Group FFO

The following key figures provide an overview of the development in Group FFO and other value drivers in the reporting period.

As of the end of December 2018, our apartments were still virtually fully occupied. The apartment vacancy rate of 2.4% was down slightly on the value of 2.5% seen at the end of 2017. Rental income in the Rental segment rose by 13.6% from € 1,667.9 million in 2017 to € 1,894.2 million in 2018. BUWOG’s contribution accounted for a volume of € 155.5 million, while Victoria Park contributed a volume of € 58.4 million. Out of the total rental income in the Rental segment of € 1,894.2 million, € 1,751.4 million is attributable to the portfolio in Germany, € 83.1 million to the portfolio in Austria and € 58.4 million to the portfolio in Sweden. All in all, rent increases more than compensated for the disposals due to portfolio adjustments. The increase in rent due to market-related factors came to 1.3%. We were also able to achieve an increase in rent of 2.9% thanks to property value improvements achieved as part of our modernization program. The corresponding like-for-like increase in rent came to 4.2% in the 2018 reporting period. If we also include the increase in rent due to new construction measures and measures to add extra stories, then we arrive at an organic increase in rent of 4.4% in total. The average monthly in-place rent at the end of December 2018 came to € 6.52/m² compared to € 6.27/m² at the end of 2017. At the end of 2018, the monthly in-place rent in the Austrian portfolio came to € 4.53/m², and a value of € 9.11/m² for the Swedish portfolio. The rental income from the Austrian property portfolio additionally includes maintenance and improvement contributions (EVB). The rental income from the portfolio in Sweden reflects inclusive rents, meaning that the amounts contain operating and heating costs.

In the 2018 reporting period, we continued to successfully implement our modernization and maintenance strategy. The total volume rose from € 1,124.8 million in 2017 to € 1,569.4 million in 2018. This was driven by an increase in the modernization volume including new construction, which rose by 46.3% from € 778.6 million in 2017 to € 1,139.0 million in 2018.

Operating expenses in the Rental segment in the 2018 reporting period were up by 10.8% on the figures for 2017, from € 261.2 million to € 289.4 million. This development is due primarily to the larger portfolio thanks to the acquisitions of BUWOG and Victoria Park. All in all, Adjusted EBITDA Rental rose by 14.5%, from € 1,148.7 million in 2017 to € 1,315.1 million in 2018.

We expanded the Value-add segment further in the 2018 fiscal year. The increase in the output of our craftsmen’s organization once again significantly contributed to this trend and allowed us to continue our investments in improving our portfolio. In addition, we also continued to expand our business activities in the areas of condominium administration, the provision of cable television to our tenants, metering services and insurance and residential environment services in the 2018 reporting period. As a leading real estate service provider, Vonovia Immobilien Treuhand now provides services to a total of around 107,000 units, of which approximately 84,000 are apartments managed for third parties. We also established a new service: energy supply. We supplied a total of 8,500 households with energy directly.

External revenue from our Value-add activities with our end customers rose by 26.2%, from € 161.6 million in 2017 to € 203.9 million in 2018. Group revenue rose by 24.7%, from € 1,008.9 million to € 1,258.3 million in the same period. Overall, this results in a 24.9% increase in the revenue from the Value-add segment from € 1,170.5 million in the 2017 fiscal year to € 1,462.2 million in 2018. The Adjusted EBITDA Value-add was up 18.7% year-on-year to € 121.2 million in 2018.

The EBITDA margin of the core business, calculated based on the Adjusted EBITDA Operations (total of the Adjusted EBITDA Rental and the Adjusted EBITDA Value-add incl. consolidation effects) in relation to rental income within the Group, once again showed positive development in the reporting period. For Vonovia, it increased from 73.2% in 2017 to 73.6% in 2018.

We continued to pursue our selective sales strategy in the 2018 fiscal year. In the Recurring Sales segment, we report all business activities relating to the sale of single residential units (Privatize).

In the Recurring Sales segment, the income from disposal of properties came to € 356.1 million in 2018, up by 16.4% on the value of € 305.9 million reported in 2017; of this, € 268.7 million are attributed to sales in Germany (2017: € 269.2 million) and € 87.4 million to sales in Austria (2017: € 36.7 million). We privatized 2,818 apartments in 2018 (2017: 2,608), thereof 2,393 in Germany (2017: 2,444) and 425 in Austria (2017: 164). Adjusted EBITDA Recurring Sales came in at € 79.1 million in the 2018 reporting period, up by 27.2% on the value of € 62.2 million seen in 2017. The fair value step-up for Recurring Sales came in at 35.5% in the 2018 reporting period, up against the comparative value of 32.6% for 2017. This was due to the higher property values.

Outside of the Recurring Sales segment, we made 12,284 Non-core Disposals as part of our portfolio adjustment measures (2017: 9,172). At 23.0%, the fair value step-up for Non-core Disposals was higher than for the same period in the previous year (7.9%). This increase was primarily due to block sales in northern Germany and Zwickau with above-average margins.

The earnings contributions made by the Development segment were reported for the first time in the 2018 fiscal year. In the “Development to sell” area, the income from disposal of properties came to € 225.1 million, with € 107.8 million attributable to project development in Germany and € 117.2 million attributable to project development in Austria. This produced a gross profit from “Development to sell” of € 43.3 million. In the “Development to hold” area, a fair value of € 98.0 million was reported, with € 66.0 million attributable to project development in Germany and € 32.0 million attributable to project development in Austria. The resulting gross profit for “Development to hold” amounted to € 18.7 million, with € 12.9 million attributable to project development in Germany and € 5.8 million attributable to project development in Austria. The Adjusted EBITDA for the Development segment amounted to € 39.4 million in the 2018 fiscal year. A total of 470 units were completed in the “Development to sell” area, 128 in Germany and 342 in Austria. A total of 478 units were completed in the “Development to hold” area, 297 in Germany and 181 in Austria. All in all, 11,786 units were listed in the development pipeline at the end of 2018.

In the 2018 fiscal year, the primary key figure for the sustained earnings power of the core business, Group FFO, increased by 16.1%, from € 975.0 million to € 1,132.0 million. This trend was fueled primarily by the positive development in Adjusted EBITDA Total, which rose by 17.8% from € 1,319.7 million to € 1,554.8 million during the reporting period.

In the 2018 fiscal year, the non-recurring items eliminated in the Adjusted EBITDA Total came to € 106.6 million, up 22.7% on the prior-year value of € 86.9 million. The acquisition costs including integration costs for 2018 include € 20.0 million for acquisitions in earlier years, which are offset against tax income in the same amount, meaning that they are not compensated for in the profit for the period. Taking this into account, the non-recurring items in the fiscal year came to € 86.6 million, on a par with the prior-year value of € 86.9 million. The following table gives a detailed list of the non-recurring items.