Vonovia SE · XETR:VNA
Vonovia — Investor Presentation (September 2018)
72 slides from Vonovia's investor presentation, September 2018
Slide 1: Company Presentation September 2018
Company Presentation September 2018
Slide 2: Agenda
Agenda Vonovia at a Glance 3 Business Update 6 Residential Market Data 20 Appendix 25 Company Presentation – September 2018 page 2
Slide 3: Vonovia at a Glance
Vonovia at a Glance Largest listed European residential company with more than 400k Sweden (Stockholm, apartments. Austria Gothenburg, (mostly Malmö) Bread-and-butter business in German residential market with strong track record of Vienna) 4% 6% optimization, standardization and industrialization v
Slide 4: Strategy
Strategy Reputation & Customer Satisfaction Property 79.6% 82.2% 84.8% 87.0% 88.6% Management Mergers & Traditional 5 Acquisitions 830 1 Efficient 754 645 570 526 operations of 2013 2014 2015 2016 2017 scalable `000 units 404 EBITDA margin (excl. maintenance) Cost per unit (€) business 4.6 292 3.0 3
Slide 5: Agenda
Agenda Vonovia at a Glance 3 Business Update 6 Residential Market Data 20 Appendix 25 Company Presentation – September 2018 page 5
Slide 6: Vonovia stand-alone H1 2018 Highlights
Highlights Organic rent growth of 4.1% y-o-y. Operating expenses reduced by 16.8% to €110.2m as a result of eliminating the double Operations cost structure from conwert included in H1 2017 as well as continued efficiency gains. Adj. EBITDA Operations margin (ex. maintenance) of 90.9% (+290bps y-o-y
Slide 7: KPI Growth in spite of Smaller Portfolio and Higher NOSH
All numbers stand-alone Vonovia, excluding Buwog and Victoria Park KPI Growth in spite of Smaller Portfolio and Higher NOSH Rental income slightly up 0.7% on a 3% smaller but higher quality portfolio. Adjusted EBITDA Operations up 4.1% because of substantially lower operating expenses and higher con
Slide 8: Rent Growth Acceleration Set to Continue
All numbers stand-alone Vonovia, excluding Buwog and Victoria Park Rent Growth Acceleration Set to Continue Positive rent growth trajectory Rent growth drivers (last 12M) H1 2018 H1 2017 Delta 2013 2014 2015 2016 2017 2018(E) 2019(E) Market driven 1.6% 1.6% 1.7% 1.5% 1.6% ≈ ≈ Modernization 0.4% 0.9%
Slide 9: Smooth Maturity Profile with Diverse Funding Mix
Smooth Maturity Profile with Diverse Funding Mix Debt maturity profile (€ m)1 3,000 3.5% 2,500 Current unsecured reoffer yield (8 years) 3.0% 2.5% 2,000 2.0% 1,500 1.5% 1,000 1.0% 500 0.5% 0 0.0% 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 from 2030 Mortgages incl. EIB Structured Loa
Slide 10: LTV Remains in Comfort Zone
LTV Remains in Comfort Zone LTV as of June 30, 2018 was 43.9%. Current pro forma LTV, including 2nd offer period for Buwog and €500m bond issued in July, is ~45%. Against the background of the stable cash flows and the strong fundamentals in our portfolio locations we see continued upside potential
Slide 11: Invest Cluster Offers Long-Term Organic Growth Potential
Invest Cluster Offers Long-Term Organic Growth Potential Austria Sweden Sell 53% of portfolio in Invest Cluster and earmarked for Privatize value-enhancing investments in the next years Operate Non-core sales almost completed 10% of portfolio outside of Germany Invest Residential In-place rent Vacan
Slide 12: €1bn Investment Program on Track
All numbers stand-alone Vonovia, excluding Buwog and Victoria Park €1bn Investment Program on Track 2018 investment program well underway. All investment projects kicked-off or already completed. Investment program for calendar year 2018 (€m) Distribution of investment funds for 2018 program year ~1
Slide 13: L-f-l Value Uplift of 5.7%
