ESRS S4 Consumers and End-Users
ESRS 2 SBM-3 – Material Impacts, Risks and Opportunities and Their Interaction with Strategy and Business Model
Material Impacts, Risks, and Opportunities
Within the scope of our materiality assessment, we identified five material impacts, risks and opportunities (IROs) related to consumers and end-users:
- Housing tailored to tenants’ needs
- Reduced tenant turnover through the creation of homes that meet people’s needs
- Improved tenant satisfaction through enhanced accessibility and service quality
- Reduced tenant satisfaction due to limited accessibility and service quality
- Financial opportunity from increased tenant satisfaction and service quality
The actual positive impact “housing tailored to tenants’ needs” affects both our core business and the downstream value chain. Creating homes that meet people’s needs as they age can significantly increase the length of time that people with physical disabilities can stay in their own residences. This extended autonomy positively impacts their living conditions and health as they age. Targeted measures (e.g., accessible housing) enable us to retain existing tenant groups and attract new ones.
Due to demographic changes, the demand for accessible homes is projected to exceed the current supply in Germany by approximately 2 million units by 2035, a gap already noticeable today. As a result, we have integrated a product program for partially accessible modernizations into our investment strategy. Measures include, for example, installing slip-resistant flooring. Given the aging population, accessible partial modernizations and new constructions are long-term components of our strategy and business model (Value-Add and Development divisions).
We already see a significant influence of this material positive impact on our business model, strategy and value chain. This positive impact is closely tied to our strategy, as Vonovia contributes meaningfully to meeting the immense market demand through its accessible partial modernization program. As a result, the program for accessible partial modernizations is integrated into our strategy. Through our actions in this area, we are making a significant contribution to this positive impact. By adapting housing to be accessible, we enable people with physical limitations to stay in their homes much longer, allowing them to live more independently for extended periods. This approach has a direct impact on our tenants, improving their quality of life and fostering greater self-determination.
The associated financial opportunity of “reduced tenant turnover through the creation of homes that meet people’s needs” extends to both our core business and the downstream value chain. Creating homes that meet people’s needs can increase the length of time that older people with physical disabilities can stay in their own residences as well as generate additional rent increases.
This material opportunity has a positive impact on our business model, strategy and value chain. If the creation of homes that meet people’s needs through low-threshold conversions or accessible partial modernizations, reduce tenant turnover and increase supply, turnover costs can be lowered, creating potential appeal to additional tenant groups, such as older individuals and tenants with physical limitations. The reduction of tenant turnover through the creation of homes that meet people’s needs also has the potential to improve Vonovia’s reputation. Demographic changes are driving a high demand for accessible, age-appropriate housing. This trend is expected to further increase demand in the future, positively contributing to our business model. Our measures, including low-threshold conversions and accessible partial modernizations (e.g., the installation of slip-resistant flooring and walk-in showers), are already integrated into our business model and strategy. These measures are actively contributing to the realization of this opportunity and will continue to be expanded in the future.
Currently, we have not identified any financial effects related to this opportunity that could significantly impact our financial position, earnings or cash flows in the next reporting period, nor do we foresee any material risks of adjustments to the carrying amounts of assets and liabilities in our financial statements.
The actual positive impact of “improved tenant satisfaction through enhanced accessibility and service quality” is closely linked to our core business. Regular engagement with tenants through surveys – especially concerning service and product quality – yields positive outcomes. A multi-lingual customer service team and local representatives ensure quick and direct communication, which enhances both service and product quality.
The impact can also be negative, leading to “reduced tenant satisfaction due to limited accessibility and service quality.” Issues such as restricted access, long response or processing times at the central customer service center or the unavailability of caretakers or craftsmen can result in dissatisfaction.
As the rental of homes is our core business, tenant satisfaction has a significant influence on our business model and strategy. We measure tenant satisfaction quarterly and respond to negative trends with targeted measures at the regional and neighborhood levels. We continuously work on improving service quality and implement corresponding measures (see S4-4).
We see this material impact as having a meaningful short-term influence on our business model, strategy and value chain. The impact is directly tied to our strategy, as tenant satisfaction is a key determinant of our company’s success. Our extensive housing portfolio in urban areas, low vacancy rates, and diverse tenant needs require a high level of accessibility, service quality and responsiveness, supported by appropriately trained staff. Our measures play a critical role in determining whether this impact is positive or negative. For example, appropriately trained staff and sufficient personnel resources in customer and residential environment services and technical services contribute to positive outcomes, while a lack of these resources can contribute to negative ones. These measures directly affect individuals, particularly our tenants, whose satisfaction depends on the successful implementation of these efforts.
The negative impact can, in principle, affect all customers. It may occur sporadically, such as when the central customer service department or on-site staff is occasionally less accessible. However, it primarily relates to specific aspects of accessibility and service quality – operational processes – and does not disproportionately affect any particular customer group.
At the same time, there is also a “financial opportunity from increased tenant satisfaction and service quality”. A straightforward, quick, and transparent exchange with customers, alongside improved service and product quality, can boost customer satisfaction, strengthen tenant retention, and contribute to a positive reputation. This higher customer satisfaction also serves as the foundation for selling complementary products and services.
