Vonovia SE (VNA) Q1 2026 Earnings Call Transcript

Thank you, Moritz, and welcome, everybody, to our update call. The speakers today are Luka Mucic, our CEO, and Philipp Grosse, our CFO. They will briefly present the main messages for today before we open up for Q&A, where both will be very happy to take your questions. With that, over to you, Luka.

Yeah, thank you very much, René, and hello and welcome, everybody, from my side. Let me start with a brief summary of the main takeaways from the first quarter. We have had a good start with a strong performance in our core operations. Just that EBITDA grew 6.3% in our rental segment to 630 million euros, even though we had about 4,000 fewer units compared to the same time last year. This very positive development was underpinned by 4% organic rent growth, around 98% occupancy, and more than 99% rent collection. Unsurprisingly, our largest segment was once again extremely robust and remains on its predictable long-term growth trajectory. In our value-add segment, we also delivered compelling growth with 30% more than last year for an EBITDA of $50 million. This increase was mainly driven by a higher contribution from our craftsman organization as well as the continued growth in the energy business. We view this segment as a key differentiator vis-a-vis the broader peer universe. Now, this clearly demonstrates our momentum, but we won't stop here. You may have seen the press releases where we enter two strategic partnerships for the mass production of our innovative heat pump cubes and the rollout of our serial modernization for a faster and more efficient energetic refurbishment of our assets. Both initiatives will further support our growth ambitions in the non-rental business. Looking at the market fundamentals they remain supportive and we are confident not only for the remainder of this year but also with a view towards our 2028 growth and deleveraging objectives. Our rental business remains a rock solid foundation and our non-rental activities will continue to accelerate their momentum.