All numbers stand-alone Vonovia, excluding Buwog and Victoria Park L-f-l Value Uplift of 5.7% Valuation portfolio comprised the 20 largest cities of our German H1 2018 fair value uplift (l-f-l) portfolio, plus six additional German locations and Vienna, representing 0% 2% 4% 6% 8% 10% 12% ca. 2/3 of
Slide 14: Continued NAV Growth
Continued NAV Growth Adj. NAV is up 10.5% ytd or 3.5% per share in spite of 6.8% more issued shares. €m Jun 30, 2018 Dec 31, 2017 Is Adj. NAV a good proxy for the value of a (unless indicated otherwise) diverse operating business? By definition, the Adj. NAV Equity attributable to Vonovia's sharehol
Slide 15: Growing Contribution from Value-add Business
All numbers stand-alone Vonovia, excluding Buwog and Victoria Park Growing Contribution from Value-add Business Concept Economics Expansion of core business to extend the value chain by NAV does not account for Vonovia’s Value-add Business. offering additional services and products that are directly
Slide 16: Sales – Steady Cash Flow at Attractive Margins
All numbers stand-alone Vonovia, excluding Buwog and Victoria Park Sales – Steady Cash Flow at Attractive Margins Total sales volume in H1 2018 was 6,115 residential units (prior-year period: 4,484), of which 1,030 from Privatization portfolio (prior-year period: 1,160) and 5,085 from Sell portfolio
Slide 17: Update on BUWOG & Victoria Park; European Activities
Update on BUWOG & Victoria Park; European Activities Comments BUWOG Victoria Park European activities enhance accretive acquisition Current 93.45% voting opportunities. Vonovia 90.7% voting rights rights (including call stake options) Similar to Germany, we closely monitor these clearly defined geog
Slide 18: Increased Guidance Suggests ca. 8% FFO per share Growth
Increased Guidance Suggests ca. 8% FFO per share Growth 2017 Actuals 2018 Guidance Initial (Nov. 2017) Update (May 2018) Update (Aug. 2018) Excl. Buwog & Excl. Buwog & Incl. Buwog & Victoria Park Victoria Park Victoria Park1 Organic rent growth (eop) 4.2% 4.6% - 4.8% 4.6% - 4.8% ~4.4%2 (VNA stand-al
Slide 19: Agenda
Agenda Vonovia at a Glance 3 Business Update 6 Residential Market Data 20 Appendix 25 Company Presentation – September 2018 page 19
Slide 20: German Residential – Safe Harbor and Low Risk
German Residential – Safe Harbor and Low Risk Rental regulation safeguards high degree of stability Contrary to most other jurisdictions such as the USA, rental growth in Germany is regulated and not directly linked to CPI, GDP development etc. Rents are regulated via “Mietspiegel“ (city-specific re
Slide 21: German Residential – Landlords Benefit from Structural Imbalance between Supply and Demand
German Residential – Landlords Benefit from Structural Imbalance between Supply and Demand New supply falls short of demand Consensus estimates see a current shortage of around 1 million apartments in urban areas. Three main constraints stand in the way of material changes in the short and even medi
Slide 22: German Residential – Favorable Fundamentals
German Residential – Favorable Fundamentals Growing number of smaller households Fragmented ownership structure While the overall population in Germany is expected to Germany is the largest housing market in Europe with slightly decline, the number of households is forecast to ~42m housing units, of
Slide 23: German Residential – Favorable Fundamentals
German Residential – Favorable Fundamentals Urbanization trend across Europe Increasing affordability in Germany Cities across Europe are on the rise and the population Affordability in Germany is higher than France, UK, Spain living in cities is expected to grow substantially by 2030 and the Nether
Slide 24: IR Contact & Financial Calendar
