Financial communication remains minimal

There were no negative revaluations in the Q3 23. FFO per share continued to rise. The level of financial disclosure remains minimal on Deutsche Wohnen.

GAV down by 8% in H1 23

The negative revaluations of the H1 23 confirmed the sector’s previous announcements. Vonovia anticipates a slowdown in the fall in German Residential prices per sqm in H2 23 after the decline of around 10% since the peak in 2022.

Stable outlook

In its now poor financial communication which is an ESG concern, DW’s management highlighted a stable outlook. The company looks to be underperforming global inflation, which comes as no surprise.

NAV now stands 8.4% above Vonovia's last bid

Vonovia’s press release pre-announced Deutsche Wohnen’s H1 22 results. There are a couple of little interesting things within the H1 22 full report even if it is now more difficult to analyse DW’s performance more deeply due to its poor communication.

Play Vonovia's next bid?

No significant suprises in the 9M 21 figures. We question here the opportunity of buying Deutsche Wohnen again. Play Vonovia’s next bid in 2022-24?

A stable H1 21

NAV was flat overall sequentially, standing below Vonovia’s bidding price of €53 per share. DW posted low positive revaluations vs. its peers. Guidance was maintained of a roughly flat economic performance.

Increasing contribution of disposals

Deutsche Wohnen won’t show strong operational figures in FY 21 because it is managing external constraints first, in our view. Short-term issues remain (referendum, season 2) and the intra asset-class rotation continues in favour of riskier plays.

Asset net yield targeting 2.0%: here we are

Despite a flattish FFO leaning on rents down 4% lfl, even if attributable to the rent freeze, the book value benefited from further significant yield compression in FY 20. Positive revaluation accounted for 7% lfl (€1.9bn). Valuers’ parameters (discount rate, capitalisation, vacancy) have been very favourable in FY 20.

Decreasing end-market rents but increasing value - nice

Deutsche Wohnen showed a flat organic performance (rents, EBITDA, FFO), however it announced a 6% forward positive revaluation in FY 20, following the flat valuation in H1 20.

Unsurprisingly stabilising values in H1 20

Positive revaluations were broadly anecdotal in H1 20. Some negative news (rents, low inflation) have been balanced by further yield compression (both lowering discount and capitalisation factors since December 2019). The risk reward becomes less attractive progressively.

Slowing end-market prices were confirmed

Following our Idea Kicker on 11 May (”Time to question its status”), Deutsche Wohnen confirmed the low leverage of its slowing lfl growth in Q1 20. Despite the material cushion of high end-market values vs. low book values, Deutsche Wohnen should not experience a massive revaluation in H1 20. We confirm our Reduce stance.

NAV probably reached its top in FY 19

Up to now, we had anticipated a cycle coming progressively to its end in 2022-23. Coronavirus is now revealed as a catalyst, provoking a crisis earlier than we expected previously. We now believe that NAV will progressively stabilise or decrease as from 2020. However, we hope that Deutsche Wohnen will stay the “relative” safe-haven it is vs. peers. The tragic consequences of growing unemployment in the future, coupled with a deflation, could weigh on Deutsche Wohnen’s topline.

Dear share buy-back

The accrued impact of Berlin’s rent-freeze should be €330m between 2020 and 2025, of which €190m in unrealised revenue growth, vs. the current €15bn NAV. If this impact is provisional (five years only?), the dimension of this potential one-off now looks clearer. And… pretty limited.

Resilient figures in H1 19; now let's consider "a" worst case

The operational figures were robust with +13% in FFO in H1 19. However, the revaluation slowed in H1 19 from €678m in H1 18 to €450m in H1 19. The book value has adapted progressively to the rent-freeze.

Answering the citizens

Market rents and prices per sqm are still increasing in Berlin. Both support our positive stance. DW is progressively answering Berlin’s citizens request by softening the rate of rent increases according to the tenants’ income. The net rent-roll is, nevertheless, very positive (new rents vs. former ones) and will support further revaluations by the end of H1 19.

Redde

Proposed share-for-share merger with Northgate

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