And with that over to you Philip for a more detailed look at our results thanks Luca and also very warm welcome from my site yeah if Luca covered already our rental and value-add segments let me turn directly to recurring sales and I'm on page three as you can see we recorded very high margin of 42 percent in first quarter in recurring sales and while disposal volume was lower than the previous year, we still delivered a very comparable EBITDA contribution. What you need to bear in mind when you compare the volumes year over year is that last year we had an unusually high number of transactions because of spillovers of signings, which we made in Q4 2024 that only closed in early 2025. And if I take the delta for the respective years, it's roughly 250 units and explains most of the differential between those numbers. In any case, Q1, as you will recall, is traditionally lighter in terms of volume and we clearly anticipate a ramp up as the year progresses for 2026 as a whole we are confident to grow our performance compared to last year and as you know we are targeting three to three and a half thousand units in volume overall for the entire year of 2026 moving to the fourth segment development optics are not exactly pretty at a first glance but you have to remember that of the 75 million abdr for the entire year of 2026 53 million and that is 70 percent came in q1 and that was because of the closing the very profitable closing of a large land sale. So last year was very, very Q1 heavy. Whereas for 2026, again, we expect a progression as the year goes on. For the full year 2026, we are confident in our ability to deliver strong growth from the disposals of development projects, plus also still opportunistic land sales later in the year. When we roll it all up to adjusted EBITDA total, we see 1.4% growth to 712 million euros. Adjusted for the phasing effect related to Q1, I've just explained, adjusted EBITDA total grew by almost 10%. And I'm happy to echo what Lucas said. We feel very much on track towards our 2026 guidance and our 2028 growth and the leveraging objectives moving on to adjusted ebt and adjusted shareholder earnings main driver between everyday and ebt of course are interest expenses and they were around 20 million or euros higher in q1 2026 the reported adjusted ebt per share number is seven percent below the prior year but again to allow for better comparability ebt per share was up almost four percent when adjust for the q1 2025 land sale adjusted shareholder earnings are different from adjusted ebt because of as you know two line items taxes and minorities on which we now provide full transparency also note our outlook Taxes were 8 million lower in Q1 2026, and here you can see the link between lower sales volume and lower tax expenses, as we have discussed in our last call. Minorities increased as expected because of Q1 2026, includes the JB that we set up at Deutsche Wohnen Domination Agreement, whereas last year did not include that. similar to ebdr and ebt reported numbers for adjusted shareholder earnings are a bit skewed insofar as the lighter ebdr contribution from our sales related segments distorts the underlying growth momentum overall here again if you were to do the adjustment you would come out at three percent growth year on year bottom line you're very happy with the start into this year, the growth momentum is clearly there and evident in rental and value adds, as Luca explained, for recurring sales development. The phasing of last year versus this year might make it a bit harder to see. But here again, we are confident that as the year progresses, the growth in these two segments will become more evident as well. A quick word also on operating free cash flow when you compare first quarter last year with this quarter there are two key differences one is lower recurring sales volume that made up about 50 million less contribution from that and the other is around 200 million less working capital which is related to our investments in future growth by ramping up the portfolio investments and the acquisition of our managed to green portfolio. We said it all along. This very nice piece of business will require an initial capital ramp up. APRA NTA in Q1 is traditionally less eventful in the absence of a portfolio valuation. That is why APRA NTA per share was up only 60 basis points, to 46 euros and 57 cents, we will, as usual, do a full revaluation of our portfolio with H1 numbers. And here, the positive development of fair values that we have observed during the last 18 months should also continue in H1 2026 as well finally on the debt KPIs here we saw equally a continued trend in the right direction net debt to every day are down one 0.1 turns to 13.7 times and LTV down 30 basis points standing now at 45.1 percent ICR declined by 0.1 times but is and will remain in absolutely safe territory. Next four pages are dedicated to our four segments, but since I already mentioned the main points, I will be quite brief and only add a few remarks regarding our rental segment, and that is on page four. All operating KPIs are very much in line with what one would expect, and they highlight the rock solid robustness of our largest segment. When you look at the rent growth, I wouldn't put too much emphasis from one year to the next when we talk about the general trajectory towards approximately 5% by 2028. First of all, the challenge with comparing one year to the next is that the meat speaker, the rent index, are always every two years. So you're not comparing the same underlying asset base. second 20 or 30 basis points one way or the other is nothing that changes the general direction of travel and our expectation is for that non-investment driven rental growth that it sits between two and a half and three percent which is the case in terms of growth trajectory you need also to be in mind that we call or what we call irrevocable rent increase claim where the rent growth is already reliably in the pipeline but we have to wait for three year periods to lapse before we can implement additional rental increases this should always be seen in connection with the reported market rent growth the berlin rent index will be a good case point as we are still very much within those caps in berlin so whatever the outcome is going to be we continue to expect some mid to higher single digit growth we will see rent growth from the rent index only in the subsequent years i think i made that point also very clear previously and finally one key driver is investments and here we are still in the phase of ramping up so no surprise that this is progressing over time and with that luca back to you yeah thank you philip um so let me just spend

a few additional words on our deleveraging ambitions then in our full year 2025 call and during the road show we obviously had a lot of conversations around these more ambitious leverage targets that we unveiled at the full year and how we intend to get there on page eight of our presentation we've laid out the different drivers to hopefully create a better understanding first the organic value growth from rent growth will carry us part of the way and we expect this to get us to around a 43 ltv by 2028 the remainder will then come from disposals that will probably be around a mid single digit billion amount and come from four sources non-core non-strategic minority positions opportunistic core disposals and recurring sales as we said in q4 2025 in this respect really everything is on the table and our decision making will be guided by what is the most sustainable way to deliver and not solely by what is the fastest solution and since the ltv reduction will also be driven by an absolute depth reduction so improvements not just in the denominator but also a smaller numerator the net depth to ebita will probably land quite a bit below the less than 12 times that we target then the guidance on page nine is our last page actually before we go to q a as you can see there we're confirming both our guidance 2026 and our objectives 2028 really well on track against both in some of our investor conversations and also if i recall it well on the last earnings call the question has come up how we can deliver growth and deliver at the same time but i think it is actually quite straightforward when we talk about earnings growth there are two levels to look at first ebt where if we sell core properties we will lose EBITDA of costs but we will regain basically the same amount in terms of interest savings because when we retire debt with the disposal proceeds we save around the two percent average cost that we pay today plus another two percent that it would cost to refinance this debt at today's levels so selling a four percent yield and paying debt down with it is basically a wash on the ebt level and second when it comes to EBITDA, on an EBITDA level, we see some 200 million euros EBITDA growth run rate per year. And if you extrapolate that, we're very well underway towards the upper end of our 2028 objectives. So there is clearly some buffer for disposals. Plus, I think it is fair to assume that for a good chunk of the assets that we sell, we will actually continue to manage them under our B2B offering. And so some EBITDA remains in our accounts even after the disposal. On top of that, not to forget that some of the non-rental initiatives are still in ramp-up, so their potential is not adequately reflected in the 200 million EBITDA per year trajectory yet. And finally, the development towards an AI-first organization and the management on behalf of third parties outside of the sale of our own assets, both of which were not part of the original ambition, will bring additional EBITDA. So there is really a lot to play with and a lot to be excited about if we look to the future, and we couldn't be more confident. And with that, we're happy to take your questions.

