Annual Report 2019

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Group FFO

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

in € million

2018

2019

Change in %

*

Thereof intragroup profits in 2019: € 43.9 million (2018: € 38.8 million), valuation result for new development to hold in 2019: € 58.9 million (2018: € 18.7 million), IFRS 16 effects 2019: € 29.9 million (2018: € 0.0 million).

 

 

 

 

Rental income in the Rental segment

1,894.2

2,074.9

9.5

Expenses for maintenance

-289.7

-308.9

6.6

Operating expenses in the Rental segment*

-289.4

-328.6

13.5

Adjusted EBITDA Rental

1,315.1

1,437.4

9.3

 

 

 

 

Revenue Value-add

1,462.2

1,677.3

14.7

thereof external revenue

203.9

248.4

21.8

thereof internal revenue

1,258.3

1,428.9

13.6

Operating expenses Value-add

-1,341.0

-1,531.0

14.2

Adjusted EBITDA Value-add

121.2

146.3

20.7

 

 

 

 

Income from disposals Recurring Sales

356.1

365.1

2.5

Fair value of properties sold adjusted to reflect effects not relating to the period from assets held for sale in the Recurring Sales segment

-262.8

-258.4

-1.7

Adjusted result Recurring Sales

93.3

106.7

14.4

Selling costs Recurring Sales

-14.2

-14.8

4.2

Adjusted EBITDA Recurring Sales

79.1

91.9

16.2

 

 

 

 

Income from disposal of “Development to sell” properties

225.1

249.5

10.8

Cost of Development to sell

-181.8

-197.3

8.5

Gross profit Development to sell

43.3

52.2

20.6

Fair value Development to hold

98.0

266.3

> 100

Cost of Development to hold

-79.3

-207.4

> 100

Gross profit Development to hold**

18.7

58.9

> 100

Operating expenses in the Development segment

-22.6

-26.6

17.7

Adjusted EBITDA Development

39.4

84.5

> 100

 

 

 

 

Adjusted EBITDA Total

1,554.8

1,760.1

13.2

 

 

 

 

FFO interest expense

-328.8

-358.6

9.1

Current income taxes FFO

-36.5

-50.1

37.3

Consolidation*

-57.5

-132.8

> 100

 

 

 

 

Group FFO

1,132.0

1,218.6

7.7

As of the end of 2019, our apartments were virtually fully occupied. The apartment vacancy rate of 2.6% was up slightly on the value of 2.4% seen at the end of 2018. Rental income in the Rental segment rose by 9.5% from € 1,894.2 million in 2018 to € 2,074.9 million in 2019, largely due to the acquisitions of BUWOG and Victoria Park in 2018 and Hembla in 2019 and to organic growth resulting from new construction and modernization measures. BUWOG contributed a volume of € 200.6 million (April–December 2018: € 155.5 million), Victoria Park contributed a volume of € 135.7 million (July–December 2018: € 58.4 million), and Hembla contributed a volume of € 29.6 million. Of the rental income in the Rental segment, € 1,801.2 million is attributable to rental income in Germany (2018: € 1,751.4 million), € 108.3 million to rental income in Austria (2018: € 83.1 million) and € 165.4 million in Rental income in Sweden (€ 58.4 million).

The increase in rent due to market-related factors came to 1.1% (2018: 1.3%). We were also able to achieve an increase in rent of 2.3% thanks to property value improvements achieved as part of our modernization program (2018: 2.9%). The corresponding like-for-like rent increase came to 3.4% in the 2019 fiscal year (2018: 4.2%). 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 totaling 3.9% (2018: 4.4%). The average monthly in-place rent within the Group at the end of December 2019 came to € 6.93 per m2 compared to € 6.52 per m2 at the end of December 2018. At the end of 2019, the monthly in-place rent in the German portfolio came to € 6.79 per m2 (Dec. 31, 2018: € 6.55), for the Austrian portfolio of € 4.64 per m2 (Dec. 31, 2018: € 4.53) and € 9.46 per m2 for the Swedish portfolio (Dec. 31, 2018: € 9.11). 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, heating and water supply costs.

