Expected Development of the Group

Comparison of the Forecast with the Results from the 2018 Fiscal Year

The 2018 fiscal year was very successful for Vonovia on the whole. We were systematic in the implementation of our corporate strategy. With the acquisitions of BUWOG and Victoria Park, we were able to further expand our leading market position and make our business more international. We also implemented our investment program aimed at modernizing our portfolio as planned and made further improvements to efficiency when managing our properties. We expanded our Value-add segment further, in particular by expanding our craftsmen’s and residential environment organization. We also set up our energy supply business in 2018. We offer our tenants across Germany electricity and gas supplies via Vonovia Energie Service GmbH.

In the 2018 fiscal year, we achieved a significant Group-wide improvement in our most meaningful performance indicators (according to our management system 2017), namely DRS 20, Adjusted NAV per share and FFO 1. We outperformed the forecast for Adjusted NAV per share and FFO 1 that we published in the 2017 Annual Report considerably and adhered to the forecast most recently published in the interim statement for the third quarter of 2018, while the was down slightly year-on-year.

The table below provides an overview of the development of our forecast performance indicators and the target achievement level for these indicators in the 2018 fiscal year. It also shows the 2019 forecast for the new performance indicators, and .

(XLS:) Download

 

 

Actual 2017

 

Forecast for 2018*

 

Forecast for 2018 in the 2018 Q3 Report

 

Actual 2018

 

Forecast 2019

*

FFO 1 adjusted incl. transaction holding costs; prognosis according to the Group management report for 2017 without BUWOG, Victoria Park.

**

Based on the current number of shares in each case, 2019: 518.1 million.

 

 

 

 

 

 

 

 

 

 

 

Adjusted NAV/share

 

€ 38.49

 

suspended

 

approx. € 45

 

€ 44.90

 

suspended

FFO 1*

 

€ 919.5 million

 

€ 960–980 million

 

€ 1,050–1,070 million

 

€ 1,064.7 million

 

–

FFO 1/share

 

€ 1.90

 

€ 1.98–2.02

 

€ 2.03–2.07

 

€ 2.06

 

–

Adjusted EBITDA Total

 

€ 1,319.7 million

 

 

 

 

 

€ 1,554.8 million

 

€ 1,650–1,700 million

Group FFO

 

€ 975.0 million

 

 

 

 

 

€ 1,132.0 million

 

€ 1,140–1,190 million

Group FFO/share

 

€ 2.01

 

 

 

 

 

€ 2.18

 

€ 2.20–2.30

CSI

 

Increase of 1.6%

 

Similar CSI as 2017

 

Down slightly year-on-year

 

Decrease of 2.6%

 

Up slightly year-on-year

 

€ 1,667.9 million

 

€ 1,660–1,680 million

 

€ 1,890–1,910 million

 

€ 1,894.2 million

 

€ 2,020–2,070 million

Organic rent increase

 

4.2%

 

Increase of 4.6–4.8%

 

Increase of approx. 4.4%

 

4.4%

 

Increase of approx. 4.4%

 

2.5%

 

< 2.5%

 

< 2.5%

 

2.4%

 

–

incl. capitalized maintenance

 

€ 346.2 million

 

approx. € 360 million

 

approx. € 410 million

 

€ 430.4 million

 

–

Modernization and new construction

 

€ 778.6 million

 

approx. € 1,000 million

 

approx. € 1,000 million

 

€ 1,139.0 million

 

€ 1,300–1,600 million

Number of units sold

 

2,608

 

approx. 2,300

 

approx. 2,800

 

2,818

 

approx. 2,500

Step-up Recurring Sales

 

32.6%

 

approx. 30%

 

approx. 35%

 

35.5%

 

approx. 30%

Number of units sold

 

9,172

 

Continue opportunistic sales

 

approx. 13,000

 

12,284

 

–

Step-up Non-core Disposals

 

7.9%

 

> 0%

 

> 20%

 

23.0%

 

–

Our Adjusted NAV per share came in at € 44.90 in 2018, up by 16.7% on the prior-year value of € 38.49. This includes effects from adjustments of investment properties in the amount of € 3.5 billion in total. The distribution of the dividend – taking into account the scrip dividend (acceptance rate 40.9%) of € 378.8 million to our shareholders in 2018 had the opposite effect. Our increased by 22.6%, from € 21,284.6 million at the end of 2017 to € 26,105.0 million as of December 31, 2018.

