Vonovia Se Unsp/Adr

Ladies and gentlemen, welcome to the Vonovia full year results 2024 analyst and investor conference call. I'm Moritz, the chorus call operator. I would like to remind you that all participants will be in the listen-only mode and the conference is being recorded. The presentation will be followed by a question and answer session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to René. Please go ahead.

Thank you, Moritz, and welcome everybody to our earnings call. The speakers today are once again CEO Rolf Buch and CFO Philipp Grosse. They will be happy to lead through today's presentation and then answer your questions. We have divided today's presentation in two sections plus the appendix. First, the big picture overview of our business and the general environment in which we operate. and second, the full year 2024 update. Rolf will be starting off with a preface to put the last two weeks into context and provide a framework for a view on the consequences for our sector. And with that, over to you, Rolf.

Thank you, Philip, and good afternoon also from my side. Allow me to start today's presentation with the following preface. This is actually on page three. Our earning call today takes place in an environment and sentiment that is different than from two weeks ago. The situation is still very much in flow, and we believe there is limited visibility on the exact consequences, especially in the medium to longer term. But let me take back a step in describing what I think are the different phases in Vonovia's development. I think it is important to understand this evolution in order to appreciate the future potential. From my point of view, Vonovia has gone through two distinct phases and currently stands at the beginning of the third phase, which is return to growth. For more than eight years after the IPO, we made use of the highly favorable interest rate environment and built a platform that delivers higher cash flows, better margin, and superior quality than any other platform and where the assets are located in the right markets. Then came the war in Ukraine and the abrupt changes in interest rates that led to an increase in our cost of capital. We changed gears and went from offense to defense. This second phase was mainly about protecting our rating and balance sheet. Now, since Q3 last year, We are at the beginning of the third phase in Vonovia's evaluation, where we can return to growth, but less capital intensive. This means an acceleration on our non-rental EBITDA and leveraging our platform and scale to expand our service business in a less capital intensive way. In doing so, we will combine our growth ambitions with financial stability and capital discipline. However, The event of the last two weeks have now led to new uncertainty. The increase in Bund yields appears to be primarily driven by the market's expectation of a massive increase in German Bund issuance to finance the planned military and infrastructure investments. What is still unclear for me is how strong and sustainable the increase in Bund yield will be at the end of the day. Given that the planned investments are expected to be made over 12 years, not nearly all funding will be required on day one, and the timing will largely depend on specific planning approvals, where we are specialists for in Germany, capacities and others. It is simply too early to draw a definitive conclusion from recent events. While Bund Yield levels have certainly not the only driver for residential asset values, the actual impact of the recent event on property prices remain to be seen and cannot be reliably terminated yet. Similarly, high Bund Yields for long run would lead to elevated financing costs, but we just do not know. And on the flip side, the spending bill will include material positive elements that will support our efforts in terms of modernization and new construction, as we expect sustainable investments in climate protection already announced, energy and housing. So yes, new headwind for the sector, but also opportunities, and both cannot be reliably estimated to form a clear view on what all this means for the sector, especially in the medium and long term. So how do we react then? The last three years have confirmed that we are well advised to refrain from unique jerk reactions, but to continue to manage the business with a steady hand. And adjustments we made must be in a careful and deliberate manner. It was this level-headed approach that allows us to successfully navigate through the last crisis and protect our rating and soften the impact from declining values and higher financing costs. At this point, we do not see an immediate need for action, but we will, of course, monitor the situation very closely. And we will carefully evaluate any potential measures also in the light or medium or long-term impact on our business. The key priorities are clear. We will protect our rating manage our debt KPIs, maintain overall capital discipline, and safeguard the long-term success and long-term growth of our business. What has become less clear is the execution timing of certain non-rental growth initiatives. I'm thinking, for example, for potential stranded assets and development. Depending on how things evolve, we may decide to give priority to more capital-light initiatives. There are lessons learned during the last crisis that will now allow us to focus on what worked and reframe on what didn't work. And this was, for example, the abrupt disruption of the investment program. So the next time, we will not do this again. Let me be clear. While it is too early to discuss any specific measure, We are prepared to take decisive action if and when it becomes necessary. Let me emphasize the following. In spite of a quite different phase I just described, and in spite of the recent uncertainty, one thing is clear. It was the right decision to build our business around the megatrends. Our market fundamentals have been getting stronger and stronger, and our operating business is more robust than it has ever been. So we may face another period of uncertainty, but we can face it from a position of strength in knowing that our business is built on a rock-solid foundation. Let's take a closer look on the most recently available data on asset valuation and pricing. This is page five. The data suggests that value declines have stopped and prices have stabilized. For multifamily homes, this seems to have been the case somewhere towards the end of Q4. The third quarter was minus 0.5, and the fourth quarter was basically zero. For condos, which are always a little bit in advance, it appears that it has been somewhere in Q3, and prices have already been slightly growing recently. We saw minus 0.1% in Q3 and plus 0.9% in Q4. Of course, the valuation of our portfolios mirrors this development, and we have seen a slight gain in H2 in all three countries. Allow me one word on Sweden. We think that the faster return into positive territory is related to shorter financing terms in this country and rent growth of more than 6% as inflation finds its way into rent level faster because of the different regulations. Sure. None of this data includes the recent increase in bond yields, but we have seen in the past that bond yields are not the only factor that impact valuation and prices in our sector. On page five, you see that Q4 last year saw an increase in sentiment and optimism, and page six allows some data to support this. Transaction volumes in Q4 were the highest since Q1 2022. And according to a survey by Ernst & Young Real Estate conducted in January this year, residential real estate is in the top focus for real estate investments this year, with the vast priorities of respondents expecting no change in pricing or even increase in the course of 2025. If you look at the volatility and the turbulence in the capital market. It might be easy to forget the situation our underlying business looks like, since things actually couldn't be more different. During the last three years of higher inflation and higher interest rates, we have seen the supply-demand imbalance become much bigger. And while our residential sector is regulated in a term of how fast you can adjust the rent level to the wider market reality is a different one. The shortage of apartments simply trumps regulation. People are so desperate to find a rental apartment that they are prepared to sign an agreement that is not in line with the prevailing regulation just so they get the upper hand versus a hundred of others who are competing for the same rental contract. And this drives regulated rent via the Mead-Spiegel system, but of course with a delay. This huge gap between market reality and our rents means that our rent growth for many years to come is rocket solid. We already know today, and the speed at which we can catch up with the market trend is about 4% based on our current investment amount of about $1 billion. To the extent we increase that amount, the rent cost will be higher from 6% to 7% operating yields on this investment. Before Philip gets to the 2024 highlights, let me close the big picture chapter with a look at our growth trajectory. I start with the rental business. You saw the strong markets we are in in the previous page. You also saw the huge gap between our rental levels and where the market is, giving us strong visibility on many years of extremely solid rental costs. Combined with the full occupancy and the full rent collection, this creates a rocket solid low risk and highly predictable rental segment that delivered more than 90% of our total EBITDA in 2024. and that will continue to be in the main sources of earning contribution going forward. In addition to that, we are preparing our non-rental business, and we presented the concept to you last November. As a reminder, we are talking about three categories, return to performance, accelerated tax-reported investment, and new business areas. Our ambition until 28 is to close the rental EBITDA by 4%, and the non-rental EBITDA by 30% for a combined total EBITDA growth of around 8%. In terms of EBT, we aim to grow in the middle single digit range. And with this, I hand over to Philip.