Guiding aspects of the strategic environment for Vonovia are three megatrends, energy transition and demographic change, as well as increasing immigration to Germany.
A crucial prerequisite for the success of the energy transition
in Germany is the sustainable and significant reduction of final
energy consumption. As residential buildings account for more
than a quarter of total final energy consumption, this sector
offers considerable potential for saving energy. For this reason,
the German government has set itself the ambitious goal of reducing the heat requirements of buildings by 20 % by 2020 and
reducing primary energy consumption by 80 % – compared with
1990. This means that comprehensive energy-efficiency measures have to be performed in a large percentage of buildings in
Germany by 2050.
Vonovia is aware of its responsibility and has
therefore set up an energy-efficient modernisation programme.
Based on our extensive experience of the energy-efficient
modernisation of residential buildings since 2008, we made the
decision, in 2013, to significantly expand the existing investment
programme for the energy-efficient modernisation of our buildings and to invest around € 500 million in the period leading
up to 2018 with the help of subsidies provided by the German
state development bank, KfW. Last year, we already made a
substantial contribution, implementing energy-efficient modernisation measures in homes accounting for a total volume
of around € 119 million – as against € 47 million in the previous
year. We will be expanding this programme this year to cover the
The demographic change also has a considerable influence on
the housing industry in Germany. The population is ageing fast
and presenting the housing industry with major challenges –
particularly in the field of age-appropriate accommodation. In
order to respond to this trend, the German government provides
low-interest funds from promotional banks to support the
efforts of real estate owners to adapt their housing stocks to
the needs of older people, therefore enabling them to live longer
in their familiar surroundings. Within this context, Vonovia came up with a five-year plan back in 2013 to invest
a volume of € 300 million in senior-friendly conversions of its
properties. After investing € 16 million in senior-friendly, accessible apartment modernisation measures in 2013, we were able to
more than double the investment volume in the 2014 financial
year, bringing it up to more than € 40 million. These measures
will also be gradually extended to cover the portfolios we have
Furthermore, 2014 also saw increasing migration fuelled by
immigration to Germany and migration within Germany from
the countryside to the metropolitan areas such as Rhine/Neckar,
Rhine/Main, Rhine/Ruhr as well as Munich, Hamburg and
Berlin. This development is contributing to an increase in the
number of one to two-person households, which the Vonovia business model benefits from.
Our strategy consists of five elements. They are:
- Property management
- Portfolio management
- Extension (extension of the value chain)
The successful implementation of the strategic elements –
Property management, Financing, Portfolio and Extension –
is the basis for a sustained and positive development of our
primary key performance indicators: net asset value (NAV)
and funds from operations (FFO). At the same time, it gives us
flexibility for acquisitions which open up further optimisation
potential through economies of scale.
Property management strategy
The paramount goal of Vonovia’s property management strategy is the systematic optimisation of operating performance and core business productivity. In order to achieve this
objective, we need a good reputation and satisfied customers.
Through a balanced mix of various measures which are geared to
this goal, we create a strategy which is characterised by sustainability and profitability.
Vonovia makes ongoing investments, and
above-average investments compared to its peers, in property
maintenance. This guarantees the reliable technical quality of
In addition, we optimise our services by implementing a coherent quality management system, which is characterised by high
quality standards and continuous checks. In order to ensure the
economic balance of all activities, our processes and structures
are strictly geared to our customers’ satisfaction
This holistic property management approach delivers a clear
Our financing strategy pursues various goals: a balanced structure and maturity of our debt capital, optimisation of our financing costs, maintenance of our credit rating and adequate liquidity at all times.
The success of our financing strategy is reflected in the following:
- Access to the capital markets through our IPO in 2013 on the basis of a sound equity ratio and a loan-to-value ratio of sustainably below 50%
- Access to the debt capital markets through an investment grade rating of “BBB+” from Standard & Poor’s (S&P)
- Balanced and weighted maturity profile
- Balanced debt structure through different unsecured corporate bonds, supplemented by hybrid instruments, securitisations and structured loans as well as low-interest mortgages
- Synchronised hedging strategy for exchange rate and interest rate risks
- Possibilities to obtain a balanced mix of equity and debt capital
- Enables further internal and external growth
- Ensures improved financial result
- Ensures earnings growth and investor returns through dividends and share price
The flexibility and variety in financing achieved by the implementation of Vonovia ’s financial strategy will allow the business to achieve organic growth and to be further developed in an innovative manner using acquisitions in the future as well.
The responsibility for financing the Group as a whole and the Group companies individually lies with Vonovia . The latter raises the funds required, in line with the financing strategy, in a flexible manner on the international equity and debt capital markets. Within this context, Vonovia mainly makes use of its Dutch subsidiary Vonovia Finance B.V.
On the basis of the current investment grade rating granted by Standard & Poor’s, Vonovia now enjoys access to the equity and debt capital markets at all times, allowing it to ensure balanced and flexible financing with a balanced maturity profile in line with its financing strategy.
