Vonovia Cuts Rent Growth to 3.8% and Cash Flow Below 2025 Level
Key Facts
On October 28, Vonovia lowered its forecast for organic rent growth in 2026 to around 3.8%, from around 4%, and revised its forecast for free operating cash flow before changes in working capital to moderately below the 2025 level, having previously expected it to be at the prior-year level. The company said the revision is based on preliminary financial figures for the first nine months of 2026, which remain subject to review, and expected developments in the fourth quarter. The revision puts rent growth and cash flow below the path the company had previously outlined, while some earnings indicators remain within their annual ranges. Vonovia said the forecasts relate to fiscal year 2026, while the nine-month data on which they are based are preliminary. Investors are awaiting the interim statement scheduled for November for detailed figures ahead of the year-end close.
Vonovia attributed the expected weakness in organic rent growth to lower investment volumes, particularly in projects it develops to retain in its portfolio, as well as rent increases based on local German rent indices that were slightly weaker than expected. This means the revision is linked not only to developments in existing rents but also to the pace at which new projects are added to the company's portfolio. By contrast, the company said adjusted earnings before interest and taxes for 2026 are expected to range between 1.9 billion and 2.0 billion euros, near the lower end of the range. Adjusted earnings for shareholders are expected to reach between 1.4 billion and 1.5 billion euros, in the upper half of the range. These estimates highlight a divergence between relative weakness in some operating indicators and adjusted earnings for shareholders expected to remain in the upper part of the target range.
In activities related to sales and development, Vonovia said its recurring sales and development segments are performing well below original expectations because of higher financing costs for potential buyers. The company cut its investment target for 2028 to around 1.7 billion euros from around 2 billion euros, citing a more restrictive capital allocation policy, particularly lower volumes of projects transferred from development to retention. The decision shows that the review of plans extends beyond the current year, with a reduction in targeted investment spending in 2028. Higher financing costs have weighed on the ability of potential buyers in segments that depend on deal closures, according to the company statement. Vonovia did not attribute the cash flow forecast adjustment to any one segment, but cited weak performance in sales and development in its business update.
For its preliminary 2027 outlook, Vonovia is targeting organic rent growth of around 4% and rental revenue of between 3.55 billion and 3.65 billion euros. The company expects adjusted EBITDA to be slightly higher than the 2026 level, with further improvement possible depending on the timing of disposals. It cut its rent growth target for 2028 to around 4.5% from around 5%. These figures represent an initial outlook for the next two years, alongside a lower investment target for 2028. The company's plan thus combines a 2027 rent growth target slightly above the revised 2026 forecast, a defined range for rental revenue and slower rent growth in its 2028 target compared with the previous target.
Vonovia's update came after Morgan Stanley downgraded the stock on October 20 to "underweight" from "equal weight" and cut its price target to 14 euros from 25 euros. Vonovia shares stood at 16.57 euros on October 19, according to Investing.com. The bank attributed its downgrade to higher interest rates and continued risks related to Berlin. The decision followed progress in coalition talks among the city's three center-left parties, which agreed in principle to expropriate large private residential property portfolios. The proposed expropriation plans have not taken effect, but added a political factor to the risks cited by the bank before Vonovia announced its forecast revision.
In trading, Vonovia's U.S.-listed share, VONOY, closed at 9.10 dollars on October 28, according to EL7 data. The available data do not include a documented price for Morgan Stanley stock on the same day. Vonovia is scheduled to publish its interim statement for the first nine months of 2026 on November 4, providing an opportunity to track the preliminary figures on which the forecast revision was based. The company also set the same date for publication of its full third-quarter interim statement. The published results will be subject to review against the preliminary basis the company announced on October 28.