IR Contact & Financial Calendar Contact Financial Calendar Sep 24 GS/Berenberg German Corporate Conference, Munich Rene Hoffmann Sep 25 Baader Investment Conference, Munich1 Head of Investor Relations Sep 26 BofAML Global Real Estate Conference, New York Vonovia SE Sep 28 Societe Generale Pan-Europe
Slide 25: Appendix
Appendix Pages Content 26-38 H1 Results – Additional Data 39-40 Maintenance ≠ Capex ≠ Modernization Investments 41-45 Financing 46-47 Acquisitions 48 Dividend Track Record 49 Fair Value per sqm Evolution 50 Portfolio Evolution 51-53 Vonovia Shares 54-59 Sustainability 60 No Correlation between Germa
Slide 26: Continued EBITDA Margin Expansion
All numbers stand-alone Vonovia, excluding Buwog and Victoria Park Continued EBITDA Margin Expansion Adj. EBITDA Operations is up 4.1% to €632.6m. EBITDA Operations margin (excl. maintenance) expanded to 90.9%. Adj. EBITDA Operations margin and cost per unit €m H1 2018 H1 2017 Delta Rental income 83
Slide 27: Continued FFO Growth
All numbers stand-alone Vonovia, excluding Buwog and Victoria Park Continued FFO Growth Driven by better operational performance and lower interest expenses, FFO1 was up 11.5% y-o-y or 2.5% per share (eop) in spite of 8.7% more issued shares. €m H1 2018 H1 2017 Delta (unless indicated otherwise) Adj
Slide 28: In-place Valuation vs. Fair Value Uplift
In-place Valuation vs. Fair Value Uplift In-place multiple Fair value (€/sqm) H1 2018 fair value uplift (l-f-l) 0 10 20 30 40 0 1,000 2,000 3,000 4,000 0% 5% 10% 15% Munich Munich Augsburg Berlin Stuttgart Dortmund Potsdam Frankfurt Bremen Stuttgart Potsdam Stuttgart Hamburg Berlin Mannheim Freiburg
Slide 29: New Construction Update
New Construction Update Commentary Evolution of completions The obstacle to higher construction volumes remains ~2,800 building permits, which continue to take very long in most cities. 500 In aggregate, the Vonovia Space Creation plus the 250 1,000 40 Buwog Development Business are expected to deli
Slide 30: Buwog Development Projects Approved since Takeover
Buwog Development Projects Approved since Takeover Location Project Completion Investment Hold vs. sell (est.) volume (est.) Berlin “Kompasshäuser” (50 resi units) 05/2020 ca. €30m “Haus an der Dahme” (33 resi units) (Part of 52° Nord Project with a total of 1,019 residential units of which 216 have
Slide 31: Reconciliation IFRS Profit to FFO
Reconciliation IFRS Profit to FFO €m (unless indicated otherwise) H1 2018 H1 2017 Delta IFRS PROFIT FOR THE PERIOD 1,200.0 1,064.6 +12.7% 1 Financial result 195.7 148.6 +31.7% Income taxes 646.7 588.0 +10.0% Depreciation and amortization 23.3 14.9 +56.4% Net income from fair value adjustments of inv
Slide 32: IFRS P&L
IFRS P&L €m (unless indicated otherwise) H1 2018 H1 2017 Delta Income from property letting 1,258.6 1,171.6 +7.4% Other income from property management 24.3 20.8 +16.7% Income from property management 1,282.9 1,192.4 +7.6% Income from disposal of properties 386.4 701.9 -44.9% Carrying amount of prop
Slide 33: IFRS Balance Sheet (1/2 – Total Assets)
IFRS Balance Sheet (1/2 – Total Assets) €m (unless indicated otherwise) Jun. 30, 2018 Dec. 31, 2017 Delta Assets Intangible assets 3,705.7 2,637.1 40.5% Property, plant and equipment 222.1 177.6 25.1% Investment properties 40,992.2 33,182.8 23.5% Financial assets 808.4 698.0 15.8% Other assets 18.9
Slide 34: IFRS Balance Sheet (2/2 – Total Equity and Liabilities)
IFRS Balance Sheet (2/2 – Total Equity and Liabilities) €m (unless indicated otherwise) Jun. 30, 2018 Dec. 31, 2017 Delta Equity and liabilities Subscribed capital 518.1 485.1 +6.8% Capital reserves 7,182.2 5,966.3 +20.4% Retained earnings 8,978.8 8,471.6 +6.0% Other reserves 237.1 157.8 +50.3% Tota
Slide 35: IFRS Cash Flow
IFRS Cash Flow €m (unless indicated otherwise) H1 2018 H1 2017 Delta Cash flow from operating activities 513.5 475.4 8.0% Cash flow from investing activities -3,158.7 -1,179.0 >100% Cash flow from financing activities 3,244.8 -459.1 --- Net changes in cash and cash equivalents 599.6 -1,162.7 --- Cas