The financing structure that we have chosen is also confirmed to be the right one if we look at the acquisitions that were announced and completed since 2013. Without fast and free access to the international equity and debt capital markets, these would not be shown.
Portfolio management strategy
Vonovia has divided its portfolio into five actionoriented sub-portfolios. We follow a clearly differentiated strategy for each sub-portfolio with regard to value creation. Newly
acquired portfolios are evaluated after their integration and then
incorporated into the existing structure.
As at the beginning of 2014, the portfolio structure is as follows:
In this sub-portfolio, we pursue the strategy of value-enhancing property management. We achieve operational
value generation through rental growth, vacancy reduction,
effective and sustainable maintenance spend as well as cost
efficiencies through scale.
We use value-enhancing investments to achieve a significant improvement in value with an extensive investment
programme. We also address one of today‘s social megatrends, climate protection, and invest in energy-efficient
As part of the value-creating investments, we pick up on a
further societal megatrend – demographic change. With our
comprehensive investment programme, we create further
significant value improvement by refurbishing apartments
for senior living as well as completing high-standard refurbishments in markets where fully refurbished apartments
deliver a rental premium.
We generate further value through the sale (privatisation) of
owner-occupier units and single-family houses at a significant premium compared with their fair value. Related to the
fair value at the end of 2014, these units amount to 12 % of
theVonovia housing stocks.
As part of portfolio optimisation, we sell buildings to private and institutional investors as the opportunity presents
itself. 3 % of theVonovia housing stocks, measured in terms of
fair value, have only limited development potential in the
medium to long term as they are not suitable for long-term,
successful management using our standardised letting
processes due to their location or the condition of the property. This housing stock is to be sold in the medium term at
prices around fair value.
The foundation of all sales and purchase decisions of Vonovia is its own analysis of the German market on the
basis of the yield achieved and the future potential to increase
value. To calculate the growth potential, we have developed
a scorecard with which we believe we can forecast the future
development of the local markets better than by using publically available studies. One main difference is that our analysis
includes the knowledge of our local regional managers throughout Germany in addition to the expected regional demographic
developments. The result of this market analysis forms the basis
for long-term portfolio optimisation.
Vonovia has steadily extended its core business
since 2012. The most important examples of the successful
extension of our value chain are the development of our craftsmen’s organisation Deutsche TGS and the partnership with
Deutsche Telekom to supply our residential units with digital
radio and TV reception. Both projects by far exceeded our original expectations. We have been establishing our own caretaker
organisation on an ongoing basis since 2012 so that we can
provide better support to our customers with our service offering. The response to this caretaker service offering has been
positive. We still see great growth potential for the craftsmen’s
organisation DTGS. Since the beginning of 2013, we have been
significantly increasing our capacities in the different regions.
At the end of 2014, we employed a workforce of around 1,760 at
DTGS and plan to continue to increase the number of employees
in line with portfolio growth. DTGS is available to all Vonovia customers and the reaction to our service is positive.
Our craftsmen’s organisation gives us key strategic advantages:
- Availability of highly-skilled craftsmen
- Improved service quality by building expertise and implementing efficient, well-coordinated processes
- Cost advantages (procurement, etc.)
- Scalable operating platform throughout Germany
The contract with Deutsche Telekom was signed in 2011. The
joint objective is to equip 145,000 apartments with modern fibre-optic technology so as to be able to offer our tenants the entire spectrum of Deutsche Telekom services on more favourable
conditions. At the end of 2014, 55,000 apartments had already
been equipped with this technology, with plans to complete this
work in the other apartments by 2025.
In addition to these projects, we want to further expand the
service offering for our tenants. Our aim is to continually
strengthen the loyalty of our customers and profitably develop
In addition to Vonovia’s potential for organic
growth, we are also active in the field of acquisitions. Thanks
to our presence throughout Germany, we can identify a large
number of opportunities and can also integrate housing stocks
which are scattered over a wide area into our existing portfolio
quickly and without any hiccups for our tenants, as we showed
in the last financial year with the impressive integration of the
DeWAG and Vitus portfolios. Due to our financial flexibility, we
offer potential sellers a very high degree of transaction security
and swift processing.
With the help of our nationwide market knowledge and our
many years of experience, we have developed the growth-return
matrix for the whole of Germany, which shows expected growth
in relation to current returns. This evaluation method allows us
to identify, very quickly and easily, whether a portfolio would
be a worthwhile addition to our stocks and whether it offers
positive development opportunities. Since this allows us to
assess even larger portfolios in detail relatively quickly and with
minimum effort, we can also use the system to help us make
disinvestment decisions. Last year provided a good example
of how this tool can be used: we used the analysis method to
decide not only to purchase Vitus, but also to quickly pass on
part of the portfolio.
Vonovia is highly disciplined when assessing potential acquisitions and sets clear requirements. All eligible acquisitions must meet the following four conditions, they must
- Fit into the existing portfolio
- Increase FFO/share
- Be at least NAV/share neutral
- Not jeopardise the existing “BBB+”-rating