How Vonovia is using EIB financing to help decarbonise its portfolio

Germany’s largest residential landlord has raised €600 million from the European Investment Bank for energy efficiency improvements to its properties – among €2.1 billion of new finance raised in recent days.

The lending arm of the European Union provided the eight-year unsecured loan to Vonovia, the listed real estate company, as it seeks to make its portfolio climate neutral by 2045.

Vonovia, which owns 488,472 German residential units, plans to use the capital to insulate roofs and facades, and invest in heating systems that use renewable energy. The loan will also finance the development of energy-efficient new builds.

Following large increases in gas prices triggered by Russia’s move to sharply reduce supplies to Germany, Vonovia rolled out an energy-saving programme in July that lowered the overnight temperatures on its tenants’ gas central heating to make savings on heating costs.

EIB president Ambroise Fayolle, who oversees financing in Germany, said it was “particularly pleased” that Vonovia had committed to make its entire housing portfolio climate neutral, with long-term affordable rents.

He added that the lender was committed to improving the energy efficiency of residential properties to support the European climate goals and hoped the financing would encourage other investors – such as commercial banks and capital markets investors – to finance energy renovation as well.

During the COP27 summit in Egypt, Fayolle emphasised the EIB’s commitment to lending for projects aimed at a socially inclusive transition to low-carbon societies.

Vonovia said an increase in rents to cover the costs of upgrading the homes would be “more than compensated for” through lower heating costs for tenants. “This is precisely what matters: protecting the climate needs to remain affordable for our tenants,” said Philip Grosse, Vonovia’s chief financial officer.

The company, which has a portfolio that also includes homes in Sweden and Austria, has also issued two unsecured green bonds providing proceeds of €1.5 billion – in an issuance that was six times oversubscribed.

The issuance comprised €750 million of bonds with a 4.5-year duration and an annual coupon of 4.75 percent, and €750 million of bonds with an eight-year duration at an annual coupon of 5 percent.

Around 250 investors were involved in the placement, with 12 placing a volume of at least €100 million.

Gross described the issuance as “a significant step” towards de-risking its 2023 and 2024 maturities, and said the proceeds would be used to tender for that maturing debt.

Figures released by Vonovia in its third quarter results for 2022 stated that the company has debt maturities of €4.3 billion in 2023 and €3.75 billion in 2024.

Grosse said Vonovia was in advanced discussions with its lenders about rolling over its secured financings for 2023 and 2024.

He added: “Notwithstanding these negotiations and this bond issuance, Vonovia’s disposal efforts across the various sales channels are progressing, and proceeds from disposals can be deployed to de-lever further through bond buybacks across the full range of maturities.”