Slide 36: Cost of Materials
Cost of Materials €m H1 2018 H1 2017 Delta (unless indicated otherwise) Expenses for ancillary costs 334.1 317.5 5.2% Expenses for maintenance 247.4 204.0 21.3% Other cost of purchased goods and services 45.8 48.0 -4.6% Total cost of materials 627.3 569.5 10.1% Company Presentation – September 2018
Slide 37: All Strategic Markets Show Upward Potential
All Strategic Markets Show Upward Potential Fair value1 In-place rent Average rent Reversionary Organic rent Regional Market (€m) (€/sqm) Residential Living area Vacancy Total Residential Residential growth Multiple growth forecast potential2 (%) units ('000 sqm) (%) (p.a., €m) (p.a., €m) (€/sqm/mon
Slide 38: Maintenance
Maintenance €m H1 2018 H1 2017 Delta (unless indicated otherwise) €8.4/sqm1 €7.2/sqm1 2.3 Expenses for maintenance 131.6 127.3 3.4% 1.4 Capitalized maintenance 50.5 31.5 60.3% 6.1 5.7 Total 182.1 158.8 14.7% Maintenance capitalization H1 2018 H1 2017 28% 20% 4,0% ratio Expenses for maintenance Capit
Slide 39: German Resi: Capitalized Expenses ≠ Modernization Investments
German Resi: Capitalized Expenses ≠ Modernization Investments Capex is a maintenance expense that is capitalized on the balance sheet because it has a value-enhancing element. Modernization is not In contrast to modernization investments, capex does not result in rent capex growth. Capex is not disc
Slide 40: Maintenance ≠ Capitalized Expenses ≠ Modernization Investments
Maintenance ≠ Capitalized Expenses ≠ Modernization Investments Comes with Capitalized German Civil Relevant for Relevant for Relevant for a yield and on the Description Code FFO and P&L AFFO cash flow generates balance Regulation rent growth sheet Maintenance • Required to Three clearly distinguisha
Slide 41: Cyclicality of Debt Instruments Requires Diversification
Cyclicality of Debt Instruments Requires Diversification Debt-Issuances in the European Real Estate Sector 2005 – 2018 YTD (€bn) 3,000 2,500 37 GRF-1 33 33 Q2/13 30 2,000 GRF-2 Taurus Q4/13 Q1/13 24 22 1,500 21 Volume (€bn) 20 20 EPRA index 19 18 18 18 18 18 17 18 15 17 17 16 18 16 16 16 16 15 15 14
Slide 42: Vonovia's House of Debt Financing
Vonovia‘s House of Debt Financing Asset Specials Backed Securities Commercial Structured Mortgage- EMTN Bank Loans Loans Papers Unsecured Secured Instruments Instruments Development Debt Liquidity and Working Capital Facilities (WCF) Rating Business Model, Cash Flow, Organization and Reputation Curr
Slide 43: Decision Tree Financing Sources
Decision Tree Financing Sources Volume & Financing sources Liquidity LTV Debt Equity Unencum- berance Secured Unsecured Structured Senior Syndicated Convertible Rights Mortgage Mortgage CMBS Bond Hybrid ABB Loan Bond Issue Loans Loans Company Presentation – September 2018 page 43
Slide 44: Covenants and KPIs (June 30, 2018)
Covenants and KPIs (June 30, 2018) Bond KPIs Covenant Level Jun 30, 2018 LTV <60% 41% Total Debt / Total Assets Secured LTV <45% 12% Secured Debt / Total Assets ICR1 >1.80x 5.1x Last 12M EBITDA / Last 12M Interest Expense Unencumbered Assets >125% 215% Unencumbered Assets / Unsecured Debt Rating KPI
Slide 45: Bonds / Rating
Bonds / Rating Corporate Investment grade rating as of 2018-08-02 Rating agency Rating Outlook Last Update Standard & Poor’s BBB+ Stable 02 Aug 2018 Bond ratings as of 2018-08-02 Name Tenor & Coupon ISIN Amount Issue price Coupon Final Maturity Date Rating Bond 002 (EUR-Bond) 6 years 3.125% DE000A1H
Slide 46: Acquisitions – Opportunistic but Disciplined
