Annual Report 2020

Letter from the Management Board

Dear Shareholders,
Dear Readers,

At first glance, it is easy to think that little good can come from a crisis – especially when the impact on our day-to-day lives is as profound as it is in the current coronavirus pandemic. On closer inspection, however, every crisis also has something constructive to offer. It allows us to shift our perspective and focus our attention on what is really important. Researchers across the globe, for example, have focused on developing a vaccine in the shortest space of time possible. We are seeing social cohesion within society and neighbors that are ready to help each other.

We need to focus on the things that really matter. Confidence. Mutual trust. In politics and business. In our personal and professional dealings with each other.

I took up my work at Vonovia eight years ago. The task of living up to our corporate responsibility has been part of my work every day ever since then; the need to strike a balance between the interests of our tenants, employees, society and an appropriate profit share for our shareholders.

If you are financially stable and balanced, you are in a position to fulfill your social responsibilities and work on finding solutions to the challenges of our time. This is something we did once again in 2020.

We have shown our tenants that we are there for them. We stepped up our communication activities during the lockdown periods and continue to assure our tenants that none of them must worry about losing their homes due to the pandemic. We have cushioned the blow of social hardship by deciding not to increase rents, suspending all terminations and providing other forms of assistance. Whatever task we faced in these extraordinary times, we were usually able to find a solution.

This could only be achieved with the help of our employees. They showed a particular commitment to keeping our business operations up and running. On site with appropriate protection. Digitally from home. Despite the increased workload. Together, we have been able to demonstrate just how much can be achieved by working together. And we have witnessed an increasing sense of trust: Our communication has become more direct, and employees have become more independent in performing their duties. This new sense of responsibility will remain.

What I am particularly pleased about is the fact that our Customer Satisfaction Index (CSI) rose considerably, by an average of more than eight percent over the year, despite the crisis. This shows that tenants perceive our commitment positively.

Our strategy has been successful since our IPO in 2013. In the 2020 fiscal year, we took a good look at what we have been doing for years now to improve sustainability and climate protection. We also asked stakeholders such as tenants’ associations, academics and politicians what they expect of us with regard to the topics of climate protection, affordable housing and demographic change.

We used the results of this analysis to restructure our management system: The new Sustainability Performance Index (SPI) is linked to specific objectives, allowing us to measure our performance every year. This central non-financial key figure takes into account factors such as the carbon savings achieved annually in the housing stock, energy efficiency levels in newly-built properties, employee satisfaction, diversity and the progress made in senior-friendly refurbishments. Customer satisfaction is also incorporated into the SPI.

In our communications with you, our shareholders, the issue of transparency was particularly important to us last year. We calculated the costs associated with the Berlin rent freeze early on. And it only took us a few days after the lockdown was imposed in response to the coronavirus to start calculating the possible income losses. In both cases, the information will have helped you put things into the appropriate context.

The Berlin rent freeze is testimony to how the shortage of housing can create challenges for a society. In the first half of 2021, we expect the German Constitutional Court to rule on whether the Berlin rent freeze is compatible with the law. Regardless of the outcome, our challenges will remain. That’s why we need concepts that will allow us to offer new and affordable housing to people living in conurbations as quickly as possible.

Our company focuses on the development of these very concepts. And we are continuing to build new homes. Last year, we once again completed more than 1,500 apartments. With an average rent of € 6.95 per m2, Vonovia continues to stand for affordable housing in Germany.

We have the capacity to build more homes – and to build them more quickly. In order to do so, however, we need more rapid construction planning and approval processes as well as sensible changes to building regulations and construction planning law. As is currently the case in all sectors and industries, increased use of digital options can also play a considerable role in helping to speed things up.

Sustainability is a top priority on the financial markets. Our climate is also one of the aspects that guides us in our actions. Over the past few years, we have renovated around 3% of our buildings annually to make them more energy- efficient, allowing us to reduce our carbon footprint significantly.

The progress we have made has also been recognized in sustainability ratings. By way of example, Vonovia climbed to a position in the top percentile of the more than 12,000 companies across the globe that are rated by Sustainalytics and was included in the renowned Dow Jones Sustainability Index Europe.

It is now time for us to take the next step: last year, we became the first residential real estate company to draw up a clear climate roadmap. We are aiming to have reduced our carbon emissions to almost zero by 2050, making us a climate-neutral company. We have set ourselves binding interim targets for each year in order to achieve this.

This is an ambitious plan, and achieving it will require more than simply modernizing building shells and purchasing regenerative forms of energy, which is why we are working with renowned institutes on new cross-sector energy solutions that can be implemented at neighborhood level.

In 2020, we picked up where we had left off in the previous years in terms of continuing with our positive operational and financial performance.

We have improved our business processes again – also with the help of digitalization – and expanded our Value-add Service. Hembla’s Swedish portfolio has been integrated. We acquired small portfolios in Germany and also acquired a stake in a portfolio in the Netherlands for the first time. The acquisition of Bien-Ries also allowed us to strengthen our development business in the Rhine-Main region.

Thanks to our successful business development, we were able to meet, and in some cases exceed, our forecasts. The main factors behind our growth were our acquisitions and organic growth, especially through new construction and modernization measures.

We revised the key reporting figures we use to reflect our performance last year, allowing us to be more transparent in our reporting and adopt a more holistic approach to how we manage our company.

One new aspect is the disclosure of the revenue generated in our four segments, Total Segment Revenue, in this year’s annual financial statements. This value is essentially the total revenue achieved by our Group. It increased by 6.3% year-on-year to € 4.4 billion. The Adjusted EBITDA Total increased by 8.5% to € 1.9 billion. Our operating earnings, Group FFO, improved by 10.6% to approximately € 1.35 billion. Expressed per share, it rose by 6.0% to € 2.38. In an environment dominated by the coronavirus pandemic, the vacancy rate fell by a further 0.2 percentage points to a very low level of 2.4%.

The portfolio value disclosure is made according to the best practice recommendations of the European Public Real Estate Association (EPRA). This is why we are reporting the EPRA Net Tangible Assets (EPRA NTA) for the first time to express the net asset value of our real estate properties. This figure will replace Adjusted Net Asset Value (Adjusted NAV). The new figure focuses on the calculation of tangible assets, providing you, as a shareholder, with data of even greater relevance on the value of our long-term holding portfolio. EPRA NTA per share, which measures the value development of our residential portfolio climbed by 14.43% to € 62.71. The adjusted NAV per share rose by 14.4% to € 59.47 in the same period. We are also reporting the Net Reinstatement Value (NRV) which, at € 77.18 per share, represents the asset value that would be required to rebuild the company from scratch. This value is higher than the adjusted NAV and the EPRA NTA because it also takes account of our activities in the Value-add and Development segments, in addition to our real estate portfolio.

The fair value of the portfolio increased in the reporting period to € 58.9 billion. This includes the increase of around € 4.9 billion resulting from the valuation of our properties, in particular thanks to investments in modernization and new construction and to the increased demand for residential property in major cities.

On the financing side, we raised capital totaling € 2.7 billion on the bond market last year. All issues were several times oversubscribed. We have a proven track record of excellent access to the international capital markets, even in challenging times. This is also reflected in our stable ratings. Our first fully digital registered bond, which we issued in January 2021 on the established Stellar blockchain, is an innovation.

Rolf Buch Chairman of the Management Board (CEO) (Photo)
Rolf Buch
Chairman of the Management Board (CEO)
Arnd Fittkau Member of the Management Board (CRO) (Photo)
Arnd Fittkau
Member of the Management Board (CRO)
Helene von Roeder Member of the Management Board (CFO) (Photo)
Helene von Roeder
Member of the Management Board (CFO)
Daniel Riedl Member of the Management Board (CDO) (Photo)
Daniel Riedl
Member of the Management Board (CDO)

Dear shareholders,

We expect to successfully move forward on the path we have carved out in 2021. In doing so, we will continue to strike a good balance between your interests, the interests of our tenants and those of society. I am grateful that, hand-in-hand with my Management Board team, I am able to lead a company built on a solid foundation with a highly committed management team. This also gives rise to certain obligations. And we will continue to fulfill these obligations.

In only a few weeks’ time, on April 16, we will come together for a virtual Annual General Meeting as we did last year. At this event, together with the Supervisory Board, we will be proposing a dividend of € 1.69 per share. Our business model is resilient even in difficult times and is helping to stabilize the overall environment.

Together with my Management Board colleagues, Helene von Roeder, Arnd Fittkau and Daniel Riedl, I would like to thank you, our shareholders, our partners and our employees for the trust you have placed in us over the past year. We look forward to having you by our side as we progress through the current year. We are counting on your support!

Bochum, Germany, March 2021


Rolf Buch
Chairman of the Management Board

Signature Rolf Buch (Signature)

Rolf Buch (CEO)

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.
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.
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.
European Public Real Estate Association (EPRA)
The European Public Real Estate Association (EPRA) is a non-profit organization that has its registered headquarters in Brussels and represents the interests of listed European real estate companies. Its mission is to raise awareness of European listed real estate companies as a potential investment destination that offers an alternative to conventional investments. EPRA is a registered trademark of the European Public Real Estate Association.
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.
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.
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.
Classification of debtors or securities with regard to their creditworthiness or credit quality according to credit ratings. The classification is generally performed by rating agencies.
Sustainability Performance Index (SPI)
Index to measure non-financial performance. A performance indicator introduced at Vonovia in January 2021 consisting of key figures on the CO2 intensity of the portfolio, primary energy requirements in new buildings, (partial) modernization measures to make apartments fully accessible, customer and employee satisfaction, and diversity within the management ranks.
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.