German real estate investment giant Vonovia slipped significantly deeper into the red last year as property values declined, reporting a loss in 2023 of nearly €6.8 billion ($7.4 billion).
The company blamed the further devaluation of its real estate portfolio for the losses, which were reported on Thursday evening after the close of trading.
Vonovia valued its rental property portfolio at around €83.9 billion at the end of December. A year earlier, the company put the value of that same portfolio at €94.7 billion.
In 2022, Vonovia reported overall financial losses of around €669 million due to declining value of its portfolio.
"We have never seen such a high reduction in value in the history of Germany as in 2023. This applies not only to Vonovia, but to everyone," said Vonovia chief executive Rolf Buch in a conference call.
Operating revenues and profits for Vonovia, however, remained strong in 2023 with 99.8% of rents paid on time and moderate increases. The company's management has proposed increasing the shareholder dividend from €0.85 last year to €0.90 per share this year.
Buch said the property market weakened significantly over the course of 2023, but that values have likely already bottomed out and could rebound.
Many analysts are now expecting the European Central Bank to cut interest rates for the first time in two and a half years as inflation drops faster than expected.
High interest rates are seen as a major driver of lower property values, as would-be buyers face much higher borrowing costs on loans.
Germany's real estate sector is also dealing with a dramatic downturn in construction, driven partly by higher interest rates and also by much higher costs for materials and labour.
Real estate investment companies such as Vonovia and LEG have put new construction projects on hold for the time being.
Buch said Vonovia would seek to reduce debt in the current year by selling off about €3 billion worth of residential buildings. Last year, the company generated around €4 billion from the sale of apartment buildings.
Vonovia grew dramatically during a long period of low interest rates up through 2022, buying numerous properties in Germany and across Europe and benefiting from rising rents in major cities. Vonovia also purchased Germany's second-largest residential landlord, Deutsche Wohnen, in 2021.
As Europe's largest private residential real estate company, Vonovia owns a total of almost 546,000 flats in Germany, Sweden and Austria, of which around 485,000 are in Germany.