We continued with our modernization, new construction and maintenance strategy in the 2019 fiscal year. The total volume rose by 25.6% from € 1,569.4 million in 2018 to € 1,971.1 million in 2019. This was driven largely by the increase in modernization and new construction activity.

Maintenance, Modernization, New Construction

in € million

2018

2019

Change in %

 

 

 

 

 

 

Expenses for maintenance

289.7

308.9

6.6

Capitalized maintenance

140.7

172.7

22.7

Maintenance measures

430.4

481.6

11.9

Modernization measures

904.7

996.5

10.1

New construction (to hold)

234.3

493.0

> 100

Modernization and new construction measures

1,139.0

1,489.5

30.8

Total cost of modernization, maintenance and new construction

1,569.4

1,971.1

25.6

Operating expenses in the Rental segment in the 2019 fiscal year were up by 13.5% on the figures for 2018, from € 289.4 million to € 328.6 million. This development is due primarily to the larger portfolio thanks to the acquisitions of BUWOG, Victoria Park and Hembla. All in all, Adjusted EBITDA Rental rose by 9.3%, from € 1,315.1 million in 2018 to € 1,437.4 million in 2019.

The Value-add segment showed sustained positive development in the 2019 fiscal year. We expanded the services offered by our craftsmen’s organization even further and continued to invest in improvements to the existing building stock. We continued to expand our business activities relating to the provision of cable television to our tenants, metering services, insurance and residential environment services, and energy supply services. We supplied a total of around 18,200 households with energy directly as of the end of 2019.

External revenue from our Value-add activities with our end customers rose by 21.8%, from € 203.9 million in 2018 to € 248.4 million in the 2019 fiscal year. Group revenue rose by 13.6% from € 1,258.3 million in 2018 to € 1,428.9 million in 2019. Overall, this results in a 14.7% increase in the revenue from the Value-add segment from € 1,462.2 million in 2018 to € 1,677.3 million in 2019. Adjusted EBITDA Value-add rose by 20.7%, from € 121.2 million in 2018 to € 146.3 million in 2019.

We continued to pursue our selective sales strategy in the 2019 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 € 365.1 million in the 2019 fiscal year, up by 2.5% on the value of € 356.1 million in 2018; € 250.9 million of this amount is attributed to sales in Germany (2018: € 268.7 million) and € 114.2 million to sales in Austria (2018: € 87.4 million). We privatized 2,607 apartments in the 2019 fiscal year (2018: 2,818), thereof 2,012 in Germany (2018: 2,393) and 595 in Austria (2018: 425). Adjusted EBITDA Recurring Sales came in at € 91.9 million in the 2019 fiscal year, up by 16.2% on the value of € 79.1 million seen in 2018. The fair value step-up for Recurring Sales came in at 41.3% in 2019, up against the comparative value of 35.5% for 2018. Much higher market prices were achieved in the 2019 fiscal year in relation to the total portfolio. In addition, the BUWOG sales are included with a contribution for the year as a whole.

Outside of the Recurring Sales segment, we made 2,177 Non-core Disposals of residential units as part of our portfolio adjustment measures in the 2019 fiscal year (2018: 12,284) with total proceeds of € 145.6 million (2018: € 741.4 million). At 15.8%, the fair value step-up for Non-core Disposals was lower than for the same period in the previous year (23.0%). The drop is due primarily to a larger-scale block sale in 2019 in Saxony and Saxony-Anhalt.

In the 2019 fiscal year, the Development segment, with its Development to sell and Development to hold areas, made positive contributions to earnings in Germany, Austria and, for the very first time, Sweden, allowing it to contribute to Vonovia’s successful growth.

