Germany’s largest real estate group Vonovia benefited from the takeover of Deutsche Wohnen and higher rental income last year. Sales and the operating result increased strongly. But the bottom line was a big minus.
The company now wants to significantly reduce the dividend. The management will propose a dividend of 85 cents per share at the general meeting, the company announced on Thursday after the stock exchange closed. A year earlier, the group had distributed 1.66 euros.
The stock fell to another low since October on Friday. The paper has lost around a third of its value since the beginning of February. Rising interest rates and inflation are currently making the environment for the heavily credit-financed real estate industry more difficult.
According to the German Tenants’ Association NRW, the dividend cut is “no reason for tenants to be happy, because it does not relieve them”. The cut only shows “how vulnerable the business models of the housing groups are and that apartments don’t belong on the stock exchange,” said the association in Düsseldorf.
Market environment “challenging”
Vonovia remains cautious for this year. The demand for apartments will also increase in 2023, but the market environment will remain challenging, said CEO Rolf Buch. In the current year, sales are expected to increase to between EUR 6.40 and 7.20 billion. For the operating result (FFO), the management is aiming for 1.75 to 1.95 billion euros. In 2022, operating profit increased by a fifth to 2.04 billion euros year-on-year, mainly thanks to the takeover of Deutsche Wohnen.
Group-wide rents rose to an average of EUR 7.49 per square meter at the end of December – that was 3.3 percent more than a year earlier on a comparable basis. Modernized apartments in particular contributed to the increase, also because the costs for energy-related renovations such as thermal insulation and the replacement of old heating systems and windows in Germany can be partially passed on to the rent. There is hardly any vacancy and almost no loss of rent, said Buch.
Sales climbed last year by almost a fifth to 6.26 billion euros. The bottom line is that Vonovia reported a loss of EUR 669 million after a profit of a good EUR 2.4 billion a year earlier. Buch justified the shortfall with write-downs on the real estate portfolio, on the project development business and on the care subsidiary totaling almost 1.3 billion euros.
Growth through acquisition
Vonovia has grown strongly in recent years of low interest rates, primarily through acquisitions in Germany and abroad. In addition, the group benefited from rising rents in large cities and new buildings. In 2021, Vonovia successfully acquired Germany’s second largest landlord, Deutsche Wohnen. Last year, Vonovia also became the largest shareholder in its industry rival, the Adler Group, which got into troubled waters. As Europe’s largest private housing company, Vonovia owns a total of almost 550,000 apartments in Germany, Sweden and Austria.
Due to the sharp rise in construction and financing costs, Vonovia is not planning any new construction projects for the time being. However, the projects that are already under construction should be brought to an end. Vonovia will complete 3,450 apartments in 2023, said Buch. “New construction that leads to reasonable rental prices is simply not economically feasible in the current situation,” he added. A total of almost 10,000 apartments are currently under construction.
