Letter from the Management Board
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.
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
Chairman of the Management Board
Rolf Buch (CEO)