Extension

In the 2016 fiscal year, we successfully continued with our strategy in the Extension segment and expanded our property-related services. In particular, we increased the range of services provided by our craftsmen’s organization, also allowing us to make a key contribution to improving our real estate portfolio.

As Germany’s biggest property manager, our subsidiary Vonovia Immobilien-Treuhand GmbH is represented at 22 sites across Germany and is responsible for the management of around 76,000 owner-occupied apartments on a fiduciary basis.

We were able to further boost our earnings power in the Extension segment in the 2016 fiscal year. The income reported in the Extension segment includes other income from property management, from third-party real estate management, income from investments, and other operating income reported in accordance with the consolidated income statement, insofar as this income relates to the above-mentioned business activities. It also includes internal income from the services performed or coordinated by the craftsmen’s organization for those companies in the Group with real estate holdings. Compared with the previous year, segment income in the Extension segment rose by 98.6% in total, from € 428.7 million to € 851.2 million in the 2016 reporting period. Our craftsmen’s organization, which performs and coordinates and modernization services for Vonovia’s overall portfolio, made a key contribution to this increase. Since the beginning of the 2016 fiscal year, all maintenance and have been coordinated through Deutsche TGS, even if services are then passed on to subcontractors. In the 2016 fiscal year, we increased the production output (mainly total output less subcontractor and material costs) of our craftsmen’s organization considerably.

Operating expenses in the Extension segment came in at € -794.2 million in 2016, around 103% higher than in the previous year (€ -391.1 million). The operating expenses reported in the Extension segment include the material and personnel expenses and other operating expenses reported in accordance with the consolidated income statement, insofar as they relate to the above-mentioned business activities, as well as internal expenses associated with the services performed or coordinated by the craftsmen’s organization for those companies in the Group with real estate holdings. All in all, rose to € 57.0 million in the 2016 fiscal year, up by 51.6% on the figure of € 37.6 million reported in the previous year.

Adjusted EBITDA Extension

in € million

 

2016

 

2015

 

 

 

 

 

Income

 

851.2

 

428.7

thereof external income

 

108.1

 

59.3

thereof internal income

 

743.1

 

369.4

Operating expenses

 

-794.2

 

-391.1

Adjusted EBITDA Extension

 

57.0

 

37.6

Costs per Unit and EBITDA Margin

The actual costs incurred by Vonovia for the management of its properties are shown in the costs of the Rental segment, excluding maintenance costs and including the earnings contribution made by the service business, which is directly linked to the properties. As a result, we have grouped the operating expenses of the Rental segment and the of the Extension and Other segments to show the Group-wide property management costs. In terms of the average number of residential units, these costs came to € 570 per unit in 2016 (2015: € 645).

Furthermore, the EBITDA margin of the core business, expressed in the cumulative adjusted EBITDA of the Rental, Extension and Other segments, once again showed positive development in relation to rental income within the Group during the reporting period. It increased from 67.7 % in 2015 to 70.9 % in 2016, which equates to an improvement of 3.2 percentage points.

Rental Income
Rental income refers to the current gross income for rented units as agreed in the corresponding rent agreements before the deduction of non-transferable ancillary costs.
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.
Adjusted EBITDA Extension
The adjusted EBITDA Extension is calculated by deducting operating expenses from the segment’s income.
Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization)
Adjusted EBITDA is the result before interest, taxes, depreciation and amortization (including income from other operational investments) adjusted for effects that do not relate to the period, recur irregularly or 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.