Vonovia SE on the Capital Market
One Year on the DAX
The IPO of the company then known as Deutsche Annington back in July 2013 signaled the start of a long-term growth course, the aim being to create a modern service company that could offer attractive and affordable homes across Germany.
With a portfolio initially comprising around 180,000 units, the company started to systematically construct an efficient organizational model and develop an ambitious strategy for profitable and sustainable growth. Particularly as a result of the acquisitions of DeWag, Vitus, SÜDEWO and GAGFAH, the company continued to grow and, for the time being, now boasts a housing stock of more than 350,000 units.
The company’s ascent through the ranks of the stock exchange was similarly swift; shortly after the IPO, it was admitted to the SDAX, before being promoted to the MDAX a year later. “Deutsche Annington” was renamed “Vonovia”, the company’s current name, on August 19, 2015. Vonovia was promoted to Germany’s leading stock index, the DAX, on September 21, 2015. This promotion saw a real estate stock with market capitalization of € 13 billion at the time replace a chemicals stock.
Vonovia’s promotion was the very first time the leading index had admitted a real estate stock. This also sends out important signals for a sector of the economy characterized by a special profile, creating a greater need for explanatory information to be provided to foreign investors, in particular.
Its listing among the top companies on the stock market has once again made Vonovia significantly more visible, for one among the media, policymakers and the business world in general, where there has been a significant increase in the level of interest shown in discussions with our Management Board members. For another, we are increasingly being seen as a general corporation on the capital market, as opposed to simply a real estate company. This means that Vonovia competes directly with all of the other sectors represented in the index on the equity and debt capital markets.
Its promotion to the DAX has done little to change Vonovia’s shareholder structure towards the top of the list: BlackRock (8.3%), Norges Bank (Ministry of Finance on behalf of the State of Norway, 7.6 %) and Lansdowne Partners (5.4%) were already our biggest investors in the past and remain our biggest investors to this day. We are, however, witnessing a significant increase in the interest shown by investors with a more general focus. Vonovia also has a broader base when it comes to the geographical distribution of its investors and is attracting increasing interest from among Asian investors, too, not least due to its market capitalization.
Following what was already a marked increase in our transaction volume after a capital measure in the summer of 2015, Vonovia’s entry on to the DAX had a further positive impact: the daily transaction volume for our stock on Xetra has increased by more than 70% compared with the period before our promotion to the DAX and comes in at around € 40 million. In the rankings based on free float market capitalization and transaction volume, Vonovia comes in 21st and 26th place respectively (as of: December 2016), meaning that it has firmly established itself on the DAX.
The promotion of Vonovia’s stock to the DAX was never one of the company’s primary aims; rather, this development came as a result of the implementation of a long-term growth strategy, meaning that it serves as confirmation of the systematic way in which we are managing the company in the interests of our shareholders.
Developments on the International Capital Markets
2016 was a turbulent year for the international capital markets. The DAX gained 6.9% in the course of the year, touching on a low of 8,752 points on February 11, 2016. The Stoxx Europe 600 (-1.7%) and the FTSE EPRA/NAREIT Developed Europe (-8.2%) showed negative development in 2016.
The international financial markets were under pressure in the first few months of 2016. Global concerns over national and international conflicts, fears of a recession and the associated generally low interest rate environment prompted many investors to pull their money out of more cyclical stocks and seek security in European and, in particular, German real estate stocks. We believe that the low interest rate environment is the main reason why Vonovia’s shares, together with other real estate stocks, outperformed the DAX and other international equity indices. On January 20, 2016, for example, the 10-year US yield dropped to below the 2% mark for the first time. On March 10, 2016, the ECB reinforced the low interest rate by making the decision to cut the key rate to 0%. On June 14, 2016, the yield on 10-year German government bonds slipped into negative territory for the very first time.
On June 24, 2016, a majority of British voters opted for “Brexit”, which also encumbered the DAX, among other indices. German housing company stocks benefited from the reallocation of investments to continental European real estate stocks that followed the referendum vote.
From the end of the third quarter of 2016, booking of the European real estate stocks was on a downward trajectory, a development that we believe was due in particular to the marginal increase in the yield on 10-year German Federal bonds. Numerous investors opted to rebalance their portfolios in reaction to this increase, reallocating their money into less defensive stocks in some cases. On November 9, 2016, Donald Trump was elected as President of the USA, prompting pronounced recovery trends on the international stock exchanges, which also reached new highs since. The decision made by the US Federal Reserve on December 14, 2016 to implement a further rate hike, coupled with state-driven investment programs, made the prospect of an end to the policy of low interest rates more likely. This lured numerous investors towards cyclical stocks at the end of 2016, putting further pressure on defensive stocks like shares in German residential property companies.