Half-Year Report 2020

Service

Group FFO

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

Group FFO

in € million

H1 2019

H1 2020

Change in %

12M 2019

 

 

 

 

 

*

Excluding capitalized interest on borrowed capital in H1 2020 of € 0.3 million (H1 2019 € 0.0 million).

**

Thereof intragroup profits in H1 2020: € 16.1 million (H1 2019: € 23.8 million), gross profit development to hold in H1 2020: € 26.5 million (H1 2019: € 17.7 million), IFRS 16 effects H1 2020: € 14.7 million (H1 2019: € 13.8 million).

Rental income in the Rental segment

1,014.8

1,132.9

11.6

2,074.9

Expenses for maintenance

-147.0

-154.7

5.2

-308.9

Operating expenses in the Rental segment

-143.8

-196.8

36.9

-328.6

Adjusted EBITDA Rental

724.0

781.4

7.9

1,437.4

 

 

 

 

 

Revenue Value-add

760.9

760.4

-0.1

1,677.3

thereof external revenue

134.9

131.2

-2.7

248.4

thereof internal revenue

626.0

629.2

0.5

1,428.9

Operating expenses Value-add

-685.2

-692.8

1.1

-1,531.0

Adjusted EBITDA Value-add

75.7

67.6

-10.7

146.3

 

 

 

 

 

Income from disposals Recurring Sales

174.9

195.0

11.5

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

-124.5

-140.5

12.9

-258.4

Adjusted result Recurring Sales

50.4

54.5

8.1

106.7

Selling costs Recurring Sales

-8.0

-6.4

-20.0

-14.8

Adjusted EBITDA Recurring Sales

42.4

48.1

13.4

91.9

 

 

 

 

 

Income from disposal of "Development to sell" properties

124.9

107.5

-13.9

249.5

Cost of Development to sell

-95.2

-83.7

-12.1

-197.3

Gross profit Development to sell

29.7

23.8

-19.9

52.2

Fair value Development to hold

103.8

144.7

39.4

266.3

Cost of Development to hold

-86.1

-118.2

37.3

-207.4

Gross profit Development to hold*

17.7

26.5

49.7

58.9

Operating expenses in the Development segment

-16.7

-5.2

-68.9

-26.6

Adjusted EBITDA Development

30.7

45.1

46.9

84.5

 

 

 

 

 

Adjusted EBITDA Total

872.8

942.2

8.0

1,760.1

 

 

 

 

 

FFO interest expense

-177.8

-188.8

6.2

-358.6

Current income taxes FFO

-30.6

-19.8

-35.3

-50.1

Consolidation**

-55.3

-57.3

3.6

-132.8

 

 

 

 

 

Group FFO

609.1

676.3

11.0

1,218.6

As of the end of the first half 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 June 2019. Rental income in the Rental segment rose by 11.6% from € 1,014.8 million in the first half of 2019 to € 1,132.9 million in the first half of 2020, largely due to the additional rental income from the Hembla portfolio, as well as to organic growth resulting from new construction and modernization measures. Hembla contributed a volume of € 88.8 million to the increase in the first half of 2020. Of the rental income in the Rental segment, € 918.4 million is attributable to rental income in Germany (H1 2019: € 895.6 million), € 161.9 million to rental income in Sweden (H1 2019: € 65.0 million) and € 52.6 million to rental income in Austria (H1 2019: € 54.2 million).

The increase in rent due to market-related factors came to 1.0% (H1 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 (H1 2019: 2.5%). The corresponding like-for-like rent increase came to 3.3% in the 2020 reporting period (H1 2019: 3.7%). 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% (H1 2019: 4.0%). The average monthly in-place rent within the Group at the end of June 2020 came to € 7.03 per m2, compared to € 6.64 per m2 at the end of June 2019. The monthly in-place rent in the German portfolio at the end of June 2020 came to € 6.88 per m2 (June 30, 2019: € 6.65 per m2), with the figure for the Swedish portfolio coming to € 9.65 per m2 (June 30, 2019: € 9.20 per m2) and the figure for the Austrian portfolio coming to € 4.73 per m2 (June 30, 2019: € 4.59 per m2). The rental income from the portfolio in Sweden reflects inclusive rents, meaning that the amounts contain operating, heating and water supply costs. The rental income from the Austrian property portfolio also includes maintenance and improvement contributions (EVB).

We have continued with our modernization, new construction and maintenance strategy in the 2020 fiscal year. As a result of the coronavirus pandemic, construction activities slowed somewhat in the second quarter of 2020. The total volume of maintenance, modernization and new construction activity rose by 6.8%, from € 804.3 million in the first half of 2019 to € 859.1 million in the first six months of 2020.

Maintenance, Modernization and New Construction

in € million

H1 2019

H1 2020

Change in %

12M 2019

 

 

 

 

 

 

Expenses for maintenance

147.0

154.7

5.2

308.9

Capitalized maintenance

61.7

93.2

51.1

172.7

Maintenance measures

208.7

247.9

18.8

481.6

 

 

 

 

 

Modernization measures

432.1

437.1

1.2

996.5

New constuction (to hold)

163.5

174.1

6.5

493.0

Modernization and new constuction measures

595.6

611.2

2.6

1,489.5

 

 

 

 

 

Total cost of maintenance, modernization and new construction

804.3

859.1

6.8

1,971.1

Operating expenses in the Rental segment in the first half of 2020 were up by 36.9% on the figures for the first half of 2019, from € 143.8 million to € 196.8 million, due to the acquisition of Hembla (H1 2020: € 40.9 million). All in all, Adjusted EBITDA Rental increased by 7.9% from € 724.0 million in the first half of 2019 to € 781.4 million in the first half of 2020.

