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Interim Statement Q1 2020

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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. The figures for 2020 include Hembla, which was acquired in November 2019, with a full contribution to the quarterly result for the first time.

Group FFO

in € million

3M 2019

3M 2020

Change in %

12M 2019

*

Excluding capitalized interest on borrowed capital of € 0.2 million (3M 2019: € 0.0 million).

**

Thereof intragroup profits in 3M 2020: € 7.1 million (3M 2019: € 11.1 million), valuation result for new development to hold in 3M 2020: € 4.3 million (3M 2019: € 5.3 million), IFRS 16 effects 3M 2020: € 7.3 million (3M 2019: € 7.5 million).

 

 

 

 

 

Income Rental

502.2

564.0

12.3

2,074.9

Expenses for maintenance

-72.7

-79.4

9.2

-308.9

Operating expenses in the Rental segment

-72.1

-103.5

43.6

-328.6

Adjusted EBITDA Rental

357.4

381.1

6.6

1,437.4

 

 

 

 

 

Revenue Value-add

358.8

375.1

4.5

1,677.3

thereof external revenue

80.2

77.6

-3.2

248.4

thereof internal revenue

278.6

297.5

6.8

1,428.9

Operating expenses Value-add

-323.0

-337.9

4.6

-1,531.0

Adjusted EBITDA Value-add

35.8

37.2

3.9

146.3

 

 

 

 

 

Income from disposals Recurring Sales

109.0

108.6

-0.4

365.1

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

-79.4

-79.4

–

-258.4

Adjusted result Recurring Sales

29.6

29.2

-1.4

106.7

Selling costs Recurring Sales

-3.3

-2.8

-15.2

-14.8

Adjusted EBITDA Recurring Sales

26.3

26.4

0.4

91.9

 

 

 

 

 

Income from disposal of Development to sell properties

59.4

45.4

-23.6

249.5

Cost of Development to sell

-46.1

-38.2

-17.1

-197.3

Gross profit Development to sell

13.3

7.2

-45.9

52.2

Fair value Development to hold

47.3

20.2

-57.3

266.3

Cost of Development to hold

-42.0

-15.9

-62.1

-207.4

Gross profit Development to hold*

5.3

4.3

-18.9

58.9

Operating expenses Development

-8.2

-0.1

-98.8

-26.6

Adjusted EBITDA Development

10.4

11.4

9.6

84.5

 

 

 

 

 

Adjusted EBITDA Total

429.9

456.1

6.1

1,760.1

 

 

 

 

 

FFO interest expense

-89.8

-90.1

0.3

-358.6

Current income taxes FFO

-12.6

-11.8

-6.3

-50.1

Consolidation**

-23.9

-18.7

-21.8

-132.8

 

 

 

 

 

Group FFO

303.6

335.5

10.5

1,218.6

As of the end of the first quarter of 2020, our apartments were virtually fully occupied. The apartment vacancy rate of 2.8% was down slightly on the value of 2.9% seen at the end of March 2019. Rental income in the Rental segment rose by a total of 12.3% from € 502.2 million in the first quarter of 2019 to € 564.0 million in the first quarter of 2020, largely due to the additional rental income from the Hembla portfolio as well as the organic growth resulting from new construction and modernization measures. Hembla contributed a volume of € 44.1 million to the increase in the first quarter of 2020. Of the rental income in the Rental segment, € 457.9 million is attributable to rental income in Germany (3M 2019: € 446.8 million), € 25.8 million to rental income in Austria (3M 2019: € 25.9 million), € 80.3 million to rental income in Sweden (3M 2019: € 29.5 million).

The increase in rent due to market-related factors came to 1.0% (3M 2019: 1.2%). 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 (3M 2019: 2.6%). The corresponding like-for-like rent increase came to 3.3% in the 2020 reporting period (3M 2019: 3.8%). 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% (3M 2019: 4.0%). The average monthly in-place rent within the Group at the end of March 2020 came to € 6.94 per m2 compared to € 6.56 per m2 at the end of March 2019. At the end of the first quarter of 2020, the monthly in-place rent in the German portfolio came to € 6.83 per m2 (Mar. 31, 2019: € 6.60 per m2), for the Austrian portfolio of € 4.65 per m2 (Mar. 31, 2019: € 4.51 per m2) and € 9.20 per m2 for the Swedish portfolio (Mar. 31, 2019: € 9.10 per m2). 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 have continued with our modernization, new construction and maintenance strategy in the 2020 fiscal year. Construction measures were hampered slightly in March as a result of the coronavirus. The total volume rose by 22.0% from € 339.7 million in the first quarter of 2019 to € 414.5 million in the first three months of 2020. This was driven largely by the increase in modernization and new construction activity.

Maintenance, Modernization, New Construction

in € million

3M 2019

3M 2020

Change in %

12M 2019

 

 

 

 

 

 

Expenses for maintenance

72.7

79.4

9.2

308.9

Capitalized maintenance

24.9

43.6

75.1

172.7

Maintenance measures

97.6

123.0

26.0

481.6

 

 

 

 

 

Modernization measures

188.0

208.1

10.7

996.5

New construction (to hold)

54.1

83.4

54.2

493.0

Modernization and new construction measures

242.1

291.5

20.4

1,489.5

 

 

 

 

 

Total cost of modernization, maintenance and new construction

339.7

414.5

22.0

1,971.1

Operating expenses in the Rental segment in the first quarter of 2020 were up by 43.6% to € 103.5 million due to the acquisition of Hembla (3M 2020: € 22.8 million) compared to 72.1 million in the first quarter of 2019. All in all, Adjusted EBITDA Rental increased by 6.6% from € 357.4 million in the first quarter of 2019 to € 381.1 million in the first quarter of 2020.

