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Megatrends: key drivers of our business model
The lasting megatrends of urbanization and housing shortages, climate protection and carbon reduction, digitalization and demographic change remain important value drivers in the business model. We continually review the economic, political and social implications of these megatrends and the consequences for our strategy and the sustainability orientation of our business model.
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It is not just the momentum sustaining these megatrends that is continuing to grow, but also the call from various stakeholder groups for a sustainable business model. This means that the sustainability aspects of this strategy, which has been so successful thus far, must remain the subject of our continued focus and must be supplemented on an ongoing basis to ensure the future viability of our strategy and business model.
The strategy, which will continue to have a commercially successful business model at its core in the future as well, explicitly addresses the following sustainability issues:
- Contribution to climate protection and reducing CO2 (E)
- Social responsibility for our tenants, customers and employees (S)
- Trustworthy, reliable and transparent corporate governance based on the best-practice guidelines set out in the Corporate Governance Code (G).
The strategy also specifically addresses the UN’s Sustainable Development Goals (SDGs) as well as the specific ESG targets set by European and national standard setters. With this in mind, Vonovia has defined its own climate path. The integration of sustainability into the strategy is also reflected in the expansion of the management system to include non-financial key figures, in particular in the form of the introduction of the Sustainability Performance Index.
In order to calibrate its sustainability endeavors correctly, Vonovia conducts a regular materiality analysis or reviews this analysis to define areas for action and develop a sustainability roadmap based on the results.
Highly Developed 4+2 Strategy
The 4+2 strategic approaches already in place can be briefly summarized as follows:
1 Property management strategy
The property management strategy is based on the sophisticated management platform, which allows for the efficient management of the portfolio and the successful scaling of the property management business. In this respect, Vonovia makes use of a mix of regional and local services and the Group-wide bundling of services in central service centers. Vonovia also applies this expertise to the property management business in Austria and Sweden in line with the requirement profiles that apply in those markets.
The property management strategy is being enhanced, in particular, by digitalization measures in the underlying business processes and at the customer interface.
3 Portfolio management strategy
The portfolio management strategy focuses on optimizing the portfolio. The portfolio is refined in a targeted manner using privatization measures and the sale of non-strategic properties. On the other hand, tactical acquisitions, modernization, new construction and development measures are used to increase the value of the portfolio in a targeted manner. The prevailing macroeconomic conditions set out the framework within which the company can act.
Within this framework, Vonovia invests in its strategic holdings in urban neighborhoods and urban clusters, especially in line with its climate path to promote sustainability and with its innovation strategy.
We will then create new homes in our portfolio in the future, too, as part of our densification strategy, using a combination of vertical expansion and new construction on existing land. The portfolio management strategy also includes the activities of the development business on land purchased specifically for this purpose, adding another profitable element to Vonovia’s value chain. The development business, operated under the BUWOG brand, includes the construction of owner-occupied apartments for sale to private and institutional investors and owner-occupiers as well as the construction of rented apartments to be managed by the company itself.
5 Acquisitions
Vonovia pursues acquisitions as and when opportunities present themselves in light of the current opportunities for returns and financing. Acquisitions have to be expected to increase in value before they are conducted. Such increases in value are generally assessed in terms of strategic suitability, increases in EBITDA Rental yield per share and a neutral impact on the EPRA NTA per share; these are funded by 50% equity and 50% debt. Furthermore, an acquisition must not pose any risk to the company’s stable BBB+ long-term issuer credit rating. Vonovia has been growing in recent years thanks to a large number of acquisitions.
2 Financing strategy
The financing strategy aims to establish a well-balanced and sustainable financing structure. Thanks to its broad range of equity and debt capital providers and the investment grade ratings awarded to our company by the rating agencies S&P, Moody’s and Scope, Vonovia has excellent access to the international debt and equity capital markets. As well as managing the challenges emerging from the current interest rate environment, our priority remains to maintain these credit ratings, optimize the financing structure and maturity profile, diversify our financing sources and financial risk management. We are also currently monitoring other focal areas, such as the earnings-to-debt and earnings-to-interest burden ratios.
4 Value-add strategy
The Value-add strategy supplements our core business to include customer-oriented services, e. g., services that are closely related to or influence the rental business. As part of this strategy, we continually evaluate additional innovative service ideas and business models to boost customer satisfaction and add the corresponding activities to our offering.
Those areas of the value-add strategy that have already been established successfully largely include the craftsmen’s organization, the residential environment organization, multimedia services, energy services and metering services, and insurance services. The capability of having our own craftsmen’s and residential environment organization cover the entire portfolio, in particular the maintenance and modernization services, allows us to make the residential units more attractive in general and help to boost customer satisfaction.