The Value-add segment developed as expected in the first half of 2020, although it was impacted by the coronavirus pandemic. Vonovia’s own craftsmen’s organization once again made a decisive contribution to the segment’s stable development. We continued to expand our business activities relating to the provision of cable television to our tenants, residential environment, insurance and metering services, and energy supply services.

External revenue from our Value-add activities with our end customers in the first half of 2020 was down by 2.7% on the first half of 2019, from € 134.9 million to € 131.2 million, largely due to a weather-related reduction in snow and ice-clearing activities in the first quarter of 2020. Group revenue increased by 0.5% from € 626.0 million in the first half of 2019 to € 629.2 million in the first half of 2020. All in all, revenue from the Value-add segment came to € 760.4 million in the first half of 2020, virtually on a par with the level of € 760.9 million seen in the first half of 2019. Adjusted EBITDA Value-add fell by 10.7%, from € 75.7 million in the first six months of 2019 to € 67.6 million in the first half of 2020. This was largely due to construction delays on some modernization measures and to higher costs from a lower level of internal resources, both related to the coronavirus.

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, income from the disposal of properties came to € 195.0 million in the first half of 2020, up by 11.5% on the value of € 174.9 million reported in the first half of 2019; of this, € 138.3 million are attributed to sales in Germany (H1 2019: € 125.1 million) and € 56.7 million to sales in Austria (H1 2019: € 49.8 million). We privatized 1,327 apartments in the first six months of 2020 (H1 2019: 1,234), thereof 1,046 in Germany (H1 2019: 958) and 281 in Austria (H1 2019: 276). Adjusted EBITDA Recurring Sales came in at € 48.1 million in the first half of 2020, up by 13.4% on the value of € 42.4 million seen in the first half of 2019. The fair value step-up for Recurring Sales came in at 38.8% in the first six months of 2020, down slightly on the comparative value of 40.5% for the first six months of 2019. This is due primarily to lower step-ups for sales in Austria as against the previous year. The step-ups in Austria were higher than in Germany overall.

Outside of the Recurring Sales segment, we made 604 Non-core Disposals of residential units as part of our portfolio adjustment measures in the first half of 2020 (H1 2019: 754) with total proceeds of € 122.6 million (H1 2019: € 51.8 million). At 36.5%, the fair value step-up for Non-core Disposals was considerably higher than for the same period in the previous year (20.4%). The increase was driven primarily by the sale of a large commercial property in Dresden in the first quarter of 2020.

In the first half 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, 83 units were completed in the first half of 2020 (H1 2019: 379), thereof 83 in Germany (H1 2019: 74) and no units in Austria (2019: 305 units).

In the first half of 2020, income from the disposal amounted to € 107.5 million (H1 2019: € 124.9 million), with € 82.7 million attributable to project development in Germany (H1 2019: € 53.9 million) and € 24.8 million to project development in Austria (H1 2019: € 71.0 million). The resulting gross profit for Development to sell came to € 23.8 million (H1 2019: € 29.7 million).

In the Development to hold area, a total of 534 units were completed (H1 2019: 438 units incl. vertical expansion), thereof 308 in Germany (H1 2019: 310), 34 in Sweden (H1 2019: 0) and 192 in Austria (H1 2019: 128). In the Development to hold area, a fair value of € 144.7 million was achieved in the first half of 2020 (H1 2019: € 103.8 million), with € 63.5 million attributable to project development in Germany (H1 2019: € 74.8 million), € 78.1 million to project development in Austria (H1 2019: € 29.0 million) and € 3.1 million to project development in Sweden (H1 2019: € 0.0 million). The gross profit for Development to hold came to € 26.5 million in the first half of 2020 (H1 2019: € 17.7 million). Operating expenses in the Development segment came in at € 5.2 million in the first half of 2020, down considerably on the value of € 16.7 million seen in the same period of 2019. This was due to lower selling and personnel costs associated with the status of the progress made in the relevant projects.

Adjusted EBITDA for the Development segment came in at € 45.1 million in the first half of 2020, up by 46.9% on the value of € 30.7 million seen in the same period of 2019. This can be traced back primarily to the higher gross profit from Development to hold.

In the first six months of the year, the primary key figure for the sustained earnings power, Group FFO, increased by a total of 11.0%, from € 609.1 million in the first six months of 2019 to € 676.3 million in the first six months of 2020, largely due to the acquisition of Hembla and to 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 8.0% from € 872.9 million to € 942.2 million during the reporting period.

In the 2020 reporting period, the non-recurring items eliminated in the Adjusted EBITDA Total came to € 37.9 million (H1 2019: € 25.3 million). The following table gives a detailed list of the non-recurring items:

Non-recurring Items

in € million

H1 2019

H1 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*

11.6

22.1

90.5

48.2

Severance payments/pre-retirement part-time work arrangements

8.9

7.2

-19.1

13.2

Business model optimization/development of new field of business

0.6

8.6

>100

27.6

Refinancing and equity measures

4.2

–

-100.0

4.1

Total non-recurring items

25.3

37.9

49.8

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.