And the first question comes from Jonathan Conater from Goldman Sachs. Please go ahead.

Good afternoon. Two questions, if I may, please. The first question is on development and recurring sales. What is the impact that you're seeing on development from the lower construction costs? And for both indicators, do you have advanced indicators that can help us, give us confidence, essentially, in the ramp-up of these activities throughout the year? That's the first question. And the second question on the value-add business, can you give us a bit more details on the energy business that we see in the current environment? Are you seeing improved pricing? Are you seeing improved volumes? How big is going to be that business by 2028?

Yeah, perhaps I can take that. And if you want to add anything, Philippe, please, by all means, do so. Development, I think you have to really segregate the results in the quarter and also what we expect for the full year between what we do in the ongoing operational business, which is characterized by the ramp up of our new development projects and then the additional impact from opportunistic land sales that Philip has already hinted at as well. If you think back a year ago where we had the 52 million actually of development segment results, that was all driven by one big land sale. The rest and the ongoing business did not deliver anything yet. Now we're already at 13.6 million, yes, admittedly, not yet enough in a given quarter to make up for this significant one-off effect, but you can clearly see that the work is ramping up again, and this effect will, of course, continue, and that growth as we work to close additional projects, bring units into the sale, will continue to build up. You have highlighted that we've worked hard on bringing down the construction costs. We are resorting more and more to serial means of construction. We see that already today we can deliver successful projects at full costs of 3,500 euros. There would actually be even opportunities to go significantly below that. If the municipalities play along with us and don't bring up exaggerated demands for additional architectural features and if we are able to stick to the standards. Now, of course, going forward, the question is what will the war in Iran do to the evolution of cost inflation due to higher energy prices and so on. I think in the short term, we are kind of shielded from that to a good extent, because in the serial construction work that we do, we operate with frame agreements that lock in a significant part of the cost, whether that would continue, so to say, for the long run, if a stubbornly high cost environment would continue to be around. That, of course, would remain to be seen. But for now, we are operating actually in relatively controlled environment due to that strategic shift towards serial construction. So we expect a supportive environment for the continued ramp up of our activities in the full year. And then, as Philip has noted, later in the year, we are also planning for additional land sales from the quite sizable land bank, as you know. And therefore, you should expect that the seasonality patterns this year will be very different from last year. We had essentially a Q1 and then kind of fading to a much lower contribution in the development segment. If you want to look at it from the other side, Q1 actually produced already half or more than half of the entire operational contribution from the development segment that we had in the entire year, 2025, and that shows the really underlying growth in the operational business. When it comes to the value-add business, I mean, as we are highlighting, we have strong growth in that segment, 30%. But you can see that actually this quarter, the external revenue contribution is significantly higher in terms of growth compared to the internal revenue contribution. Make no mistake, we also see great continued progress in our craftsman organization and the ramp-up of EBITDA contributions there is quite impressive as well. But what you see in the external revenue growth, that is obviously driven by the energy business. So wherever we have, in particular, the ability to offer our green energy directly produced from the rooftops with our photovoltaic installations then increasingly coupled in the future also by the continued rollout of our heat pump cubes it's a very attractive offer because it provides price stability at an attractive price point and we have the ability to steer our tenants to this offer at the moments that matter for example with tenants or new tenants moving in and what we see therefore is that at the moment it's an offer that attracts a lot of interest for obvious reasons and it will certainly be in terms of our revenue contribution outside of the craftsman organization by far the biggest contributor to the growth that we expect until 2028 so if you think about the 9 to 12 percent that we want to have reached by 2028 as a relative contribution, a lot of that will actually come from the energy business.