In the Development to sell area, a total of 791 units were completed in the 2019 fiscal year (2018: 470 units), thereof 350 units in Germany (2018: 128) and 441 units in Austria (2018: 342). In 2019, income from the disposal amounted to € 249.5 million (2018: € 225.1 million), with € 131.8 million attributable to project development in Germany (2018: € 107.8 million) and € 117.6 million to project development in Austria (2018: € 117.2 million). The resulting gross profit for Development to sell came to € 52.2 million (2018: € 43.3 million).

In the Development to hold area, a total of 1,301 units were completed (2018: 638 units incl. attic conversions), thereof 870 in Germany (2018: 457 units) and 401 units in Austria (2018: 181 units) and 30 units in Sweden (2018: 0 units). This includes 307 apartments (2018: 160) that were developed as part of modernization measures (the addition of extra stories to existing buildings). The fair value effect of these apartments is included in net income from fair value adjustments of investment properties, as these measures relate to old stock. In the Development to hold area, a fair value of € 266.3 million was achieved in 2019 (2018: € 98.0 million), with € 164.3 million attributable to project development in Germany (2018: € 66.0 million) and € 96.3 million to project development in Austria (2018: € 32.0 million) and € 5.7 million to project development in Sweden (2018: € 0.0 million). The gross profit for Development to hold came to € 58.9 million (2018: € 18.7 million).

The Adjusted EBITDA for the Development segment amounted to € 84.5 million in the 2019 fiscal year (2018: € 39.4 million).

In the 2019 fiscal year, the primary key figure for the sustained earnings power, Group FFO, increased by 7.7% from € 1,132.0 million in 2018 to € 1,218.6 million in 2019, largely due to acquisitions and organic growth. This trend was fueled primarily by the positive development in Adjusted EBITDA Total, which rose by 13.2% from € 1,554.8 million to € 1,760.1 million during the reporting period.

In the 2019 fiscal year, the non-recurring items eliminated in the Adjusted EBITDA Total came to € 93.1 million (2018: € 106.6 million). The following table gives a detailed list of the non-recurring items:

Non-recurring Items

in € million

2018

2019

Change in %

*

Including one-time expenses in connection with acquisitions, such as HR measures relating to the integration process.

 

 

 

 

Acquisition costs incl. integration costs*

87.8

48.2

-45.1

Severance payments/pre-retirement part-time work arrangements

18.3

13.2

-27.9

Business model optimization/development of new fields of business

0.8

27.6

> 100

Refinancing and equity measures

-0.3

4.1

–

Total non-recurring items

106.6

93.1

-12.7
Adjusted EBITDA Recurring Sales
The Adjusted EBITDA Recurring Sales compares the proceeds generated from the privatization business with the fair values of assets sold and also deducts the related costs of sale. In order to disclose profit and revenue in the period in which they are incurred and to report a sales margin, the fair value of properties sold, valued in accordance with IFRS 5, has to be adjusted to reflect realized/unrealized changes in value.
Adjusted EBITDA Total (Earnings Before Interest, Taxes, Depreciation and Amortization)
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 and 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.
Fair Value
Fair value is particularly relevant with regard to valuation in accordance with IAS 40 in conjunction with IFRS 13. The fair value is the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction.
Fair Value Step-up
Fair value step-up is the difference between the income from selling a unit and its current fair value in relation to its fair value. It shows the percentage increase in value for the company on the sale of a unit before further costs of sale.
Group FFO
Group FFO reflects the recurring earnings from the operating business. In addition to the adjusted EBITDA for the Rental, Value-add, Recurring Sales and Development segments, Group FFO allows for recurring current net interest expenses from non-derivative financial instruments as well as current 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.
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.
Monthly In-Place Rent
The monthly in-place rent is measured in euros 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 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. 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 € per square meter) 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.
Non-core Disposals
We also report on 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.
Recurring Sales
The Recurring 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.
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 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.
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.