An exceptional and challenging year lies behind us. The coronavirus pandemic has had an impact on each and every one of us – and, of course, on our business, too. So, it is all the more pleasing that Deutsche Wohnen has come through this crisis so well and has once again proved itself to be a socially responsible partner with a robust business model. At the same time, we used the financial year 2020 to initiate some important developments that set a course for future growth. Yet, as we move forward, we always keep sight of the interests of all our stakeholders and carefully weigh up the economic, ecological and social consequences of any measures under consideration.
Climate-neutral by 2040
We have set ourselves an ambitious target: Deutsche Wohnen’s holdings are to be climate-neutral by 2040. After all, we know that the climate turnaround will be decided in the property sector because, currently, one-third of all CO2 emissions are generated by buildings. So, as an industry, we have to set ourselves challenging targets and work determinedly to achieve them. Deutsche Wohnen is quite happy to take on this responsibility. Thanks to our continuous investment in building envelopes, building equipment and appliances, and energy-efficient refurbishment, we already have one of the most climate-friendly portfolios in the sector today. At present, the CO2 intensity of 33 kg/sqm of our holdings is significantly below the German average.
The measures we have now agreed on aim, in particular, to minimise the energy requirements of our holdings, to use as little CO2-intensive energy as possible, to generate more energy locally via CHPs (combined heat and power plants) and to cover any remaining primary energy requirements with renewables. By doing all of this, we can reduce the CO2 intensity of our holdings to below 12 kg/sqm by 2040, which would mean that we would achieve climate-neutrality in our portfolio according to the definition set by the professional association IW.2050 [Initiative Wohnen.2050]. We already started years ago to modernise heating systems, to instal CHPs and to opt for an energy mix that was low in CO2 emissions. We intend to build on this good starting position by making further investments in the coming years, particularly by installing CHPs and the use of renewable energies. And the widespread installation of solar energy systems will provide our neighbourhoods step by step with green energy. Finally, by building new, climate-friendly properties and extending the use of building automation and smart applications for regulating heating, we will make further progress towards our target of climate-neutrality.
Of course, we are taking our tenants with us on our journey towards climate-neutrality. We are convinced that we can only manage this complex of numerous societal challenges – such as climate protection, housing shortages and rising rents – and make a significant contribution to achieving our climate goals if we all work together.
Sustainable new builds
We are also taking on responsibility with regard to the existing housing shortage. As one of the largest residential property companies in Germany, we will intensify our efforts in the future to build new homes, particularly in attractive and dynamic metropolitan regions. In so doing, we will also be helping to achieve our climate targets and to ease the housing situation in cities. At the same time, our new-build activities will secure for the company future profitable growth that extends beyond the management of existing properties.
Last year we had already expanded our new-build activities significantly. To this end, we acquired the Munich-based project developer ISARIA with 13 construction projects and approximately 2,700 residential units. In addition, we acquired a 40 % stake in QUARTERBACK Immobilien AG. Under their guidance, we are pooling our expertise and strengths to create an independent platform. Given the strategic course we have set, we are in an ideal position to make consistent progress towards the targeted expansion of our new-build pipeline and also to complete new-build projects more quickly and with greater cost efficiency.
In future, QUARTERBACK will realise all of Deutsche Wohnen’s new-build projects, which, in turn, will be an ideal addition to our portfolio in terms of quality and location. Over the next few years, QUARTERBACK will build around 18,000 flats, particularly in the metropolitan regions of Berlin, Dresden/Leipzig, Munich and Stuttgart, of which approximately 9,000 will be for our holdings.
Focused portfolio strategy
Megatrends like urbanisation and the increasing ageing of the population form the basis of our business model and our company strategy, which is long-term oriented and is also clearly focused on Germany’s metropolitan regions, where the opportunities for future growth are particularly good – both for our housing portfolio and for our business segment of Nursing and Assisted Living.
The valuation gains of EUR 1.9 billion of our property portfolio in the financial year 2020 reflect the fact that our holdings continue to be highly attractive. Contributing to this are the ongoing improvements to quality that we have been pushing to achieve by adopting targeted measures – and also by carrying out acquisitions, disposals and modernisations as well as by building new properties.
And in the business segment of Nursing and Assisted Living our focus is on cities and regions with positive development prospects, and on the high quality both of our properties and the nursing and support provided there. Through our targeted expansion of this segment we are meeting the rising demand for places in care homes in Germany.
Despite the coronavirus crisis, we can look back on a successful financial year 2020 in which we were able to achieve what we forecast. At EUR 837.6 million, gross rental income was more or less at the level of the previous year. The figure FFO I (Funds from Operations without Disposals) per share – which is of key importance for us – rose by 1.3 %, and EPRA NAV (Net Asset Value) increased by 12.3 % per share. At 37 %, the loan-to-value ratio (LTV) was within our target corridor of 35 % to 40 %. And adjusted earnings before interest, tax and depreciation (adjusted EBITDA) rose by 12.1 % to approximately EUR 1 billion – particularly because of disposals.
In the financial year 2020, the Berlin rent cap led to a fall of 4.1 % in rental income from our overall portfolio to an average rent of EUR 6.70 per m2. We continue to be of the view that the Berlin rent cap does nothing at all to ease the strains in the housing market. On the contrary, it actually exacerbates the acute shortage of housing. Yet, the private sector is needed urgently – both to create (new) housing of high quality and for climate protection. A ruling by the Federal Constitutional Court on the constitutionality of the rent cap is expected in the first half of 2021.
Last year, the development of the Deutsche Wohnen share was very encouraging. It ended the year with a closing price of EUR 43.69, which represented an increase of 22.6 % compared with the end of 2019. This also meant that the Deutsche Wohnen share outperformed the key stock market indices. A further piece of good news was the inclusion of Deutsche Wohnen SE in the DAX, Germany’s leading share index, as of 22 June 2020. This, too, is proof of the successful development of our company during the past years. We also successfully completed our share buy-back programme in September 2020. By this means, we bought back approximately 16 million shares at a total price of EUR 597.3 million. This corresponds to a share of the issued capital of Deutsche Wohnen SE of 4.47 %.
In addition to the positive development of the share price, our shareholders are benefitting from our consistent dividend policy. For the financial year 2020, the Management and Supervisory Boards propose that we pay out from the net profit a dividend of EUR 1.03 per bearer share. This will mean a return to our average pay-out ratio of 65 %. Last year we reduced the pay-out ratio, which is based on FFO I, to 60 % to enable us to set up our coronavirus relief fund in the amount of EUR 30 million.
We are using this relief fund particularly to protect residential and commercial tenants who have got into payment difficulties. We offer our support in situations where state support programmes do not apply. But the protection of our employees was also an important issue for us in 2020. Accordingly, shortly after the outbreak of the pandemic, we made it possible for all our staff members to work from home. Currently, 80 % of them are making use of this option. And the coronavirus crisis has brought something home to us very clearly: how important good-quality housing is for each and every one of us. Deutsche Wohnen is making a valuable contribution here.
All of the successes we have described above would not be possible without the high level of commitment, hard work and passion of our employees – especially in these challenging times. So we would like to express our profound gratitude to them. Moreover, we will continue to work at being a consistently attractive employer.
Positive prospects for growth
The prospects for the German residential property market remain positive. This is confirmed by the current performance data, which we explain to you in greater detail in our financial report. Due to their long-term oriented strategy, Deutsche Wohnen remains a strong and reliable actor on the property market. We continue to gear our portfolio consistently to the growth in Germany’s top cities. At the same time, we are using this stable foundation to drive our commitment to protecting the climate and building new housing.
We look optimistically to the financial year 2021 and anticipate solid progress in our most important company performance figures. Our forecast is for FFO I to be at the same level as the previous year and for further growth in our net asset value (NAV).
We would like to thank you, our esteemed shareholders, for your continuing support and for placing your trust in our company. We will be delighted if you continue to accompany us on our journey.
Berlin, 25 March 2021
Chief Executive Officer
Chief Financial Officer
Chief Development Officer
Chief Operating Officer