FFO 1 rose by 15.8% to € 1,064.7 million in 2018 (2017: € 919.5 million), putting it within the most recent forecast range value of between € 1,050 million and € 1,070 million, and well ahead of the forecast range value of between € 960 million and € 980 million announced at the beginning of the year in the 2017 Annual Report. This is largely due to the acquisition of BUWOG and Victoria Park, and business developments that were, in general, better than expected at the time the 2017 Annual Report was published.

Mainly due to acquisitions, the Adjusted EBITDA Total rose from € 1,319.7 million in 2017 to € 1,554.8 million.

In the 2018 fiscal year, Group FFO increased by 16.1%, from € 975.0 million to € 1,132.0 million.

Customer satisfaction measured using the performance indicator was slightly lower than the level we were aiming for. The CSI for 2018 was down slightly as against the 2017 fiscal year.

Forecast for the 2019 Fiscal Year

Our forecast for the 2019 fiscal year is based on the corporate planning for the Vonovia Group as a whole described in the chapter on our management system. Our plans for 2019 have taken appropriate account of possible opportunities and risks associated with the company’s future development, meaning that these plans reflect realistic expectations regarding portfolio development and Vonovia’s development. The forecast data below is based on Vonovia’s portfolio as it stood when the plans for 2019 were drawn up in the fall of 2018.

Furthermore, the Group’s further development remains exposed to general opportunities and risks. These have been described in the chapter on opportunities and risks.

The forecast for the main performance indicators was based on the accounting principles used in the annual financial statements, with the adjustments described elsewhere in the management report being made.

The planning for 2019 is based on the above-mentioned assumptions on the development of the overall economy and on the development of the real estate market in Germany.

In the 2019 fiscal year, we plan to further expand our leading position on the German residential real estate market and continue with our successful business strategy. In particular, we will be further expanding our investment program in the areas of modernization and new construction, as well as our activities in the Value-add segment. In 2019, we will remain faithful to the sales strategy of apartment privatization that we have been pursuing to date.

We plan to further improve our sustained operational earnings power in the 2019 fiscal year. The taken in the 2018 fiscal year will also help us to achieve this. We expect our adjusted EBITDA total to increase to between € 1,650 million and € 1,700 million in 2019. We predict that Group FFO will increase to somewhere in the range of € 1,140 million and € 1,190 million in 2019. This corresponds to a per share – based on an unchanged number of shares – of € 2.20 to € 2.30. The forecast does not take account of any further larger acquisitions of real estate portfolios. In the 2019 fiscal year, we will continue to forge ahead with our efforts to improve our customer service. We expect the CSI to increase slightly in 2019 as against the customer satisfaction index for 2018. We expect the value of our company to increase further in 2019 and predict a moderate increase in Adjusted NAV/share.

We will continue to invest a considerable amount in our real estate portfolio in 2019. In the 2019 fiscal year, we plan to spend around € 1,300 million to € 1,600 million on modernization measures, including new construction.

As far as rental development is concerned, we expect the per square meter to increase organically by around 4.4% in 2019. All in all, we expect rental income in the Rental segment to come to between € 2,020 million and € 2,070 million in 2019.

In the Recurring Sales segment, we have concentrated on sustainable disposals of condominiums. In the privatization business, we expect around 2,500 apartments to be sold in 2019 with a step-up on the fair value of these apartments of around 30%.

We again plan to allow our shareholders to participate adequately in our company’s success in 2018 and intend to propose a dividend of € 1.44 per share.

Bochum, Germany, February 25, 2019

Management Board

Rolf Buch (CEO) (Signature)

Rolf Buch
(CEO)

Helene von Roeder (CFO) (Signature)

Helene von Roeder
(CFO)

Klaus Freiberg (COO) (Signature)

Klaus Freiberg
(COO)

Daniel Riedl (CDO) (Signature)

Daniel Riedl
(CDO)

