Vonovia impresses with the interim report for the first nine months of the year. The real estate company wants to increase the dividend. What else investors should know about the quarterly figures, our valuation of the stock. By Floriana Hofmann
The apartments are scarce, especially in the cities. As a result, rents are high. The owners as the largest German real estate company Vonovia earn it – and quite well.
This is also shown by a look at the numbers. In the first nine months of the current year, the Dax Group of Bochum collected 1.29 billion euros in rents, 3% more than in the previous year. The rental income from the Buwog recently purchased from Austria is not included. Vonovia has more than 400,000 apartments. Only 2.7% (previous year: 2.9%) was empty. Operating income from continuing operations, called Funds of Operations 1 (FFO 1) in the real estate sector, increased by 12.7 percent to 778.2 million euros.
Profit growth is not a coincidence. In the first nine months of the year, rents in Vonovia in Germany increased by an average of four percent compared to the same period of the previous year at € 6.45 per square meter. Vonovia mainly rents apartments in the lower price segment. Most of the rent increases come from modernization.
Modernization is the reason why real estate companies are repeatedly criticized. Because if the apartments already rented are modernized, the rent can be increased – usually a lot for the displeasure of the residents.
Vonovia is approaching the tenants
Vonovia is now responding and wants to modernize much less. "It does not help if people do not want this," said Rolf Buch CEO on Thursday. From now on, Vonovia will invest 40% less in so-called energy restructuring, such as insulation or the replacement of old windows. So far, Vonovia has modernized around five percent of the building stock. Now the renewal rate must be reduced to three percent.
If the apartments are still rehabilitated, the rents will increase in the future according to the book of a maximum of two euros per square meter. "We guarantee: no tenant should move due to a modernization". It had become clear "that there is no acceptance for the costly modernization of energy and many tenants are not financially able to support increases in associated rents".
For the federal government it has recently strengthened the rental law for tenants: from 2019 to homeowners, after modernization, only 8% of the costs per year can be moved. Previously, 11% was allowed. Vonovia limits the surcharge to tenants after modernization to seven percent of the costs, said the chief.
Moreover, according to the legislature, the rent can be increased by up to three euros per square meter after modernization. A total rent of less than seven euros – which is largely the case for Vonovia according to the interim report – can be increased by up to two euros. The book stressed that the company is not reacting to the new legal situation by limiting the maximum increase in rent. It has been busy for the summer and has considered a maximum limit of two euros for a while. So far, the average rent increase in Vonovia after a modernization at 1.60 euros per square meter.
Growth factor for new buildings
Despite the decline in modernization, average rents are expected to continue to rise. "The increase in rent does not come from the modernization, but from the new building," said the book. So the Bochum wants to build 2900 new apartments. 600 apartments will be completed by the end of this year. Most of the new apartments will be created through extensions of existing homes.
In the coming year, Vonovia plans to invest a total of 1.3 to 1.6 billion euros: mainly in the construction and renovation of newly acquired apartments in Sweden. There Vonovia had recently taken over the Victoria Park company. In Sweden, social acceptance for energy modernization is even greater, Buch said. Vonovia will invest one billion euros in 2018, most of which will go to energy-related modernization.
So Vonovia should also get good profits next year. The FFO 1 should rise from 1.14 to 1.19 billion euros. For the current year, 1.05-1.07 billion euros are planned, with a growth of around 15%. Shareholders should also participate in this. The dividend for 2018 should increase by twelve cents to 1.44 euros per share.
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