Deutsche Wohnen:Quarterly Results/2023 Q2

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Deutsche Wohnen Preliminary Q2 2023 results

After Vonovia , its majority shareholder, published its H1 2023 results, Deutsche Wohnen released its preliminary results for the same period. The company's full results will be released on August 8, 2023. Here is a summary of the preliminary results;

• Deutsche Wohnen said in the report that it's examining "whether and when a potential sale of individual portfolios of the nursing segment might make economic sense."
• Portfolio revaluation led to fair value adjustments of investment properties of € -2,175.8 million.
• Net asset value declined by 19% y/y to € 18,482.2 million in H1 majorly due to the revaluation.
• NAV per share declined by 19% to 46.56 in H1 due to revaluation of the portfolio.
• Its FFO was at the previous year's level of € 297.4 million( € 0.75 per share).

Management Guidance and Analysts Opinions

Management Guidance

Management did not give guidance for Q2 2023 and financial year 2023 other than the one given during FY2022 earnings release, which forecasts the following in FY2023;

• A slight decline in adjusted EBITDA.
• A slight decline in Group FFO.
• A small increase in the company value and NAV.

Analysts Estimate

Key Items	Q2 2023	Y/Y growth
Revenue	EUR 225.86 million	-40.80%
EPS	EUR 0.35

Vonovia Q2 2023 results

Insights touching on Deutsche Wohnen

• Vonovia said that Deutsche Wohnen's efforts to sell its nursing home segment now include "more granular sale" as an option and that they remain supportive at acceptable deal terms. Deutsche Wohnen nursing segment is currenty valued at 1.1 billion euros.

Business performance and related insights

Operating Business

• Total segment revenue grew by 1.1% y/y to € 1.495 billion.
• Profit declined to a 2 billion euro loss versus a profit of 1.8 billion euros in Q2 2022.
• Its adjusted EBITDA rose 0.6% y/y to 681.2 euros.
• Group FFO fell 0.3% y/y to 502.2 million euros.
• FFO per share fell 2.6% y/y to 0.62 euros.
• Its LTV stands at 46.8%(Q1 2023: 46.6%), still above its target of lower end of 40-45%.
• NAV was  €40,460.1 million(-18.7% y/y and -5.4% Q/Q)
• Vonovia confirmed its revenue, EBITDA and Group FFO guidance for financial year 2023.
• Vonovia said that the development of its key metrics exceeded analysts estimates.
• “It’s a major achievement that we performed so well in this challenging market environment, and we’re equally positive about the further development of the year,” CEO Rolf Buch said.

Portfolio Revaluation

• Portfolio value now stands at €88.2 billion after declining by €6.1 billion in H1 and €2.7 billion in Q2 2023.

Rental segment

• Core business EBITDA rose 10.3% y/y to €618.5 million due to a 3.5% increase in organic rent, Deutsche Wohnen synergies and new construction and modernization growth.

• Vacancy rate is at 2.2%(unchanged from last year).

• Organic rent increase was 3.5%.

Industry Performance Insights

• Data from real estate portals indicate that demand for new-build rental flats was 90% higher than at the end of 2019 while demand for existing flats was 30% higher.
• Value Marktdaten analysis indicated that the listing prices for flats continued to drop but the rate of decline is starting to slow.
• BNP Paribas Real estate noted that a possible break in interest rate hike in fall will lead to a noticeable higher momentum in real estate investment at the end of 2023 and specifically next year.
• ifo-Institut survey indicate that economists expect global real estate prices to rise in the next 10 years.

Hengeler Mueller and Deloitte investigation

• Preliminary results from Hengeler Mueller and Deloitte investigation establishes that the financial impact is not material.

Analysts Opinions

Thomas Rothaeusler, Deutsche Bank

• He said that residential German real estate companies will likely get through the downward in house prices cycle without having to raise capital.
• He believes there is a good chance that house prices will stabilize in the second half of 2023.
• He forecasts not more than 20% drop in German residential values from peak to trough.
• Rothaeusler pointed to data from Immocscout, which indicates recovery in house prices.
• He also pointed to LEG Immobilien SE’s upgraded rental growth guidance, which suggests “higher market dynamics."