Then the next question comes from Bart Geisens from Morgan Stanley. Please go ahead.

Hi, good afternoon. Yeah, I had a quick question on the revaluation guidance that you gave. So in the past, you've guided on revaluation, but a meaningful part of that revaluation was capex so when you say that you've been given or that that you believe that the trend for the last 18 months will continue into first half 26 first of all is that including or excluding the effect of capex and secondly is that your conviction as a management team or have you already been explicitly guided on these buyer external values? Thank you.

Hi, Bart. First, in our reporting going forward, you will always see both figures, including and excluding CapEx. My guidance was specifically referring to what expect in the net valuation result, so not accounting for the impact of valuation increases bought by capex and here as i said we will see the trend continuing which we have seen over the past 18 months and if i were to take a full year perspective i would not contradict to what our appraisers are saying that they do expect something in between two to four percent net valuation gains that's kind of a short short summary on

on that point great thank you and then my other question is on slide four the expensed and capitalized maintenance last year we saw a small increase in the capitalization rate over the year right I mean I think you went you spend about 24 euros a square meter up from 22, and 40% of that was capitalized for the 30 the year before. I appreciate numbers over a quarter cannot always be extrapolated, right? But we've seen the increase. I mean, it's small numbers in the first quarter, but should we expect a higher portion of capitalization again, 26 on 25, or how should we think about that?

Thank you. but you will you will see most likely a slight increase in capitalized maintenance and that is still the outcome of some some backlog so to speak because in the years of the crisis we have been a bit more rigorous on on keeping the cash in-house but it's only a slight increase you know differently i mean this is probably you doing the math for the operating free cash flow where that numbers is is embedded and here not considering the ramp up in the networking capital we kind of expect overall also a flattish development great thank you very much

then the next question comes from charles bossier from ubs please go ahead yes good afternoon um two questions from my side so going back to what you mentioned about development. It sounds like you are very confident about one of the two drivers you mentioned, the cells of new build owner-occupied units. While I think understandably on the disposal of undeveloped land, it probably would be slightly less clear in the current environment in terms of the timing of those closings. So my question is, could you help us split these two drivers in terms of how much of the growth that you see in the development ABDA is from the land sales specifically? Thank you.

In very rough terms, because I don't think we can give you a precise number here, we would certainly for this year not count on an impact on the land sales side that would equal the land sale of last year. So while we expect the contribution, it would be smaller, and hence more impact would come from the ramp-up of our operational activities in terms of growth, not in terms of the absolute contribution.

And Charles, let me just add one point here. When we talk about land sales, it's actually less the profitability we focus on, because that obviously goes often to the disadvantage of future profitability.

What we are focused on is releasing capital because we feel that the capital deployed in the development space is still a bit too high. very clear thank you and my second question is um so lucas since joining you have added about 200 employees um calculated um and i just was wondering if you could talk you know about where you've been adding um resources i assume it's linked to some of the prior questions around the development uh ramp up and and uh and the value add but um if you could just um give us some insights into where you've been adding resources across the business.

Yeah, thanks for the question. So I have certainly not hired incrementally in the CEO area, I can assure you of that. So the ivory tower stays nimble. Where we have hired is really in the value-add business and in particular in our craftsmen and facility management organizations because this is where every new FTE is straight away from day one, adding additional EBTA. This is where we have the tremendous growth that you have seen from the additional investments that we're bringing in. This is where in facility management, we have also external clients to serve, and we're happy to say that these external clients also tend to expand their business with us over time.

And that's where the growth is coming from in the central functions. there is actually no growth at all okay thank you then the next question comes from Valerie Jacob from Bernstein please go ahead hello good afternoon thank you for taking my question I've just got a question about the comment you made of you know seeing no impact from the conflict in the Middle East on your business one of your you know competitors this morning said they were seeing an impact on sales. So I just wanted to confirm, you know, in terms of your momentum in the development business and in the recurring sales business, how is March, you know, compared to January and February in the number? You know, I just wanted to confirm that you didn't see any slowdown there.

