Vonovia share price continued its strong sell-off this week as the company published a surprise report, lowering its guidance for the year. It dropped to a low of €15.25 before paring back some of these losses to the current €16.24. It is now hovering near its lowest level since 2014 after falling by 73% from its highest point in 2022.
Vonovia exposed as Berlin plans house seizure
Vonovia, the biggest landlord in Germany, is facing major challenges. One of these risks is a new law in Berlin that allows authorities to seize houses in a bid to lower prices.
The proposal is for authorities to buy these houses from their current owners and then lower rents that people pay. In this case, the estimate is that the government will spend about €100,000 per apartment, much lower than their current values.
As a result, Vonovia is expected to lose about €8.4 billion as 120,000 of its apartments are brought into public ownership. Estimates are that the company’s properties are valued at about €130,000.
Still, it is unclear whether this will happen, as Vonovia and other companies in the industry have vowed to sue. The national government, under Friedrich Merz, have also urged against seizing these properties. He argues that it will be illegal and make it hard to attract investors in the real estate sector.
Vonovia expects its business to weaken
Vonovia shares also dropped after the company published a statement warning about its business as interest rates and financing costs continue rising. The company blamed the crisis to the US-Iran war that led to higher inflation in Germany and other countries.
In the aftermath, interest rates and bond yields have continued rising. The European Central Bank (ECB) hiked interest rates in September and analysts now expect it to deliver more hikes in the coming months.
As a result, the company’s re-offer yield of its eight-year unsecured bonds jumped by 140 basis points. Its bonds that are maturing in 2032 are yielding 6.71%, much higher than the year-to-date low of 5.2%.
Vonovia’s preliminary nine-month results for the first nine months of the year showed that its adjusted EBITDA will be €2.19 billion, up from €2.118 billion in the same period last year. In the statement, the management said:
“Vonovia remains committed to deleveraging and will continue its disposal program as a matter of top priority. Its deleveraging targets remain unchanged: net debt/EBITDA is expected to improve to below 12x and the interest coverage ratio to remain comfortably above 3x by the end of 2028.”
Vonovia share price technical analysis
The daily chart shows that Vonovia shares have slumped in the past few years, moving from a high of €33.93 in 2024 to the current 16.28. It has slowly formed an inverted cup-and-handle pattern whose lower side is at €15.25. This pattern often leads to more continuation.
The stock has slumped below the 50-week and 100-week Exponential Moving Averages (EMA). Remaining below that level is a sign that investors remain in control. Therefore, the stock will likely continue falling, potentially to the key support level of €13.