Group FFO

The following key figures provide an overview of the development in Group FFO and other value drivers in the reporting period. When comparing the current key figures with the previous year, it is important to note that the figures for 2020 include Hembla, which was acquired in November 2019, with an earnings contribution of nine months, and Bien-Ries GmbH, which was acquired in early April 2020, with an earnings contribution of six months.

As of September 30, 2020, our apartments were virtually fully occupied. The apartment vacancy rate of 2.6% was down on the value of 2.9% seen at the end of September 2019. Rental income in the Rental segment rose by 11.8% from € 1,527.0 million in the first nine months of 2019 to € 1,706.9 million in the first nine months 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 € 135.3 million to the increase in the first nine months of 2020. Of the rental income in the Rental segment, € 1,381.2 million is attributable to rental income in Germany (9M 2019: € 1,346.3 million), € 246.3 million to rental income in Sweden (9M 2019: € 100.4 million) and € 79.4 million to rental income in Austria (9M 2019: € 80.3 million).

The increase in rent due to market-related factors came to 0.8% (9M 2019: 1.2%). We were also able to achieve an increase in rent of 2.2% thanks to property value improvements achieved as part of our modernization program (9M 2019: 2.5%). The corresponding like-for-like rent increase came to 3.0 % in the 2020 reporting period (9M 2019: 3.7%). If we also include the increase in rent due to new construction measures and measures to add extra stories of 0.6% (9M 2019: 0.3%), then we arrive at an organic increase in rent totaling 3.6% (9M 2019: 4.0%). The average monthly in-place rent within the Group at the end of September 2020 came to € 7.07 per m² compared to € 6.69 per m² at the end of September 2019. The monthly in-place rent in the German portfolio at the end of September 2020 came to € 6.91 per m² (Sep. 30, 2019: € 6.71 per m²), with the figure for the Swedish portfolio coming to € 9.67 per m² (Sep. 30, 2019: € 9.15 per m²) and the figure for the Austrian portfolio coming to € 4.76 per m² (Sep. 30, 2019: € 4.63 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 additionally 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 relating to modernization measures and new construction in particular slowed somewhat. The total volume of maintenance, modernization and new construction activity rose by 4.5%, from € 1,301.3 million in the first nine months of 2019 to € 1,360.0 million in the first nine months of 2020.

Operating expenses in the Rental segment in the first nine months of 2020 were up by 36.9% on the figures for the first nine months of 2019, from € 214.3 million to € 293.3 million, due to the acquisition of Hembla (9M 2020: € 58.5 million). All in all, Adjusted EBITDA Rental rose by 8.9%, from € 1,082.5 million in the first nine months of 2019 to € 1,178.7 million in the first nine months of 2020.

The Value-add segment was impacted by the coronavirus pandemic. 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. Vonovia’s own craftsmen’s organization made a 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 came to € 186.8 million in the first nine months of 2020, on a par with the 2019 level. Group revenue fell by 3.0% from € 1,025.2 million in the first nine months of 2019 to € 994.2 million in the first nine months of 2020 owing to a slightly lower modernization volume due to the coronavirus crisis. All in all, revenue from the Value-add segment came to € 1,181.0 million in the first nine months of 2020, down by 2.6% on the value of € 1,212.0 million seen in 2019. Adjusted EBITDA Value-add came to € 110.1 million in the first nine months of 2020, 6.3% lower than the figure of € 117.5 million reported for the first nine months of 2019.

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 € 296.5 million in the first nine months of 2020, up by 8.4% on the value of € 273.5 million reported in the same period of 2019; of this, € 199.3 million are attributed to sales in Germany (9M 2019: € 190.1 million) and € 97.2 million to sales in Austria (9M 2019: € 83.4 million). We privatized 1,883 apartments in the first nine months of 2020 (9M 2019: 1,893), thereof 1,412 in Germany (9M 2019: 1,472) and 471 in Austria (9M 2019: 421). Adjusted EBITDA Recurring Sales came in at € 74.9 million in the first nine months of 2020, up by 8.4% on the value of € 69.1 million seen in the first nine months of 2019. The fair value step-up for Recurring Sales came in at 40.1% in the first nine months of 2020, down slightly on the comparative value of 41.4% for the first nine 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 829 Non-core Disposals of residential units as part of our portfolio adjustment measures in the first nine months of 2020 (9M 2019: 1,679) with total proceeds of € 154.7 million (9M 2019: € 106.2 million). At 33.3%, the fair value step-up for Non-core Disposals was considerably higher than for the same period in the previous year (15.2%). The increase was driven primarily by the sale of a large commercial property in Dresden in the first quarter of 2020.

In the first nine months 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, allowing it to contribute to Vonovia’s successful growth.

In the Development to sell area, a total of 381 residential units were completed in the first nine months of 2020 (9M 2019: 515), thereof 381 in Germany (9M 2019: 74) and no units in Austria (9M 2019: 441). In the first nine months of 2020, income from the disposal amounted to € 181.6 million (9M 2019: € 194.9 million), with € 132.4 million attributable to project development in Germany (9M 2019: € 92.4 million) and € 49.2 million to project development in Austria (9M 2019: € 102.5 million). The resulting gross profit for Development to sell came to € 36.6 million (9M 2019: € 46.8 million).

In the Development to hold area, a total of 1,056 units were completed (9M 2019: 851, incl. attic conversions), thereof 548 in Germany (9M 2019: 451), 125 in Sweden (9M 2019: 0) and 383 in Austria (9M 2019: 400). In the Development to hold area, a fair value of € 225.8 million was achieved in the first nine months of 2020 (9M 2019: € 185.3 million), with € 94.7 million attributable to project development in Germany (9M 2019: € 91.5 million), € 128.0 million to project development in Austria (9M 2019: € 93.8 million) and € 3.1 million to project development in Sweden (9M 2019: € 0.0 million). The gross profit for Development to hold came to € 44.3 million in the first nine months of 2020 (9M 2019: € 33.1 million). Operating expenses in the Development segment came in at € 12.1 million in the first nine months of 2020, down 32.4% on the value of € 17.9 million seen in the same period of 2019. This was due, in particular, 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 € 68.8 million in the first nine months of 2020, up by 11.0% on the value of € 62.0 million seen in the same period of 2019. This can be traced back primarily to the higher gross profit from Development to hold and to lower operating expenses.

In the first nine months of the year, the primary key figure for the sustained earnings power, Group FFO, increased by a total of 8.9%, from € 932.8 million in the first nine months of 2019 to € 1,015.9 million in the first nine 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 7.6% from € 1,331.1 million to € 1,432.5 million during the reporting period.

In the 2020 reporting period, the non-recurring items eliminated in the Adjusted EBITDA Total came to € 24.1 million, down 34.0% on the prior-year value of € 36.5 million. In the third quarter of 2020, income of € 18.1 million was recognized following the reassessment of a compensation entitlement for non-controlling interests. The following table gives a detailed list of the non-recurring items: