Vonovia Cuts Rent Growth Forecast to 3.8% and Scales Back 2028 Investment
Key Facts
On October 28, Vonovia cut its forecast for organic rent growth in 2026 to about 3.8%, from about 4%, and said it expected free operating cash flow before changes in working capital to be moderately below its 2025 level. The company said the revision was based on preliminary financial figures for the first nine months of the year and expected developments in the fourth quarter. The estimates put rent growth and cash flow below previous expectations, while some full-year earnings guidance remained within its ranges. The revision reflects pressure on the German real estate company from slower investment and higher financing costs. Vonovia scheduled the release of its full third-quarter interim statement for November 4.
Vonovia attributed the lower rent growth forecast to reduced investment volumes, particularly projects the company develops to retain in its portfolio, and to rent increases based on local German rent indices that were slightly weaker than expected. In its statement, it said, "Letting activity remains robust, and the value-added segment is performing ahead of expectations." This puts core letting performance in a more resilient light than development and sales, which depend more heavily on completing transactions. The company said higher financing costs were affecting financial results and transaction volumes in more market-sensitive businesses. Chief Executive Luca Mucic said, "Higher financing costs affect both financial results and transaction volumes in our market."
Preliminary figures for the first nine months of 2026 showed adjusted earnings before interest, taxes, depreciation and amortization rising to 2.19 billion euros, from 2.118 billion euros in the corresponding period of 2025. By contrast, adjusted profit before tax fell to 1.41 billion euros, from 1.460 billion, while adjusted earnings to shareholders declined to 1.12 billion euros, from 1.201 billion. Vonovia expects 2026 adjusted profit before tax to be near the lower end of a range between 1.9 billion and 2.0 billion euros. The company expects adjusted earnings to shareholders of between 1.4 billion and 1.5 billion euros, in the upper half of the range. It also expects adjusted earnings before interest, taxes, depreciation and amortization, for which the annual range is 2.95 to 3.05 billion euros, to come in in the lower half of that range.
Financing costs are weighing on sales and development, with Vonovia saying higher costs are limiting potential buyers' capacity and weakening transaction volumes. The disclosure said the yield on the company's reissue of unsecured eight-year bonds had risen by about 140 basis points since the start of the Iran war, raising the cost of capital and constraining transactions and investment. In response, the company announced a strategic review of its development activities and tighter return requirements for investment. It also plans to scale back development projects intended for retention and suspend new investment in its "Manage to Green" program. The company said these steps are part of tighter capital allocation to protect cash flow and balance-sheet strength.
The plan changes extend to 2028, with Vonovia cutting its organic rent growth target for that year to about 4.5%, from about 5%, and setting investment at about 1.7 billion euros. The official disclosure did not give a previous investment target of about 2 billion euros. The company also expects its portfolio valuation in 2026 to be broadly stable compared with the end of 2025, following four consecutive half-years of valuation gains. This points to a halt in successive asset valuation gains in the company's full-year outlook. Vonovia will provide an update on its strategic review when it announces its 2026 financial-year results.
The preliminary 2027 guidance targets organic rent growth of about 4% and rental income of between 3.55 billion and 3.65 billion euros. Vonovia expects adjusted earnings before interest, taxes, depreciation and amortization to be slightly above its 2026 level, with potential upside linked to the timing of disposals. In the context of market risks, Morgan Stanley cut its rating on the stock to "underweight" from "equal weight" in a report published by Investing.com on October 20, and lowered its price target to 14 euros from 25 euros. The report cited higher interest rates and Berlin risks, as three parties made progress toward forming a coalition and their representatives agreed in principle on a proposal to expropriate large residential portfolios. Vonovia shares were priced at 16.57 euros on October 19, according to the report; the expropriation proposal had not become an effective measure. The company's U.S.-listed shares, VONOY, closed at 9.1 dollars on October 28, according to EL7 data.