And my second question was, in terms of the higher step-up in the recurring sales business, uh do you think this is sustainable or is it just a one-off in in q1 thank you yeah hi valerie i uh i go with that i mean uh first of all on the on the development space what we typically do before we start a development project is that we secure the cost base which is why for our running projects we are not really facing any headwinds that having said more broadly we see increase in construction prices so for everything which is starting since the crisis in Middle East we need to focus more on projects where we can earn the respective yields based on on higher rent levels so it's kind of specific markets in which we are forced into um our confidence yeah valerie i think i think i was more talking about the um you know the purchasing decision of the customer rather than the the cost the purchasing decision is uh is a function of yield requirements and here we we continue to see for four and a half percent with a very strong bias towards individuals which take kind of a slightly different approach the the markets for for global exit is a bit more challenging because it's more relying on higher portion of financing and to be clear on the financing side even long term we do see some impact on the middle of the Middle East crisis we have seen elevated swap levels roughly 40 basis points since the outbreak of the crisis spread levels remained more or less more or less stable but here for 10 year 10 hour we are facing kind of 4.4% currently and that is having an impact on that market. yeah and perhaps um just to add on your question around the step up uh um because i think uh that's uh you have not covered that um yeah on the step up uh we we have seen very little activity actually in in germany but that's kind of the seasonal pattern um not not not not untypical which is why the step up is also a bit impacted by the higher the proportionate higher contribution of austria which is as you as you know going along with step ups more in the region of 70 so for the entire year of 2026 it remains with the guidance that we are targeting a step up of 30% plus. Yep.

And just to conclude quickly on your March pattern question, we have not really seen a different pattern in March compared to January and February. I think the key feature in the quarter was just that we had a lower spillover of end-of-year transactions into the new year in 26 compared to 25, and that drove the differential and not kind of a meltdown in March, not at all.

Thank you.

And the next question comes from Thomas Rothäusler from Deutsche Bank. Please go ahead.

Hi, two questions. The first one is on Berlin and the increasing noise on the expropriation topic. Basically, I would say ahead of the election in September. Just wondering wondering if you could share your thoughts on this? I mean, do you see a risk that this might really become effective law at some point?

Yeah, well, I can give you my thoughts. I've actually expressed them already in different forums with the media. What we can absolutely expect is that the noise level will undoubtedly go up in the coming months. As you know, the left party is campaigning on it. Underneath it, there is a civil campaign that is also very loudly campaigning for this and advocating for it. Behind that is a problem that we take very seriously, and that is the shortage of available supply in the Berlin market, plus some dysfunctional features in the market, such as, for example, illegal subletting and other aspects that make this market very challenging. And we try to be part of the solution there, both with a very cost-conscious offer that we have in place. Actually, if you have looked into the details, our Berlin average rent sits in the quarter at 823. Our average across Germany is 826. So we clearly not part of the problem and part of the solution there. Plus we are also engaged in new development projects that are ongoing in the city of Berlin. Do we believe that this will ever become effective law? Absolutely not, because we would consider what is currently proposed as evidently unconstitutional. So, it would not meet the test of any challenge against that. Might there be an attempt, nevertheless, this is too early to call. It depends also a little bit on the political constellation there. But in any event, it's not going to be part of the solution. And, of course, in all available forums, we and many others actually, trade associations, industry representatives are making that point. And I'm actually counting on this coming through loud and clear as well. What this city and what the entire country actually needs is affordable new housing construction. And if you take away the very economic substance for making this a viable endeavor, then you're only going to aggravate the issue and not going to improve anything and that is ultimately also why something like this will not become an effective valid law because it fails to attack the reason for its existence from the get-go thanks my second question is on rental growth i mean recent market data suggests somewhat slower momentum recently but could could this put your long-term organic rent growth at risk

the clear answer is no what you're referring to thomas is that we see in some markets slow down in market rents and as a reminder market rents really driven by gray market activity being on average twice as high as our in-place rents in very tight markets like Berlin, even 150% higher than our current in-place rents. So the visibility and outlook we gave on the non-investment-driven rental growth of 2.5% to 3% remains. And here also keep in mind that Already as of today, roughly 3% of irrevocable rent increase is sitting on each apartment on average. So if we were to be allowed to monetize that instantly because there's no rent cap legislation, our guidance would not be 4.2%, but more like 7% plus. So very, very confident long-term visibility on that. And the other element, as you know, is investment driven, and that is a function of our investment programs. I'm also very confident on that end.