Acquisitions – Opportunistic but Disciplined Acquisition pipeline (‘000 units) Acquisition criteria 340 2013: Dewag+ Vitus (~41 k)* No quantitative acquisition target. 2015: Gagfah (~140 k)* No management incentive for external 2015: Südewo (~20 k)* 2016: conwert (~24 k)* growth. 2017: Buwog (~50 k)
Slide 47: Acquisition Track Record
Acquisition Track Record Larger acquisitions Fair Value In-place rent (>1,000 units deal size) in EUR/sqm in EUR/sqm Year Residential units Deal TOP Locations @ Acquisition 30.06.2018 ∆ @ Acquisition 30.06.2018 ∆ # Berlin, Hamburg, DEWAG 11,300 Cologne, 1,344 2,014 50% 6.76 7.61 13% 2014 Frankfurt/M
Slide 48: Sustainable FFO Growth and an Attractive Dividend Policy
Sustainable FFO 1 Growth and an Attractive Dividend Policy Months per year until costs are earned by recurring income1 and months exclusively worked for dividend 12 11 2.5 10 3.0 3.5 4.0 4.4 Number of months 9 8 7 6 5 4 3 2 1 0 2013 2014 2015 2016 2017 Maintenance Expenses Operating Expenses Interes
Slide 49: Conservative Valuation Levels
Conservative Valuation Levels In-place values are still way below replacement values, in spite of accelerating valuation growth in recent years. Vonovia (German portfolio) – fair value per sqm (€; total lettable area) vs. modular and traditional construction costs ~2,500 ~1,800 1,561 1,475 1,264 1,0
Slide 50: Substantial Reduction of Portfolio Locations
Substantial Reduction of Portfolio Locations 03/2015 (incl. Südewo) 12/2016 12/2017 Strategic Portfolio 818 locations 665 locations 577 locations ~400 locations Vonovia location High-influx cities (“Schwarmstädte”). For more information: http://investoren.vonovia.de/websites/vonovia/English/4050/fin
Slide 51: Liquid Large-cap Stock
Liquid Large-cap Stock Shareholder Structure (June 30, 2018) Share Information First day of trading July 11, 2013 7.9% Number of shares outstanding 518.1 million 6.9% Free float based on Deutsche Börse 93.1% definition 4.6% Blackrock ISIN DE000A1ML7J1 2.8% Norges Ticker symbol VNA Lansdowne Share cl
Slide 52: Vonovia History
Vonovia History Seed portfolios of today‘s Vonovia have origin in public housing provided by government, large employers and similar landlords with a view towards offering affordable housing. At beginning of last decade, private equity invested in German residential on a large scale including into w
Slide 53: Reconciliation of Shares Outstanding
Reconciliation of Shares Outstanding Date NOSH Comment (million) December 31, 2016 466.0 March 31, 2017 468.8 conwert acquisition June 30, 2017 476.5 Scrip dividend September 30, 2017 485.1 Gagfah cross-border merger December 31, 2017 485.1 March 31, 2018 485.1 June 30, 2018 518.1 €1bn ABB in 05/201
Slide 54: Sustainability at a Glance
Sustainability at a Glance Integrated element of Vonovia’s business model With almost 400,000 apartments throughout Germany, Vonovia is the country’s leading residential real estate company. This role in the housing landscape imposes on us a particular responsibility to actively shape the developmen
Slide 55: Sustainability Report 2017
Sustainability Report 2017 Achievements since last report Expansion of the key figures base Clearer definition of boundaries for CO2 calculation Adaptation of the structure to the requirements of the CSR guidelines implementation law Online only: Sustainability Report only available online H
Slide 56: Facing Climate Change / Vonovia achieves renovation ratio of 5%
Facing Climate Change / Vonovia achieves renovation ratio of 5% “The most important thing we can do as the housing sector to tackle climate change is to upgrade our portfolio," Rolf Buch, CEO Vonovia. In 2017, Vonovia invested >€1 bn in its properties, including maintenance. Volume of modernizatio
Slide 57: Achieved Energy Savings of > 45% for Refurbished Buildings
