Vonovia delivers, but the market still isn't buying it

Vonovia’s 2025 annual results, presented by new CEO Luka Mucic on 19th March, pointed to a business that is operationally in good shape. Adjusted EBITDA rose 6% to €2.8bn, while adjusted profit reached €1.54bn, up 5.3% on the previous year. The dividend will increase to €1.25 per share. Average rents climbed to €8.38 per square metre, 4.6% higher than in 2024, supported by near-zero vacancy and a rent default rate of around 2%. The portfolio value increased by 3% to €84.4bn.

Mucic struck a measured tone, describing housing as “no ordinary product” but one that carries a particular responsibility. At the same time, Europe’s largest listed residential landlord confirmed its targets for 2026 and its medium-term goals to 2028, while signalling a faster pace of debt reduction.

Yet the share price fell by almost 10% on the day, placing Vonovia at the bottom of the DAX. The disconnect between improving operations and weak market confidence is the real story.

Stabilising, but not yet convincing

On most operational measures, Vonovia is performing well. Rental growth continues to underpin earnings, with rents per square metre rising by around 55% between 2013 and 2025, from €5.40 to €8.40, comfortably ahead of the roughly 31% increase in consumer prices over the same period. The services business is also contributing more meaningfully alongside the core rental platform.

Development activity remains present but measured. Vonovia completed 2,090 new flats in 2025 and has more than 4,200 under construction. Its longer-term pipeline of up to 65,000 units on its own land offers optionality rather than immediate expansion.

The more immediate focus is the balance sheet. Mucic has signalled an accelerated disposal programme, with annual sales expected to rise to 3,000 to 3,500 units or more, alongside disposals of non-core assets such as care homes and selected minority stakes. The objective is to bring the debt ratio down from 45.4% towards 40%, strengthening financial flexibility and rebuilding investor confidence. Board member Arnd Fittkau purchased €95,625 of shares at €21.25 in the days following the results, a visible, if modest, signal of internal conviction.

The market reaction, however, reflects concerns that sit outside the operating business itself. Rising geopolitical tensions and renewed inflation pressures have pushed expectations for interest rate cuts further out. For a company with more than €40bn in debt, that shift feeds directly into refinancing costs, valuation assumptions and, ultimately, equity pricing. In that environment, Vonovia continues to be treated less as a housing platform and more as a leveraged exposure to interest rates, in what Werner Rohmert of Der Immobilienbrief describes as “an interest rate differential model with associated residential letting”.

Valuation, leverage and politics define the equity story

Alongside rate sensitivity, the gap between reported asset values and market pricing remains a central issue. Vonovia’s portfolio is valued at around €84bn, with EPRA NTA at €39.25bn, while the market capitalisation, at roughly €18bn, implies a discount of more than €20bn. That gap has persisted for several years and has yet to close despite operational improvements.

Some analysts continue to question whether carrying values, particularly outside prime locations, fully reflect achievable transaction levels. While Vonovia has already taken substantial write-downs since 2023, the subsequent stabilisation and partial recovery in reported values have not been matched by investor confidence. This matters in practical terms, as disposals are central to the deleveraging strategy and will be closely watched as a test of both pricing and liquidity.

At the same time, Vonovia’s scale ensures that it remains firmly embedded in Germany’s housing policy debate. Tenant representatives continue to accuse the company of pushing rent increases to the limits of what is permissible, or beyond, while Vonovia maintains that all adjustments are grounded in the applicable rent index and legally justified features. A federal commission is currently examining tighter enforcement of rent regulation, with proposals expected later this year. In cities such as Berlin, regulatory exposure remains structurally higher than elsewhere.

Taken together, these factors explain why stronger operating performance has not yet translated into a recovery in the share price. Vonovia’s underlying business is stable and cash-generative, but the equity story continues to be shaped by interest rates, leverage and the credibility of asset valuations, alongside an increasingly sensitive political backdrop.

Mucic therefore inherits a company that is functioning operationally but remains under pressure in the capital markets. Narrowing the gap between reported value and investor perception, while managing debt in a more uncertain rate environment, will now define his tenure.