CSI (Customer Satisfaction Index)
The CSI is determined at regular intervals by means of systematic customer surveys and reflects how our services are perceived and accepted by our customers. The CSI is determined on the basis of points given by the customers for our properties and their neighborhood, customer service and commercial and technical support as well as maintenance and modernization management.
Adjusted EBITDA Total
Adjusted EBITDA Total is the result before interest, taxes, depreciation and amortization (including income from other operational investments and intragroup profits) 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. The Adjusted EBITDA Total is derived from the sum of the Adjusted EBITDA Rental, Adjusted EBITDA Value-add, Adjusted EBITDA Recurring Sales and Adjusted EBITDA Development.
Group FFO
Group FFO reflects the recurring earnings from the sustained operating business. In addition to the Adjusted EBITDA for the Rental, Value-add, Recurring Sales and Development segments, Group FFO allows for recurring cash-effective net interest expenses from non-derivative financial instruments as well as income taxes. This key figure is not determined on the basis of any specific international reporting standard but is to be regarded as a supplement to other performance indicators determined in accordance with IFRS.
Rental Income
Rental income refers to the current gross income for rented units as agreed in the corresponding lease agreements before the deduction of non-transferable ancillary costs. The rental income from the Austrian real estate portfolio also includes maintenance and improvement contributions (EVB). The rental income from the Swedish real estate portfolio shows inclusive rents, meaning that the rental amounts include operating and heating costs.
Vacancy rate
The vacancy rate is the number of empty units as a percentage of the total units owned by the company. The vacant units are counted at the end of each month.
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.
Recurring Sales
The Recurring Sales segment (formerly part of the “Sales” segment) includes the regular and sustainable disposals of individual condominiums from our portfolio. It does not include the sale of entire buildings or land (Non-core disposals). These properties are only sold as and when the right opportunities present themselves, meaning that the sales do not form part of our operating business within the narrower sense of the term. Therefore, these sales will be reported under “Other” in our segment reporting.
Non-core Disposals
We also report the Other segment, which is not relevant from a corporate management perspective, in our segment reporting. This includes the sale, only as and when the right opportunities present themselves, of entire buildings or land (Non-core Disposals) that are likely to have below-average development potential in terms of rent growth in the medium term and are located in areas that can be described as peripheral compared with Vonovia’s overall portfolio and in view of future acquisitions.
Fair Value
Valuation pursuant to IAS 40 in conjunction with IFRS 13. The estimated value of an asset. The fair value is the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction.
EPRA NAV/Adjusted NAV
The presentation of the NAV based on the EPRA definition aims to show the net asset value in a long-term business model. The equity attributable to Vonovia’s shareholders is adjusted to reflect deferred taxes on investment properties, the fair value of derivative financial instruments and the deferred taxes on derivative financial instruments. In order to boost transparency, an adjusted NAV, which involves eliminating goodwill in full, is also reported.
CSI (Customer Satisfaction Index)
The CSI is determined at regular intervals by means of systematic customer surveys and reflects how our services are perceived and accepted by our customers. The CSI is determined on the basis of points given by the customers for our properties and their neighborhood, customer service and commercial and technical support as well as maintenance and modernization management.
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.
Group FFO
Group FFO reflects the recurring earnings from the sustained operating business. In addition to the Adjusted EBITDA for the Rental, Value-add, Recurring Sales and Development segments, Group FFO allows for recurring cash-effective net interest expenses from non-derivative financial instruments as well as income taxes. This key figure is not determined on the basis of any specific international reporting standard but is to be regarded as a supplement to other performance indicators determined in accordance with IFRS.
Monthly In-place Rent
The monthly in-place rent is measured in euro per square meter and is the current gross rental income per month for rented units as agreed in the corresponding rent agreements at the end of the relevant month before deduction of non-transferable ancillary costs divided by the living area of the rented units. The rental income from the Austrian real estate portfolio additionally includes maintenance and improvement contributions (EVB). The rental income from the Swedish real estate portfolio shows inclusive rents, meaning that the rental amounts include operating and heating costs.
The in-place rent is often referred to as the “Nettokaltmiete” (net rent excl. ancillary costs such as heating, etc.). The monthly in-place rent (in €/m2) on a like-for-like basis refers to the monthly in-place rent for the residential portfolio that was already held by Vonovia 12 months previously, i.e., portfolio changes during this period are not included in the calculation of the in-place rent on a like-for-like basis. If we also include the increase in rent due to new construction measures and measures to add extra stories, then we arrive at the organic increase in rent.