Germany's largest real estate group Vonovia wants to invest significantly less in modernization and new construction in the coming year in view of high interest rates and construction costs. In 2023 it should only be 850 million euros, as the Dax company announced on Friday in Bochum.
Already in the current year, the group intends to spend less money than last promised. Vonovia is now planning investments of up to EUR 1.4 billion for 2022, with a little more money going into the new building. Including the repair, Vonovia intends to spend around two billion euros in 2022. The stock gained more than four percent in the morning.
There should be no turnaround
"It makes no sense to make a large investment program given the current uncertainty of interest rates, the uncertainty of construction costs, the uncertainty of the subsidy programs and our own capital costs," said company boss Rolf Buch of the financial news agency dpa-AFX. A side effect is that Vonovia has more cash and can thus pay off more debt. However, the forecast for the investment program for 2023 does not mark a turnaround, although the investments are expected to be much lower than in 2022. "We are expressly and unchanged on our long-term climate path," emphasized Buch.
"The effects of Russia's war of aggression in Ukraine, rising interest rates, high construction costs and the shortage of skilled workers pose immense challenges for the housing industry," said Buch. There is an increasing shortage of affordable housing, particularly in the major metropolitan areas.
The housing issue harbors social explosives
Once again this year, Vonovia has succeeded in building new, affordable apartments and continuing to make existing buildings more energy-efficient. However, a joint effort is required to be able to continue investing in Germany on this scale in the future. Otherwise, the housing issue threatens to become the social dynamite of the next decade. The real estate industry cannot solve these challenges alone.
The CEO expressed skepticism about the goal of the traffic light coalition that 400,000 new and affordable apartments should be built nationwide every year. For this, around 150 billion euros would have to be invested per year. "This value can no longer be financed in any way at the moment because interest rates have increased by a factor of four," said Buch. In order to be able to cope with the investment sum, either a significantly increased amount of funding is needed or another "very intensive discussion about the way we build, especially about the additional tightening of standards". Construction costs, financing costs and higher standards did not result in rents that "people can imagine".
Against the background of the sharp rise in energy costs, Vonovia intends to stick to the practice of a temporary moratorium on termination. "We don't fire anyone because they can't pay their utility bills when they contact us," Buch said. "We will then find ways of solving the issue."
In the first nine months of 2022, operating profit (FFO) increased by 35 percent year-on-year to almost 1.6 billion euros, mainly thanks to the takeover of Deutsche Wohnen. Sales climbed in the first nine months by a good 31 percent to 4.6 billion euros. At the end of September, rents across the group rose to an average of EUR 7.47 per square meter - that was 1.8 percent more than a year earlier. Modernized apartments in particular contributed to the growth. In Germany, the Vonovia average rent was EUR 7.36 per square meter.
For 2022, Vonovia is still targeting an increase in operating profit to EUR 2.0 to 2.1 billion after EUR 1.67 billion in the previous year. Adjusted earnings before interest, taxes, depreciation and amortization (Ebitda) are expected to rise from just under 2.3 to up to 2.85 billion euros. Buch expressed confidence for the coming year. Ebitda and operating profit (FFO) should remain roughly stable. "This is also due to the fact that we are assuming a significantly lower inventory," he said. Vonovia intends to sell around 66,000 apartments in the coming years.
