO has been analyzed to identify the key value drivers and create a more targeted management system.

On September 18, 2024, Vonovia SE and Deutsche Wohnen SE initiated a process to conclude a control and profit-and-loss transfer agreement between the two companies. This process will involve Vonovia making an offer to external shareholders of Deutsche Wohnen SE to acquire their shares in return for compensation in the form of newly issued shares in Vonovia SE, or to grant the remaining shareholders of Deutsche Wohnen SE an annual compensation payment for the term of the intercompany agreement. The necessary approval was obtained at extraordinary general meetings organized by the companies on January 23 and 24, 2025. The control and profit-and-loss transfer agreement takes effect upon entry into the commercial register of Deutsche Wohnen SE. Deutsche Wohnen SE’s entry in the Commercial Register is not yet certain due to an action for annulment brought against the resolution passed by the Annual General Meeting of Vonovia SE.

On September 30, 2024, Vonovia and Apollo Capital Management L.P. agreed to establish a company that is to hold 20% of the shares in Deutsche Wohnen SE. In addition to Vonovia, with a 49% stake, long-term investors advised by Apollo are to hold a total stake of 51% in this company. Vonovia’s cash inflow from this transaction will amount to around € 1 billion.

Vonovia Finance B.V., Amsterdam, Netherlands, was merged with Vonovia SE on a cross-border basis effective January 1, 2024. This merger was completed upon entry in the Bochum Commercial Register on January 23, 2024 and then implemented in operational terms. This means that the values for the 2024 fiscal year can only be compared with the prior-year values to a limited extent.

The merger resulted in the assumption of total liabilities from bonds amounting to € 10,320 million, as well as liabilities to banks in the amount of € 1,264 million. The receivables from, and liabilities to, affiliated companies were also transferred. Liabilities to affiliated companies totaling € 8,120,947 k also expired due to the merger. The merger was associated with merger gains totaling € 7.8 million.

The operating rental business of Vonovia SE and its subsidiaries went largely to plan, and proved successful, in the 2024 fiscal year. While the Value-add segment closed 2024 better than planned, the results reported by the Development and Recurring Sales segments fell short of expectations. Vonovia was nevertheless able to report a satisfactory transaction volume in 2024, despite the difficult overall conditions.

The nursing care activities performed under the Deutsche Wohnen umbrella were subjected to a strategic analysis as part of the merger, with the outcome that these activities were no longer to be part of Deutsche Wohnen’s strategy and, as a result, were to be sold, with a knock-on effect on Vonovia at group level as well. In the Group reporting, the nursing care activities are shown as discontinued/abandoned operations. In the 2024 fiscal year, the nursing care activities under the Katharinenhof umbrella, encompassing 27 nursing care properties, were sold. A sales contract was signed in January 2025 for those nursing care activities under the “nursing and assisted living” umbrella.

The 2024 fiscal year was also dominated by refinancing measures in response to falling market values and rising interest rates. Refinancing measures in 2024 were also dominated by proceeds from sales to fund structures managed by HIH Invest Real Estate GmbH.

According to the publication dated August 23, 2024, Vonovia’s credit rating as awarded by the agency Standard & Poor’s is unchanged at BBB+ with a stable outlook for the long-term issuer credit rating and A-2 for the short-term issuer credit rating. In its announcement of February 4, 2025, the rating agency Moody’s confirmed Vonovia’s rating of Baa1 with a stable outlook. The rating agency Scope has, in its announcement of July 2, 2024, awarded Vonovia an A-investment grade rating with negative outlook. On March 28, 2024, the rating agency Fitch awarded Vonovia a rating for the first time: BBB+ with a stable outlook.

The Annual General Meeting held on May 8, 2024 resolved to pay a dividend for the 2023 fiscal year in the amount of € 0.90 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 30.93% of the shares carrying dividend rights opted for the scrip dividend instead of the cash dividend. As a result, 8,207,927 new shares were issued using the company’s authorized capital for a total of € 226,785,023.01. The total amount of the dividend distributed in cash therefore came to € 506,395,475.19.

Results of Operations of Vonovia SE

The company regularly generates income from the charging of the services it provides, from income from investments in the form of dividend distributions from Group companies and income from the transfer of profits. Profit-and-loss transfer agreements exist with, among other entities, the service companies, which themselves generate income by charging the real estate companies for the services they have provided.

The income from investments collected is based on the net profit of the subsidiaries that is eligible for distribution, which is, in turn, calculated based on the accounting standards set out in the German Commercial Code (HGB). The main difference between these standards and the IFRS accounting principles lies in the fact that, under IFRS accounting, the fair value principle has more of an impact than the cost principle and the realization principle do under HGB accounting.

In the consolidated financial statements under IFRS, the properties are remeasured at periodic intervals. Under HGB, the fixed assets are stated at amortized cost, taking depreciation into account. The capitalization regulations in particular also vary.

