Vonovia Raises Forecast After First-Quarter Profit Jumped

  • Recent deals helped achieve economies of scale, CEO says
  • Vonovia has chance to demonstrate organic growth, analyst says

Vonovia SE, Germany’s biggest residential landlord, lifted its full-year forecast after profit in the first quarter rose 58 percent as rental income increased.

Funds from operations excluding sales, a measure of a real estate company’s ability to generate cash, climbed to 186 million euros ($212 million) in the quarter from 118 million euros a year earlier, Vonovia said in a statement on Thursday. FFO this year will rise to as much as 740 million euros, up from a previous forecast of as much as 710 million euros, the Bochum-based company said.

"The numbers were pretty good," said HSBC Trinkaus & Burkhardt analyst Thomas Martin, who has a buy rating on the stock. The slowdown in Vonovia’s pace of acquisitions following a failed bid for Deutsche Wohnen AG isn’t a concern, he said. "Now they have a chance to show how they can grow organically."

Vonovia has doubled the number of homes it owns since its initial public offering three years ago, funding purchases with cheap debt and share sales. Equity investors, eager to profit from rising rents and home values in Europe’s biggest economy, are lapping up the stocks of German residential landlords. Vonovia, which last year changed its name from Deutsche Annington, owns about 344,000 apartments across Germany, mostly rented to low- and middle-income earners.

Vonovia fell as much as 1.6 percent in Frankfurt trading. The shares were little changed at 30.33 euros at 9:59 a.m. and have gained about 10 percent in the past 12 months.

The company plans to pay a 2016 dividend of 1.05 euros per share.

Failed Bid

Last year, Vonovia bought rivals Suedewo and Gagfah, which helped cement its position as the country’s biggest owner of homes. In February, Vonovia failed to secure enough shares to acquire its biggest competitor, Deutsche Wohnen AG, for 8 billion euros, following a drawn-out battle that would have resulted in the country’s largest-ever real estate deal.

"We had a very successful start and we’re very optimistic about the development for the rest of this year," Chief Executive Officer Rolf Buch said on a call with reporters. The result demonstrates Vonovia’s ability to achieve economies of scale through large acquisitions, and to raise rents by investing in properties, he said.

Rental income in the first quarter gained 49 percent to 392 million euros. FFO per share climbed 26 percent to 40 cents, rising more slowly than the total because the company issued stock to pay for acquisitions.

More Deals?

More acquisitions are possible this year, although Vonovia is also expanding other business lines in order to secure future growth, Buch said. Profit from those segments, which include facility management for other owners and the sale of cable television connections, grew about 38 percent in the first quarter to 7.6 million euros, according to the statement. In addition its own properties, Vonovia manages about 54,000 homes for other investors.

While the size of portfolios available for Vonovia to purchase may be shrinking -- after the biggest assets already changed hands -- the flow of deals on offer remains steady, Buch said.

"Those 1 billion-euro deals you’ll see on the market all the time," he said. Many are overpriced as sellers take advantage of high investor demand for real estate, he said. Despite a German housing-price surge fueled by low interest rates, Germany isn’t in a housing bubble because lending conditions and supply remain constrained, he said.

"We’re definitely not ruling out making further acquisitions," Buch said.

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