If I may, just to complement this, you have also a detailed chart in the back part of the presentation that actually shows very clearly how large our opportunity is because of the significant gap of in-place rent towards reletting rent in particular after the modernization and refurbishment of apartments. This range is actually anywhere from above 50% to more than 30% and shows you how far apart we are between our in-place rent and where the Mietzpiegel and then the 10% above Mietzpiegel and then the additional modernization charges are. And that gives us, obviously, abundance in terms of room to grow into over the coming many years. and that is totally independent from any short-term fluctuations on rents offered in the market.

Okay, thank you. And the next question comes from Andrew McCrease from Green Street. Please go ahead.

Yeah, hi. Good afternoon. Thank you for the presentation. Two questions from my side, please. Firstly, just coming back to development and an extension, I guess, to Charles's question.

You've got it to opportunistic land sales weighted to the back end of the year but as you ramp up to your 2028 development EBITDA target how should we think about land sales as a recurring feature of the P&L going forward beyond there or will these just start to taper off that is the first question yeah look as Philip has said we are still looking at the size of our land bank as something that we want to trim down a bit less in terms of a means to push short-term EBITDA realization, but more in terms of releasing some of the capital that is currently tied up in the total land bank, which is actually around $3.5 billion, as we will not in the foreseeable future put all of that to bear as part of ongoing development projects. So you should expect also in the future that some land sales may occur. Having said that, in terms of the buildup of our development business, you've seen year over year now that we went from zero to the 13 and a half million in Q1. In terms of the underlying contribution, that will continue to ramp up, of course. And hence, you should actually think about that trajectory as the main source of growth in EBITDA. And the land bank sales is more something that we do primarily from a capital release perspective. And it may then, depending on where the values sit, result in additional EBITDA contributions. But that's not the starting point of how we look at land bank opportunities.

That's clear. Thank you. And then my second question was on the Apollo call option. As I understand it, the window opens in May 2028. Can you maybe share your current thinking and give us a sense of where the strike sits today alongside Daniel Cash distribution to Apollo that would that would help us understand the trade off between the impact to adjusted shareholder earnings and then also your leveraging targets?

Thank you. uh a lot of questions in one um so first of all the we have two relevant apollo transactions one in spring one later this year we have for the first time in 2028 as you rightly pointed out the opportunity to call it as a as a reminder um this are transactions which are based on fixed IRR level which is essentially kept around eight percent whereby the dividend is disproportionate to the equity share and is obviously counting towards that IRR threshold and that means that the implied cost of equity financially is increasing over time, and our incentive to call it back increases equally. Now, in 2028, it will be a very rational decision we are going to take in that we compare the opportunity cost of refinancing that minority stake. That is a function of our capital structure and how much progress we have made, whether we can refinance the equity with debt. If that is not the case, it's a cost of equity comparison. And if that should not be favorable, we have the optionality to hold on to the stake and that possibility to call the stakes back we have on a yearly basis thereon. Now, what is the impact? The impact is that it's kind of depending on how you refinance that. I mean, for sure, you reduce complexity because you reduce the share of minorities. That in itself is a value and will be considered when making that decision. And the reminder is really a function of how that is going to be refinanced and what terms. Is it equity? Is it debt? So it's either the share count, which increases for refinancing that equity, or it's more interest expenses. But that really depends on the circumstances in 2028.

That makes sense. Very helpful. Thank you.

Ladies and gentlemen, this was the last question. I would now like to turn the conference back over to Rene for any closing remarks.

Thank you, Mowicz, and thanks everybody for dialing in and joining this call. As always, if you've got any follow-ups, you know where to find me and the team. please do feel free to ask Luca Philip and I will be on the road quite a bit now and we're looking forward to connecting with you in the days and weeks ahead that concludes today's call as always stay safe happy and healthy bye-bye