We see this opportunity as having a meaningful influence on our business model, strategy and value chain. Consistently high service quality offers the potential to enhance customer satisfaction, which, in turn, promotes tenant retention and bolsters Vonovia’s reputation. This results in lower vacancy rates for us and, consequently, stable long-term revenue. Our initiatives to improve service quality (e.g., employee training and extended service hours to ensure prompt customer support) are embedded in our business model and strategy. These measures are actively contributing to the realization of this opportunity and will continue to be expanded in the future.
In the short term, we anticipate a potential impact on our business model and value chain due to this opportunity. High levels of customer satisfaction and service quality enhance our reputation and our appeal as an employer. Lower tenant fluctuation also allows us to reduce our fluctuation costs and contribute to rental growth by expanding the supply of attractive housing.
The financial effects related to this opportunity that could significantly impact our financial position, earnings or cash flows in the next reporting period cannot currently be quantified, nor do we foresee any material risks of adjustments to the carrying amounts of assets and liabilities in our financial statements.
Resilience of Our Business Model
The resilience of Vonovia’s strategy and business model is analyzed and evaluated annually as part of risk management. First-level executives below the Management Board are responsible for identifying and assessing risks within their areas during the semiannual risk inventory process. The risk management horizon and the evaluation period extend five years beyond the reporting year, with assessments focusing on net risks.
To evaluate the resilience of our business model in managing key impacts and leveraging significant opportunities, we continuously analyze trends in tenant turnover and customer satisfaction. This analysis has shown that our customer turnover remains consistently low and our customer satisfaction consistently high. Our management platform provides tenants with both a centralized customer service department and local contacts (e.g., caretakers, craftsmen, real estate managers, technicians and landlords), enabling us to address customer needs and mitigate potential dissatisfaction promptly. This ensures that our current measures strengthen the resilience of our business model, with no material risks identified. Additionally, ongoing housing shortages and high demand for age-appropriate housing in urban areas further reinforce the resilience of our business model.
Business Model Alignment
Apartment rental is our core business. This means that customer satisfaction and our ability to influence it positively or negatively through service quality and accessibility and the related financial opportunity are essential to our business model, which also emphasizes the legitimate interests of a private-sector enterprise. Demographic shifts and the resulting increased demand for (partially) modernized apartments (impact: “Homes that meet tenants’ needs”) directly affect our business model. This demand drives our new construction projects and efforts to modernize existing properties. These activities present a financial opportunity to reduce tenant turnover through “Reduced tenant turnover through the creation of homes that meet people’s needs.” Adapting our business model to these demands creates opportunities for future business success.
By managing our key impacts, we also directly influence the living conditions of current and potential tenants. Key impacts such as “Improved customer satisfaction through better accessibility and service quality,” “Reduced customer satisfaction due to limited accessibility and service quality,” and “Housing that meets tenants’ needs” all stem directly from our business model. Accordingly, our strategies center on providing suitable and affordable housing for as many people as possible, building long-term tenant relationships through excellent services and attractive housing options – core elements of our policy.
Target Groups
Our core target group at Vonovia is our tenants in our homes in Germany, Austria, and Sweden. This includes potential rental applicants, buyers of apartments developed by Vonovia or BUWOG, and customers purchasing property-related services (e.g., green energy contracts, insurance and multimedia). The information provided in the ESRS S4 reporting framework generally applies to all (potential) tenants and buyers.
Our customers are not end users of products that could harm their health or increase the risk of chronic illness, nor are they recipients of services that might compromise their right to privacy, the protection of their personal data, their freedom of expression, or their right to non-discrimination. Moreover, they do not rely on detailed and accessible product or service-related information, such as manuals or labels, to avoid potentially harmful use. Similarly, our customers are not end users particularly vulnerable to privacy concerns or the effects of marketing and sales strategies, such as children or financially at-risk individuals. Regarding the impact area of “housing that meets tenants’ needs,” older or physically impaired tenants represent a specific customer group with distinct housing requirements. These needs arise primarily from physical limitations that typically occur with aging. However, we have not identified any significant IROs (impacts, risks, or opportunities) related to the health of this target group.
Our key negative impact, “Reduced tenant satisfaction due to limited accessibility and service quality,” is not systemic but occurs in isolated customer incidents. These incidents may stem from temporary factors, such as short-term staff shortages, leading to a decline in service quality that affects only individual cases or a small portion of the overall customer base.
Our positive impact of “Housing that meets tenants’ needs” is achieved primarily through the accessible expansion and renovation of homes for individuals with mobility limitations. This primarily benefits older tenants. Our positive impact of “Improved tenant satisfaction through enhanced accessibility and service quality” is realized through our centralized (multilingual and digital) and decentralized service structures, benefiting all of our tenants.
Significant opportunities exist in increased customer satisfaction and service quality, as well as in reduced tenant turnover through the creation of homes that meet people’s needs, especially for older individuals. This enables us to positively influence our tenants’ living conditions and satisfaction.
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)
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.
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
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
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
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.
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
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.
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
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
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
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.
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
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.
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
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
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
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
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.
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)
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.
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.
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
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.
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).
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.