Vonovia shares fall on weak outlook, dividend cut

Shares in Vonovia SE, Europe’s largest residential real estate group, declined on Thursday after the company cut its dividend and lowered its full-year guidance, citing higher financing costs and a weaker operating environment.

The Frankfurt-listed company said it would reduce its dividend to €1.00 per share for 2024, down from €3.10 in 2023, as part of efforts to preserve capital amid rising borrowing expenses. Vonovia also trimmed its full-year funds-from-operations (FFO) guidance to €2.30-2.50 per share, from a prior range of €2.70-2.90, reflecting weaker rental growth and higher interest payments.

Chief Executive Rolf Buch attributed the downgrade to "persistent inflationary pressures" and elevated financing costs, which have eroded margins in the group’s core German market. "The macroeconomic environment remains challenging, with higher construction and financing costs limiting our ability to invest at scale," Buch said in a statement.

Vonovia’s shares fell as much as 4.5% in early trading, extending losses from Wednesday’s close of €22.80. The company, which owns and manages over 550,000 apartments across Germany and Austria, has faced mounting pressure from rising interest rates, which have increased its debt servicing costs. The European Central Bank’s restrictive monetary policy has kept borrowing costs elevated, reducing demand for real estate investments.

Analysts at Jefferies noted that while the dividend cut was expected, the magnitude of the FFO guidance reduction was "more severe than anticipated." The bank maintained a hold rating on the stock but lowered its price target to €20 from €24, citing "limited visibility" on a recovery in the German housing market.

Vonovia’s latest guidance assumes a 2% decline in rental income for 2024, compared with a previous forecast of flat growth. The company also flagged potential further writedowns on its property portfolio if market conditions fail to improve. Investors will monitor Vonovia’s investor update scheduled for May 16, where management is expected to outline plans to reduce leverage and improve liquidity.