Expenses relate largely to personnel and administrative expenses associated with the management holding function, as well as to losses to be compensated for in connection with profit-and-loss transfer agreements.

The financial result is characterized by group financing, impairment losses on non-current financial assets and the result from profit-and-loss transfer agreements.

The development of business in 2024 and, as a result, the annual result are once again influenced by special effects, namely by the reversal of impairment losses on non-current financial assets and expenses linked to structuring measures, meaning that Vonovia closed 2024 with net income for the year of € 667.9 million.

Compared to the previous year, the changes in the balance sheet and the income statement reflects the effects of the merger of Vonovia Finance B.V. with Vonovia SE effective January 1, 2024. The merger of Vonovia Finance B.V. with Vonovia SE means that a comparison with the previous year can only be drawn to a limited extent.

After adjustments to reflect the gains from the reversal of impairment losses and the merger in the amount of € 858.4 million, the gross profit came to € 146.1 million, down by around € 33.1 million on the prior-year figure. If other operating expenses are also adjusted to reflect structuring measures in the amount of € 146.2 million, this leaves an operating loss before the financial result and taxes of € 45.9 million, as against € 17.3 million in the previous year.

Compared to the previous year, the result from profit transfer and loss compensation is in positive territory at € 601.7 million, compared to a net expense of € 1,569.9 million in the previous year. The latter was due to loss transfers of € 1.8 billion, mainly from impairment losses that needed to be recognized on shares in affiliated companies at the subsidiaries.

Net interest largely reflects the merger with Vonovia Finance B.V. On the one hand, net interest expenses due to third parties increased by € 278.6 million to € 447.6 million, while on the other, net interest income due from affiliated companies improved by € 141.3 million after offsetting created a net income item of € 48.5 million.

Revenue increased by € 29.4 million from € 234.2 million in 2023 to € 263.6 million in 2024 due to higher fees charged under agency agreements. This also fueled an increase in the cost of materials from purchased services.

Other operating income is dominated by the special effects associated with the reversal of impairment losses in the amount of € 850.5 million (previous year: € 375.8 million), but fell by around € 65 million in adjusted terms. Other operating income in the previous year had included a book gain from the buyback of a bond in the amount of € 47.9 million and income from the reversal of impairment losses in the amount of € 375.8 million.

Expenses for purchased services increased by € 37.9 million, largely in line with the higher fees charged due to an increase in internally purchased services in the context of the integration of the Deutsche Wohnen Group.

Personnel expenses rose slightly overall in 2024, namely by € 1.5 million, due to higher additions to the long-term incentive program. By contrast, additions to provisions for pensions were down by € 1.7 million.

Other operating expenses increased significantly by € 138.9 million, due primarily to structuring expenses.

The net financial result improved by € 2.4 billion to total net income of € 95.2 million. The marked improvement in income from investments due to lower loss transfers and lower write-downs on non-current financial assets is the main reason behind this.

Tax expenses came to € 38.6 million in 2024 compared with € 59.6 million in 2023.

Vonovia SE closed the 2024 fiscal year with net income of € 655,894,028.16. 5% or € 32,794,701.41 of this net income for the year is allocated to the legal reserve in accordance with Section 150 (2) AktG. After offsetting the remaining amount of € 623,099,326.75 against the profit carried forward from the prior year of € 16,819,501.80, the Management Board withdrew a further € 460,081,171.45 from capital reserves, resulting in a net profit for the 2024 fiscal year of € 1,100,000,000.00.

The Management Board and the Supervisory Board propose to the Annual General Meeting that, of the profit of Vonovia SE for the 2024 fiscal year of € 1,100,000,000.00, an amount of € 1,003,880,568.50 on the 822,852,925 shares of the share capital as of December 31, 2024 (corresponding to € 1.22 per share) be paid as a dividend to the shareholders, and that the remaining amount of € 96,119,431.50 be carried forward to a new account or be used for other dividends on shares carrying dividend rights at the time of the Annual General Meeting and which go beyond those of the share capital as of December 31, 2024.

Net Assets and Financial Position of Vonovia SE

The merger resulted in the assumption of total liabilities from bonds amounting to € 10,320 million, as well as liabilities to banks in the amount of € 1,264 million. At the same time, receivables from, and liabilities to, affiliated companies were offset and eliminated as a result of the merger. This merger resulted in gains of € 7.8 million.

The company’s asset position is characterized by the net lending/borrowing position of € 1.503 million in favor of Vonovia SE, debt financing of € 29.8 billion and shares in affiliated companies of € 32.8 billion. The increase in debt financing and the fact that the Group’s net lending/borrowing position has been turned back into a net investment item is the direct result of the merger of Vonovia Finance B.V.; the increase in shares in affiliated companies is explained by reversals of impairment losses.

On January 4, 2022, Deutsche Wohnen had extended a loan to Vonovia SE in the amount of € 1,450 million in line with the arm’s length principle. It had a value of € 320 million as of December 31, 2023. This loan was repaid in full in May 2024.