The Value-add segment showed sustained positive development in the first three months of 2020. 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, insurance and residential environment services, metering services and energy supply services. In the first quarter of 2020, around 16,000 private electricity customers were supplied with around 7.8 GWh of electricity by us, with 2,380 private gas customers receiving 14.6 GWh of gas. At the end of the first quarter of 2020 we had supplied around 326,000 households with a direct cable TV signal.

External revenue from our Value-add activities with our end customers in the first quarter of 2020 were down slightly on the first quarter of 2019, from € 80.2 million to € 77.6 million. This was largely due to a weather-related reduction of winter services. Group revenue rose by 6.8% from € 278.6 million in the first three months of 2019 to € 297.5 million in 2020. Overall, this results in a 4.5% increase in the revenue from the Value-add segment from € 358.8 million in the first quarter of 2019 to € 375.1 million in the first quarter of 2020. Adjusted EBITDA Value-add rose by 3.9%, from € 35.8 million in the first three months of 2019 to € 37.2 million in the first three months of 2020.

We continued to pursue our selective sales strategy in the 2020 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 € 108.6 million in the first quarter of 2020, down slightly on the value of € 109.0 million reported in the first quarter of 2019; of this, € 80.5 million are attributed to sales in Germany (3M 2019: € 81.3 million) and € 28.1 million to sales in Austria (3M 2019: € 27.7 million). We privatized 760 apartments in the first quarter of 2020 (3M 2019: 809), thereof 621 in Germany (3M 2019: 652) and 139 in Austria (3M 2019: 157). Adjusted EBITDA Recurring Sales came in at € 26.4 million in the first quarter of 2020, up by 0.4% on the value of € 26.3 million seen in the same period of 2019. The fair value step-up for Recurring Sales came in at 36.8% in the first three months of 2020, down slightly on the comparative value of 37.2% for the first three months of 2019.

Outside of the Recurring Sales segment, we made 287 Non-core Disposals of residential units as part of our portfolio adjustment measures in the first quarter of 2020 (3M 2019: 713) with total proceeds of € 49.8 million (3M 2019: € 45.5 million). At 36.0%, the fair value step-up for Non-core Disposals was considerably higher than for the same period in the previous year (15.7%). The sale of a large commercial property in Dresden contributed greatly to this increase.

In the first quarter of 2020, the Development segment, with its Development to sell and Development to hold areas, made positive contributions to earnings in Germany, Austria and Sweden, once again allowing it to contribute to Vonovia’s successful growth.

In the Development to sell area, no units were completed in the first quarter of 2020 (3M 2019: 36 units). In the first quarter of 2020, income from the disposal amounted to € 45.4 million (3M 2019: € 59.4 million), with € 23.9 million attributable to project development in Germany (3M 2019: € 19.6 million) and € 21.5 million to project development in Austria (3M 2019: € 39.8 million). The resulting gross profit for “Development to sell” came to € 7.2 million (3M 2019: € 13.3 million).

In the Development to hold area, a total of 122 units were completed (3M 2019: 188 units incl. vertical expansion), thereof 114 in Germany (3M 2019: 188 units) and 8 units in Sweden (3M 2019: 0). This includes 62 apartments (3M 2019: 22) that were developed as part of modernization measures (incl. 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 € 20.2 million was achieved in the first quarter of 2020 (3M 2019: € 47.3 million). With € 20.2 million, this was fully attributable to project development in Germany (3M 2019: € 47.3 million). The gross profit for “Development to hold” came to € 4.3 million in the first quarter of 2020 (3M 2019: € 5.3 million). Operating expenses in the Development segment came in at € 0.1 million in the first quarter of 2020, considerably below the prior-year value of € 8.2 million. Lower sales and HR costs contributed to this.

Adjusted EBITDA for the Development segment came in at € 11.4 million in the first quarter of 2020, up by 9.6% on the value of € 10.4 million seen in the same period of 2019.

In the three-month period under review, the primary key figure for the sustained earnings power, Group FFO, increased by 10.5% from € 303.6 million in 2019 to € 335.5 million in 2020, largely due to the purchase of Hembla as well as the organic growth resulting from new construction and modernization measures. This trend was fueled primarily by the positive development in adjusted EBITDA total, which rose by 6.1% from € 429.9 million to € 456.1 million during the reporting period.

In the 2020 reporting period, the non-recurring items eliminated in the Adjusted EBITDA Total came to € 14.8 million (3M 2019: € 17.9 million). The following table gives a detailed list of the non-recurring items:

Non-recurring Items

in € million

3M 2019

3M 2020

Change in %

12M 2019

*

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

 

 

 

 

 

Acquisition costs incl. integration costs*

5.5

6.1

10.9

48.2

Severance payments/pre-retirement part-time work arrangements

7.0

1.7

-75.7

13.2

Business model optimization/development of new fields of business

1.1

7.0

>100

27.6

Refinancing and equity measures

4.3

–

-100.0

4.1

Total non-recurring items

17.9

14.8

-17.3

93.1
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.