Maintenance and Modernization

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. Optimize Apartments measures involve upgrading facilities within a self-contained living area. Where required, the floor plans are altered to meet changed housing needs.

We use modernization and measures to make ongoing investments in our portfolio. As a leading residential real estate company, we have specific opportunities open to us when it comes to using standardized procedures and materials to achieve economies of scale in our investment activities. Wherever it is appropriate and technically feasible, we use standard products for our maintenance and . The volumes we can generate as a result enable us to agree on special conditions with our suppliers, allowing us to either receive higher-quality goods for the same price, or to purchase the material to be used at a lower price. The fact that the construction work is executed exclusively by our technical service also allows us, thanks to the large number of recurring orders, to shape the service processes in such a way that the necessary measures can be performed with shorter construction times and optimum resource use. This saves additional costs or increases revenue because apartments can be relet more quickly.

Maintenance and modernization services, including new construction, amounted to € 51.00/m2 in 2017, up by around 38% on the prior-year value of € 36.84/m2. This is largely due to the clear increase in the modernization volume as well as the rise in volume of new construction.

Vonovia will continue to roll out the investment program. Vonovia has decided on an investment program in the amount of around € 1 billion for 2018. The program will focus on energy-efficient modernization and the creation of new living space.

As part of the energy-efficient modernization measures, we will insulate facades, basement ceilings and attics for a living area of over 1,000,000 m2 for projects which we began in 2017. The catalog of measures also included the optimization and renewal of heating systems in the previous year – benefiting around 15,000 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. The funds provided by KfW-Bank or the European Investment Bank (EIB) provide key support when it comes to refinancing the energy-efficient modernization measures.

Investments in the “Invest” subportfolio relate to measures designed to improve the standard of comfort of our properties, a process that often also involves senior-friendly apartment conversion. As a result, we implemented accounting for a volume of more than € 200 million in this subportfolio in 2017. More than 11,000 apartments were completed in 2017. 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 strategic 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. 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, and to implement them already, where possible.

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

Program year1

 

Investment volume2 (in € million)

 

Units (No.)

 

Yield3 (in %)

1 –

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

2 –

“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.

3 –

“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.

4 –

Due to the complexity of the measures, it is not possible to measure the final success of all projects in progress. Thus, the 2016 value is an extrapolation based on projects already settled and our current knowledge of costs, rents and vacancies of the projects not yet settled.

5 –

The “forecast” nature of the figures for the 2017 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-2018 (Upgrade Apartments) or the end of 2018 (Upgrade Buildings).

 

 

 

 

 

 

 

Ø 2010–2013

 

49

 

3,257

 

6.9

2014

 

163

 

12,934

 

7.5

2015

 

343

 

17,690

 

7.8

20164

 

483

 

30,544

 

7.7

20175 (Forecast)

 

951

 

43,000

 

7.3

The expansion of the investment programs meant that we had to make adjustments to our management system. As a result, the Management Board and the Supervisory Board made the decision in 2017 to use the key figure “IRR” to reflect the increase in investment volumes and the complexity of the individual investment programs. The internal rate of return is better suited to Vonovia’s “new construction” and “neighborhood development” investment components, as it reflects the financial success of investments with cash flows extending over several periods. This method of presentation applies for the 2018 investment program for the first time:

Program year

 

Investment volume (in € million)

 

Units (No.)

 

IRR (in %)

 

 

 

 

 

 

 

2018 (budget)

 

~ 1,000

 

~ 40,000

 

~ 8

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 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.
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 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.