6 Internationalization strategy
Our scalable operational management system allows us to achieve harmonization and generate economies of scale from the full and swift integration of newly acquired companies and portfolios. Our market knowledge and our management and development platform, combined with our integration expertise, allow us to analyze acquisitions with regard to future synergy contributions. This means that acquisitions supplement our four core strategic areas. Vonovia will pursue its internationalization strategy as and when opportunities present themselves. Our activities on other European markets must not impact on our established business in Germany, Austria and Sweden, and must entail risk potential that can be controlled or limited.
1 Property management strategy
The property management strategy is based on the sophisticated management platform, which allows for the efficient management of the portfolio and the successful scaling of the property management business. In this respect, Vonovia makes use of a mix of regional and local services and the Group-wide bundling of services in central service centers. Vonovia also applies this expertise to the property management business in Austria and Sweden in line with the requirement profiles that apply in those markets.
The property management strategy is being enhanced, in particular, by digitalization measures in the underlying business processes and at the customer interface.
2 Financing strategy
The financing strategy aims to establish a well-balanced and sustainable financing structure. Thanks to its broad range of equity and debt capital providers and the investment grade ratings awarded to our company by the rating agencies S&P, Moody’s and Scope, Vonovia has excellent access to the international debt and equity capital markets. As well as managing the challenges emerging from the current interest rate environment, our priority remains to maintain these credit ratings, optimize the financing structure and maturity profile, diversify our financing sources and financial risk management. We are also currently monitoring other focal areas, such as the earnings-to-debt and earnings-to-interest burden ratios.
3 Portfolio management strategy
The portfolio management strategy focuses on optimizing the portfolio. The portfolio is refined in a targeted manner using privatization measures and the sale of non-strategic properties. On the other hand, tactical acquisitions, modernization, new construction and development measures are used to increase the value of the portfolio in a targeted manner. The prevailing macroeconomic conditions set out the framework within which the company can act.
Within this framework, Vonovia invests in its strategic holdings in urban neighborhoods and urban clusters, especially in line with its climate path to promote sustainability and with its innovation strategy.
We will then create new homes in our portfolio in the future, too, as part of our densification strategy, using a combination of vertical expansion and new construction on existing land. The portfolio management strategy also includes the activities of the development business on land purchased specifically for this purpose, adding another profitable element to Vonovia’s value chain. The development business, operated under the BUWOG brand, includes the construction of owner-occupied apartments for sale to private and institutional investors and owner-occupiers as well as the construction of rented apartments to be managed by the company itself.
4 Value-add strategy
The Value-add strategy supplements our core business to include customer-oriented services, e. g., services that are closely related to or influence the rental business. As part of this strategy, we continually evaluate additional innovative service ideas and business models to boost customer satisfaction and add the corresponding activities to our offering.
Those areas of the value-add strategy that have already been established successfully largely include the craftsmen’s organization, the residential environment organization, multimedia services, energy services and metering services, and insurance services. The capability of having our own craftsmen’s and residential environment organization cover the entire portfolio, in particular the maintenance and modernization services, allows us to make the residential units more attractive in general and help to boost customer satisfaction.
5 Acquisitions
Vonovia pursues acquisitions as and when opportunities present themselves in light of the current opportunities for returns and financing. Acquisitions have to be expected to increase in value before they are conducted. Such increases in value are generally assessed in terms of strategic suitability, increases in EBITDA Rental yield per share and a neutral impact on the EPRA NTA per share; these are funded by 50% equity and 50% debt. Furthermore, an acquisition must not pose any risk to the company’s stable BBB+ long-term issuer credit rating. Vonovia has been growing in recent years thanks to a large number of acquisitions.
6 Internationalization strategy
Our scalable operational management system allows us to achieve harmonization and generate economies of scale from the full and swift integration of newly acquired companies and portfolios. Our market knowledge and our management and development platform, combined with our integration expertise, allow us to analyze acquisitions with regard to future synergy contributions. This means that acquisitions supplement our four core strategic areas. Vonovia will pursue its internationalization strategy as and when opportunities present themselves. Our activities on other European markets must not impact on our established business in Germany, Austria and Sweden, and must entail risk potential that can be controlled or limited.
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The strategy Vonovia introduced at the time of its IPO has reached a high degree of maturity and has proven its viability and flexibility. It achieved sustainable improvements in customer satisfaction, addressed new demands and successfully established new business models.
Innovation as a basis for solutions
Innovation is a firmly established component of Vonovia’s strategy. The large number of neighborhoods in the company’s portfolio creates potential to develop future-fit solutions for innovative technologies and new services to respond to the current megatrends. The innovative approaches are not only applied, however, to the neighborhoods (urban quarters), but are also selectively adapted to urban clusters.
The most recent developments in the overall technological, socioeconomic and ecological conditions serves as confirmation to us that the strategy we have defined, namely the quest to forge ahead with innovation and, in doing so, also promote the aspects of customer orientation, sustainability and the future viability of existing business models, is the right one. Particularly in the context of the energy revolution, Vonovia sees itself as a market player with social responsibility that thinks beyond the boundaries of the pure rental business in seeking to develop innovative solutions.