Achieved Energy Savings of > 45% for Refurbished Buildings One of the focus points of our modernization efforts has been the Ruhr area, in particular Dortmund and Essen. In 2017 alone, CO2 emissions were reduced by around 23,000 metric tons due to energy efficient modernization. This corresponds
Slide 58: Neighborhood Development Supports Good Neighborhoods
Neighborhood Development Supports Good Neighborhoods Neighborhood development measures Structural measures Participation concepts Social support activities • Maintenance • Modernization • Workshops • Financial support • Residential environment • Informational events • Donations in kind design • Acti
Slide 59: Vonovia Strengthens Diversity; High Trainee Rate
Vonovia Strengthens Diversity; High Trainee Rate 33% women on Vonovia’s Supervisory Board. 25% women on Vonovia’s Management Board. Vonovia aims to improve compatibility of family and career. Out of 219 employees who took parental leave in 2017, more than 40% were male. Vonovia focuses on em
Slide 60: No Correlation between Interest Rates and Asset Yields
No Correlation between Interest Rates and Asset Yields Valuation methodology for German residential properties is primarily based on market prices for assets – not on interest rates While market prices are affected by general interest rate levels, there is no significant correlation. Other factors s
Slide 61: Three Valuation Layers with Different Volatilities
Three Valuation Layers with Different Volatilities High degree of stability and predictability of underlying business (layer 1) and portfolio valuation (layer 2) is not reflected in share price development (layer 3), as equity markets appear to apply valuation parameters that are substantially less
Slide 62: Management Board Compensation - Overview
Management Board Compensation - Overview Fixed Remuneration • Monthly fixed compensation (incl. Pension) • Annual pension contribution (alternative: cash payout) • Criteria/Targets: FFO1, adj. NAV per share, EBITDA Sales, personal targets agreed with SVB Bonus / STIP • Bonus Cap at predetermined amo
Slide 63: Management Board Compensation – Bonus / STIP
Management Board Compensation – Bonus / STIP Bonus / STIP Targets set by Supervisory Board FFO1 target Personal targets Adj. NAV/share target EBITDA Sales target 40% agreed with SVB 15% 15% 30% Bonus cap at predetermined amount Cash payout FFO1 is key figure in the industry for managing the su
Slide 64: Management Board Compensation – LTIP
Management Board Compensation – LTIP LTIP Plan Annual remuneration component in the form of virtual shares (“performance shares”) 4 years performance period Targets set by SVB (equally weighted) Prospective Final number of Cash payout = Initial number perf. shares = final number of target amount Rel
Slide 65: Impressions
Impressions Dortmund Berlin Bielefeld Essen Dortmund Bremen Freiburg Dresden Munich Frankfurt Malmö Vienna Company Presentation – September 2018 page 65
Slide 66: Optimize Apartment
Optimize Apartment Company Presentation – September 2018 page 66
Slide 67: Upgrade Building
Upgrade Building Company Presentation – September 2018 page 67
Slide 68: Modular Construction
Modular Construction Company Presentation – September 2018 page 68
Slide 69: Modular Construction
Modular Construction Company Presentation – September 2018 page 69
Slide 70: Disclaimer
Disclaimer This presentation has been specifically prepared by Vonovia SE and/or its affiliates (together, “Vonovia”) for internal use. Consequently, it may not be sufficient or appropriate for the purpose for which a third party might use it. This presentation has been provided for information purp
Slide 71: For Your Notes
For Your Notes Company Presentation – September 2018 page 71
Slide 72: For Your Notes
For Your Notes Company Presentation – September 2018 page 72