The company’s non-current assets in the amount of € 39,622.6 million (December 31, 2023: € 35,308.5 million) are largely characterized by non-current financial assets in the amount of € 39,593.0 million (December 31, 2023: € 35,278.2 million). The increase in non-current financial assets can be traced back primarily to the increase in loans of € 3.4 billion due to the merger.

There was only a minor change in the company’s intangible assets and property, plant and equipment in the normal course of business.

Financial liabilities comprising bonds and bank loans increased by € 11,678.9 million due to the shift in volumes from Vonovia Finance B.V. The Group’s net lending/borrowing position, which comprises receivables from, and liabilities to, affiliated companies as well as company loans resulting from the Group financing activity, changed by a total of € 11,100.8 million in Vonovia SE’s favor in 2024.

Provisions came to € 315.6 million at the end of the year (December 31, 2023: € 223.3 million), with € 101.1 million attributable to provisions for pensions (December 31, 2023: € 101.4 million) and € 39.9 million attributable to tax provisions (December 31, 2023: € 54.2 million). The € 107.0 million increase in other provisions was mainly due to the structuring expenses and outstanding invoices.

Total equity had increased by € 161.5 million to € 4,624.2 million by the end of the fiscal year due to the net income for the year, less the cash dividend that was paid out.

Vonovia SE’s cash flow from operating activities is characterized by the income and expenses relating to the performance of the management holding functions. Vonovia SE only has appreciable cash flows from investing activities when acquisitions are made. Cash flows from financing activities regularly result from changes in Group financing and from the borrowing/repayment of debt financing in the context of the Group financing function.

Employees of Vonovia SE

In the 2024 fiscal year, an average of 159 employees (2023: 159) were employed at the company, 122 of whom were full-time employees and 32 of whom were part-time.

Opportunities and Risks for Vonovia SE

The likely development of Vonovia SE in the 2025 fiscal year depends to a considerable extent on the development of the Group as a whole and its opportunity and risk situation. This situation is set out in the Group’s opportunity and risk report, meaning that the statements set out there in regard to the opportunity and risk situation of the Group also apply to the annual financial statements of Vonovia SE prepared in accordance with German commercial law, where the risks can have an impact on the valuation of long-term financial assets and on the amount of the results of subsidiaries collected/compensated for.

Significant Events After the Balance Sheet Date

At the extraordinary general meetings of Vonovia SE and Deutsche Wohnen SE on January 23 and 24, 2025, the control and profit-transfer agreement between Vonovia SE and Deutsche Wohnen SE was approved by the respective shareholders of both companies.

This control and profit-transfer agreement takes effect upon entry into the commercial register of Deutsche Wohnen SE. Deutsche Wohnen SE’s entry in the Commercial Register is not yet certain due to an action for annulment brought against the resolution passed by the Annual General Meeting of Vonovia SE. Once the entry has been made, Deutsche Wohnen will subsequently transfer its total annual profit to Vonovia SE or Vonovia will cover any losses incurred by Deutsche Wohnen SE. The outstanding shareholders will receive a guaranteed dividend of € 1.03 per share after tax.

Within the scope of the control and profit-transfer agreement, the outstanding shareholders of Deutsche Wohnen SE will receive an offer to exchange Deutsche Wohnen shares for Vonovia shares at a ratio of 1:0.7947. Vonovia SE will create conditional capital for this purpose.

Forecast for Vonovia SE

Since the company’s net assets, financial position and results of operations are determined solely by the ability of the Group companies to make positive earnings contributions and generate positive cash flows in the long term, we refer at this point to the Forecast Report for the Group. The most important financial performance indicator for the annual financial statements of Vonovia SE is the annual result.

The company’s result for 2024 is influenced to a significant degree by special effects due to impairment losses, and the reversal of impairment losses, recognized on investments and shares in affiliated companies, as well as expenses related to joint venture agreements. Without taking these special effects into account, Vonovia would report an adjusted operating loss running into the mid-double-digit millions for 2024, in line with the company’s forecast.

The results for the 2025 fiscal year will once again be characterized by the results of subsidiaries collected/compensated for on the basis of income from investments and profit-and-loss transfer agreements, income from services, personnel and administrative expenses, and the financial result.

All in all, we expect the company to report a net loss in the mid-double-digit million range in the 2025 fiscal year, excluding special effects. This does not include any future control and profit-and-loss transfer agreement with Deutsche Wohnen.

Statement of the Management Board on the Economic Situation

The net assets, financial position and results of operations of the company are positive, particularly given the solid financing, the resulting balanced maturity profile and the financing flexibility gained through the rating-backed bond financing with a view to both organic and external growth. The ongoing improvements to the property management processes, the expansion of the Value-add segment, Recurring Sales and a value-adding development business promote ongoing improvements in profitability and enterprise value. Developments in Germany are complemented by equally positive developments in Sweden and Austria.