Our Strategy
From day one, Vonovia’s tried-and-tested strategy has been divided into the subareas of portfolio management strategy, property management strategy, Value-add strategy and financing strategy – supported by the opportunistic elements of the company’s acquisition and internationalization strategy. This strategy has been refined in the recent years of crisis and has evolved into a more integrated, focused stakeholder value strategy, reflecting the importance of all of the company’s major stakeholders.
By revising the materiality assessment in accordance with the ESRS (EU European Sustainability Reporting Standards) and identifying the opportunities and risks, as well as the impacts that Vonovia’s activities have on stakeholders, transparency has been enhanced, laying the foundation for even more integrated business activities. The materiality assessment forms the basis for the company’s sustainability reporting.
The Value Drivers of Our Strategy
Within this context, the Management Board has broken the strategy down into its main value drivers:
1. The highly efficient management platform
2. The optimized capital structure and advantageous costs of capital
3. Investment focused on megatrends
4. The Value-add business as a way to create value
5. The value contribution made by the Development business
6. The efficient capital allocation
(1) The scalable management platform featuring highly digitalized processes, allows for the optimized management of around 500,000 residential units, organized in five business units with 24 regional business areas and 90 regions. This system is directly associated with a clear reduction in fixed costs and, at the same time, ensures consistent service quality to guarantee customer satisfaction.
Further advances in digitalization will also open up additional efficiency potential in the future, both with regard to processes and in the use of building master data and dynamic building data. The “digital twin” allows buildings to be broken down and mapped in a digital data format for further use throughout the company.
The range of further processing options for digital building data includes enhanced service for customers, tailored descriptions of sustainable investment measures and predictive maintenance, particularly for heating units and elevators.
(2) An optimized capital structure and, as a result, advantageous costs of capital secure the Group’s equity and debt financing in the long run, thereby supporting the capital- intensive business of a residential real estate company in the long run to ensure risk-adjusted yields.
The primary objective of strengthening the company’s internal financing provides the basis for investments to address the challenges arising from the megatrends. Maintaining a good investment grade rating remains a key objective. The company opts for debt or equity financing depending on the opportunities that arise under the prevailing equity or debt capital market conditions.
(3) When it comes to making investments based on megatrends, a distinction has to be made between
- investments in new construction to ease the shortage of apartments,
- investments to optimize existing properties through modernization and senior-friendly refurbishment,
- investments in climate protection to reduce CO2 and in neighborhood projects to promote tenant satisfaction.
All of these investments have to take account of the new return criteria.
(4) The value-add business gives Vonovia the expertise to perform technical construction services, modernization measures and residential environment services. Vonovia uses standardized processes to ensure availability while maintaining a consistently high level of quality throughout the Group.
The Value-add business, our “neighborhood workshop,” generates added value for the company by bundling multi-utility services. The aim of the neighborhood workshop is to create an integrated system of housing-related infrastructure services. This includes the ongoing establishment of additional services to complement conventional rental services, the further development and expansion of the existing main product lines, multimedia, energy supply and meter reading technology services, as well as the further implementation of IoT systems, for example for elevator and heating unit monitoring. Further innovations are in the development stages and will be offered once they have been reviewed for their marketability.
(5) The Development business is aimed directly at alleviating the shortage of housing through the targeted expansion of the company’s own portfolio, as well as the direct generation of income from business with third parties.
The product range includes the sale of individual condominiums and the sale of projects to investors (to sell) on the one hand, and the construction of rental apartments for Vonovia’s own portfolio as well as the construction of new properties on existing land held in the portfolio (to hold) on the other. The Development business is also geared towards the concept of the neighborhood and sustainability aspects.
Efficient project implementation based on the development platform along the entire value chain guarantees the value contribution made by the Development business. The value chain ranges from the acquisition of land to build on to project development, planning, realization and marketing.
The Development business also has to consider greater obstacles to returns and the challenges of efficient capital commitment.
The Development business is managed from five locations in Germany, from Vienna, Austria, and Malmö, Sweden.
(6) Another key value driver is efficient capital allocation. Given the current return requirements based on the increased cost of capital, strengthening the proportion of equity and focusing on internal financing has been identified as a key value driver that optimizes the opportunities for return-oriented sustainable investments. Decisions on the actual capital allocation are made based on the return and Vonovia’s internal financing power.
In the period following the IPO, capital allocation focused on external growth through acquisitions and economies of scale given the favorable prevailing capital market conditions.
In light of capital market conditions over the past few crisis-ridden years, which have been characterized by inflation and rising interest rates, and the associated higher cost of capital, Vonovia has streamlined its portfolio by making disposals and establishing joint venture and fund structures in order to achieve an improved capital structure in tandem with sustainable internal financing. Within this context, the nursing care activities under the Deutsche Wohnen umbrella were also subjected to a strategic analysis that resulted in the decision to sell them.
Now that interest rates are returning to normal, Vonovia believes it is well positioned for new growth based on its optimized capital and portfolio structure. The necessary specific initiatives have been incorporated into the company’s existing strategy.
New Strength and Performance in Core Business
The renewed expansion of the Development business is one of the key initiatives as part of the strategy. Vonovia’s new construction activities are focused on a product portfolio that is geared toward market requirements with flexibility in how the properties are used (Development to hold/Development to sell). In light of the ongoing need to optimize construction costs, Vonovia is focusing on the “Basic House” approach, among other things, in order to build sustainable and affordable housing for different target groups. The emphasis is on new projects employing serial modular timber construction methods together with the company’s joint venture partner Gropyus.
The company is forging ahead with the optimization of its craftsmen’s organization, VTS. VTS and its specialists ensure that refurbishment and maintenance work can be carried out reliably and in line with high quality standards. The ongoing development of a standardized product catalog will be expanded further.
Given the positive market trend that is emerging, our sales program will continue to focus on the Recurring Sales segment and sales in the Non Core portfolio.
Investments Using Innovative Concepts
Investments to upgrade energy efficiency and decarbonize our portfolio will be expanded over the next few years with the help of innovative concepts and smart technologies in line with Vonovia’s climate pathway. Implementation of energy-efficiency modernizations has to be efficient, fast and cost-saving in the interests of cost-effectiveness. Vonovia is pursuing these concepts with “serial refurbishment,” an industrialized system that bundles and standardizes all steps in the refurbishment process. Forging ahead with investments in heat pump technology is also part of the investment initiative. In this area, we are focusing on the new “EnerCube” heating solution, a heat pump center that combines all the necessary components in an external module and is installed on-site outside the building.
New Business Models at all Stages in the Value Chain Using Management Platform
Further growth in the Value-add segment at all stages in our value chain will secure additional earnings potential. The existing energy business and the use of photovoltaics are being expanded on a large scale. The focus is on establishing and expanding a full product portfolio covering all steps in the value chain – from the generation of electricity using photovoltaic modules to the sale of this electricity as tenant electricity, the use of heat pumps, and energy storage and management. The aim is to increase market penetration in all product groups.
The purchase of buildings that have not yet been modernized, their subsequent modernization and resale are to be integrated into Vonovia’s business model as a new initiative. This also applies to the initiative to make Vonovia’s management platform available to third-party customers.
Catalysts driving the successful implementation of the strategy remain the active dynamic management of capital allocation, the availability of employees with the necessary skills, efficiency in the value chain and in procurement, social and sociopolitical acceptance of Vonovia’s business model and the targeted use of new technologies, including artificial intelligence.