BOCHUM (dpa-AFX) - Germany's largest real estate group Vonovia benefited last year from the takeover of Deutsche Wohnen and higher rental income. Sales and operating profit increased strongly. However, the bottom line was a big minus. The company now intends to cut its dividend significantly. Management will propose a dividend of 85 cents per share at the Annual General Meeting, the company announced on Thursday after the close of the stock exchange. A year earlier, the group had paid out 1.66 euros. Analysts had expected a cut, but a less significant one.

The stock fell on Friday to another low since October. It has now lost about a third since the beginning of February.

"We continue to expect a stable development on the earnings side," company CEO Rolf Buch said. However, he said the company had to strike a balance between two different sets of expectations from its owners. One group of shareholders wants dividend continuity, while another demands special capital discipline. Both are equally important, he said. "We are convinced that our proposal is appropriate," he added. In principle, however, he said, the company would stick to its dividend policy with a payout ratio of around 70 percent of operating profit (FFO) after minority interests.

At present, rising interest rates and inflation are massively complicating the environment for the heavily credit-financed real estate sector. In addition, many companies in the sector are having to massively reduce the book values of their real estate portfolios due to higher interest rates. As a result, competitors TAG Immobilien, Grand City Properties and LEG Immobilien had completely cancelled their dividends.

The company remains cautious for the current year. Demand for apartments will continue to rise in 2023, but the market environment remains challenging, Buch said. In the current year, segment revenues are expected to rise to between 6.40 billion and 7.20 billion euros. For operating profit (FFO), management is targeting 1.75 to 1.95 billion euros. In a conference call, Buch explained the expected decline with increased financing costs and higher taxes.

2022 operating profit increased by a fifth year-on-year to 2.04 billion euros, mainly thanks to the acquisition of Deutsche Wohnen. Rents across the Group rose to an average of 7.49 euros per square meter at the end of December - 3.3 percent more on a like-for-like basis than a year earlier. The main contributors to the growth were modernized apartments, partly because the costs of energy-related refurbishments such as thermal insulation and the replacement of old heating systems and windows can be passed on to rents in Germany. There are hardly any vacancies and almost no rent losses, Buch said.

Sales climbed by almost a fifth to 6.26 billion euros last year. Below the line, Vonovia reported a loss of 669 million euros, compared with a profit of a good 2.4 billion euros a year earlier. Buch explained the loss as being due to write-downs on the real estate portfolio, the project development business and the care subsidiary totaling just under 1.3 billion euros.

Vonovia has been able to grow strongly in recent years during the low-interest phase, primarily through acquisitions in Germany and abroad. In addition, the Group benefited from rising rents in major cities and new construction. In 2021, Vonovia succeeded in acquiring Germany's second-largest landlord Deutsche Wohnen. Last year, Vonovia also became the largest shareholder in its sector rival Adler Group, which had fallen on hard times. In total, Vonovia, Europe's largest private housing company, owns almost 550,000 apartments in Germany, Sweden and Austria.

Meanwhile, after years of expansion, Vonovia is looking to dispose of around 66,000 apartments with a total value of around 13 billion euros. However, investors are increasingly holding back on buying real estate due to rising interest rates. "The market has not come to a complete standstill, but it has been laborious," Buch said. In January and December, he said, little buying interest was seen, but currently there is higher demand again. Last year, Vonovia sold 19,760 apartments, including some above book value. Currently, Vonovia is also selling its ten percent stake in its real estate portfolio in France and doing so at a profit, the manager said.

Due to the sharp rise in construction and financing costs, Vonovia is not planning any new construction projects for the time being. However, projects already under construction are to be brought to completion. In 2023, Vonovia will still complete 3450 apartments, Buch said. "New construction that leads to reasonable rents is simply economically possible in the current situation," he added./mne/knd/mis