Management Approach: Continuous Optimization of Our Building Stock

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We aim to continuously increase the value of our company by pursuing a strategy of profitability and sustainability. This goal is at the heart of our business activities. The quality of our portfolio plays a key role.

On the one hand, we define portfolio quality as the good structural condition of our properties. On the other hand, we aim to improve our portfolio quality – the value of our portfolio and the income which it generates – through new construction, holistic neighborhood development projects, and targeted sales and acquisitions.

Preserving and Improving the Structural Quality of Our Portfolio

We preserve and improve structural quality through maintenance and modernization of our portfolio. Through maintenance measures, we ensure that our building stock is preserved, while through modernization measures we elevate buildings and apartments to a new standard of use.

We make decisions about portfolio investments for both operating and strategic reasons. In any case, they support our goals – and this includes, first and foremost, customer satisfaction. Our investments cover our entire portfolio and all of Germany’s federal states.

Continuous Maintenance to Preserve Our Building Stock

We include maintenance measures under routine and long-term planned economic expenses. By practicing continuity, we avoid spikes in expenses and space out our capacities. Aside from this, through regular measures we avoid additional costs, which often result from deferred maintenance.

Where we implement maintenance measures, and which maintenance measures, is determined in part from long-term planning and in part from recently identified needs that become known to us during regular inspections. The resulting savings may be another factor prompting a decision to implement maintenance measures: If maintenance work is due to be performed in the immediate vicinity or in case of cost advantages for other reasons, we will also perform work on properties which are not yet entirely due for maintenance, in order to optimally exploit – also in the interests of our customers – the economies of scale resulting from the size of our company.

Energy-Efficient Modernization Measures to Improve the Standard of Living and Use

By investing in modernization, we elevate buildings and apartments to a new standard of use. We fundamentally distinguish here between energy-efficient modernization measures and measures that improve the standard of living:

Energy-efficient modernization measures generally involve improvements to the building shell and communal areas as well as the heat and electricity supply systems. For example, we improve the apartments’ heat insulation and install new and technically superior heating systems. This considerably reduces energy consumption – and thus also the apartments’ CO2 emissions as well as our tenants’ ancillary expenses (see More than 13,000 Metric Tons of CO2 Saved in 2016).

Measures to improve the standard of living include, for example, the installation of new balconies or the modernization of bathrooms and nowadays even kitchens. These upgrading measures are implemented within a self-contained living area. Moreover, they often coincide with senior-friendly conversion work.

Building Upgrades in 2016 by Region

Building Upgrades in 2016 by Region (map)Building Upgrades in 2016 by Region (map)
TOP 10 Modernization Locations

Region

 

City

 

Units

 

Area (in m2)

 

Investment volume (in €)

 

 

 

 

 

 

 

 

 

West

 

Dortmund

 

1,006

 

57,768

 

20,148,557.17

Southeast

 

Dresden

 

1,357

 

76,238

 

15,747,700.83

Central

 

Frankfurt

 

235

 

14,503

 

12,304,611.21

North

 

Hamburg

 

389

 

24,739

 

10,850,021.80

North

 

Hannover

 

438

 

24,911

 

10,388,505.29

West

 

Essen

 

637

 

33,997

 

10,142,535.36

North

 

Bremen

 

311

 

18,453

 

9,801,775.00

South

 

Mainz

 

216

 

14,690

 

9,608,706.35

North

 

Kiel

 

289

 

17,694

 

7,708,046.00

East

 

Berlin

 

255

 

14,045

 

7,660,917.95

Total

 

 

 

5,133

 

297,038

 

114,361,376.97

Reacting to Demographic Change through Senior-Friendly Housing

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We would like to enable our customers to continue to live in their apartments in their old age. For this reason, we also consider demographic change in our modernization programs: The distribution of the age pyramid is increasingly shifting toward the older age groups. Eurostat (June 2016) estimates that in 2015 more than 21% of the German population was aged 65 or above. Forecasts estimate that this percentage will rise to between 27.0% and 27.5% in Germany by 2030. (source: www.ec.europa.eu)

Therefore, for every modernization measure, we review where we can eliminate obstructions at the same time. These measures include leveling thresholds and steps, broadening hallways and installing zero-threshold showers or accessible washbasins.

We also adapt our portfolio to the needs of older customers with respect to other day-to-day issues: For example, during construction we also lower obstructions in common areas and ensure through separate storage areas that our tenants can store their walkers and similar aids securely.

Expenses for Maintenance and Modernization

In 2016, we invested € 320.1 million (2015: € 330.7 million) in maintenance and ongoing maintenance and € 472.3 million in the modernization and further enhancement of our portfolio (2015: € 355.6 million). That comes to a total of € 792.4 million (2015: € 686.3 million), or € 36 per square meter. We have thus exceeded the previous year’s level of € 33.04 per square meter by a good 10%.

Portfolio Investments in 2016

(in € million)

Portfolio Investments in 2016 – In € million (bar chart)Portfolio Investments in 2016 – In € million (bar chart)

In 2016, we implemented measures to improve the standard of living – a process that often also involves senior-friendly conversion work – with a volume of around € 130 million (2015: € 100 million). More than 9,500 (2015: 6,900) apartments were completed in 2016. Where technically feasible, conversions were carried out according to the standards of the KfW program 159 “Senior-Friendly Conversions.” By 2020 we intend to invest an additional total of € 500 million in the area of senior-friendly homes.

Vonovia will continue to roll out its investment program: In November 2016, the company resolved an investment program of around € 1 billion for 2017 (investment spending in 2017 of between € 700 million and € 730 million). The key areas of focus are improvements to existing building stock, new construction and adding extra stories to existing buildings.

Improving Our Portfolio Quality

We improve the quality of our portfolio through sales and acquisition activities. Here, our focus is on acquiring properties that are suited for successful long-term management through our standardized processes and selling those that do not meet this criterion. Important evaluation criteria are:

  • Location: Are the (potential) properties or portfolios located in regions, cities and settings that fit our strategy?
  • Building stock: Is the (potential) property or portfolio quality such that it is consistent with our approach to property management?
  • Perspective: Is further development of the properties or portfolios possible in line with our value-enhancing strategy?

In relation to the fair value, 91% of our total portfolio is located in our 15 regional markets, which mainly comprise core towns/cities and their surrounding metropolitan areas. Only a small part of our strategic stock is located outside of these metropolitan regional markets (see AR 2016, Portfolio Structure).