Modernization and Maintenance

We continued to pursue our goal of steadily improving the quality of our housing stocks and neighborhoods in 2016 as well. Expenses for totaled € 247.4 million in the 2016 fiscal year and were therefore up by 2% on the previous year’s figure of € 242.2 million. We increased our value-enhancing modernization program by more than 33% in the 2016 fiscal year, from € 355.6 million in 2015 to € 472.3 million in 2016. This means that, including capitalized maintenance of € 72.7 million, we invested a total volume of € 792.4 million (2015: € 686.3 million) in modernization and maintenance work on our properties in the 2016 fiscal year.

Expenditure on and modernization amounted to € 36.18/m2 in 2016, up by around 10% on the prior-year value of € 33.04/m2. This is largely due to the clear increase in the modernization volume.

Vonovia will continue to roll out the investment program. In November, the company decided on an investment program in the amount of around € 1 billion for 2017 (investment spending in 2017 of between € 700 million and € 730 million). These measures will focus on improvements to existing building stock, new construction measures and moves to add extra stories to existing buildings.

in € million

 

2016

 

2015

*

Incl. intra-Group profits for 2016: € 45.5 million (thereof € 1.1 million capitalized maintenance, thereof € 8.7 million modernization); 2015: € 31.0 million (thereof € 1.0 million capitalized maintenance, thereof € 3.8 million modernization), new construction in 2016: € 13.9 million (2015: € 1.5 million).

 

 

 

 

 

Expenses for maintenance

 

247.4

 

242.2

Capitalized maintenance

 

72.7

 

88.5

Modernization work

 

472.3

 

355.6

Total cost of modernization and maintenance*

 

792.4

 

686.3

Through maintenance, we preserve and take care of our building stock. We include the corresponding expenses under routine and partially long-term planned economic expenses. Continuity helps to prevent order peaks and to distribute capacities evenly.

Modernization measures are long-term and sustainable value-enhancing investments in housing and building stocks. Energy-efficient modernization generally involves improvements to the building shell and communal areas as well as the heat and electricity supply systems. Upgrade Apartments measures involve upgrading facilities within a self-contained living area. Where required, the floor plans are altered to meet changed housing needs.

As part of the energy-efficient in the “Upgrade Buildings” subportfolio, we heat-insulated facades, basement ceilings and attics for a living area of over 570,000 m2. The catalog of measures also included the optimization and renewal of heating systems – benefiting around 10,000 apartments. All these measures reduce energy consumption which, in turn, cuts CO2 emissions. The lower energy consumption not only benefits the environment but also our tenants in the form of lower heating costs. In addition, our customers profit from the improved standard of comfort of our properties.

Investments in the “Upgrade Apartments” subportfolio relate to measures designed to improve the standard of comfort of our properties, a process that often also involves senior-friendly conversion work. As a result, we implemented modernization measures accounting for a volume of around € 130 million in this subportfolio in 2016. More than 9,500 apartments were completed in 2016. If technically feasible, conversions were carried out according to the standards of the KfW program 159 “Senior-Friendly Conversions.”

We make decisions about portfolio investments for both operating and reasons. In any event, these investments support Vonovia’s objectives – not least as far as customer satisfaction is concerned. The investments cover the entire stock in the corresponding subportfolios and the whole of Germany.

The table below shows the volume of our modernization measures in recent years:

Program year

 

Investment volume (in € million)

 

Units (No.)

 

Yield (in %)

“Program year” is generally defined as the calendar year in which construction work on the respective measure started.

“Investment volume” includes all costs of the measures performed excluding internal personnel costs incurred, e.g. for program coordination or for the site managers employed in the Group.

“Yield” is the static net initial yield and is calculated for the “Upgrade Buildings” sector from the change in the property management income (i.e., changes in the rent and level of vacancy) in relation to the external planning and construction costs of the measure. The time of measurement is December of the calendar year following the program year; in the “Upgrade Apartments” sector, the difference between the last rent before the refurbishment and the reletting rent achieved after refurbishment is completed is compared with construction costs of the project. The time of measurement is, in this case, the middle of the calendar year following the program year.

The “forecast” nature of the figures for the 2016 program year is due to the fact that success is not measured until the middle or the end of the calendar year following the program year and is therefore not finally determined until mid-2017 (Upgrade Apartments) or the end of 2017 (Upgrade Buildings).

The difference between the € 483 million forecast for 2016 shown here and the € 472 million shown in the Report on Economic Position is due in part to the different approach (program year vs. fiscal year). It is also due to the fact that, in the Report on Economic Position, small-scale measures that do not form part of the centrally managed Group investment program are shown and also classed as modernization measures in accordance with the accounting standards.

 

 

 

 

 

 

 

Ø 2010–2013

 

49

 

3,257

 

6.9

2014

 

163

 

12,934

 

7.5

2015

 

343

 

17,690

 

7.8

2016 (Forecast)

 

483

 

28,900

 

7.2

As far as its technical measures are concerned, Vonovia endeavors not only to adhere to the latest technical standards and the applicable requirements at all times, but also to anticipate future developments. Within this context, Vonovia is involved, by way of example, in the new nationwide “Alliance for Climate-Neutral Housing” (Allianz für klimaneutralen Wohnungsbestand), which brings together companies and institutions from the real estate sector, industry and research. The members of the Alliance are convinced that the key to affordable environmental protection in residential buildings lies in increasing the efficiency of building heating supplies. They believe that, as well as renovating the building shell, the technical building infrastructure, in particular, has to be improved by taking measures with a high cost-benefit effect. In the biggest academic study conducted on this topic to date, various technologies are being analyzed in more than 500 multifamily residences to investigate their effects in terms of generating savings. The research results are intended to show which measures result in particularly substantial savings in relation to the required investment.

We are not only addressing general trends, but are also implementing measures derived from the needs of our customers. An entirely new approach for our industry is that our customers can initiate on their own – at a fair fixed price in the form of a monthly rent surcharge. In 2014, following a successful pilot phase, a bathroom modernization program for occupied properties was launched as the first major project. We offer our customers three comfort options as part of this program. Thanks to the high degree of standardization, the installation time amounts to one week at the most. In 2016, over 700 bathroom modernization projects were implemented at our customers’ request. Due to the popularity of the program, the range of “tenant request” products was expanded in 2016 to include fitted kitchens and apartment security.

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.
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 handicapped-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.
Strategic
The “Strategic” subportfolio contains locations that offer development potential that is above average and for which we are pursuing a value-enhancing property management strategy.
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 handicapped-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.