The capital market in 2022 was very unusual and different; it was a volatile environment. The start of the year had already been characterized by caution and restraint among investors and interest rates that were on a slight upward trajectory, but an upward trajectory all the same. With the start of the war in Ukraine, interest rates rose to unfamiliar levels, while share prices of real estate companies moved in the opposite direction. Disrupted supply chains, the coronavirus pandemic, dramatically higher construction costs, concerns about gas and electricity prices and storage levels had an impact on society as a whole, but especially on real estate companies and their tenants.
Central banks brought their loose monetary policy to an end, primarily in a quest to counter inflation. In July 2022, the European Central Bank (“ECB”) initiated a monetary policy turnaround and lifted the key interest rate from 0% to 0.5% for the first time in years. This was followed by three further increases as the year progressed (September, October and December), and by the end of the year, the key interest rate stood at 2.5%. The yield on ten-year German Federal bonds, which had been in negative territory for years, stood at 2.3% at the end of December. The ECB also wants to gradually reduce its bond holdings from March 2023 onward. Funds from maturing securities as part of its Asset Purchasing Program (“APP”), introduced back in 2015 with a volume running into the trillions, will then no longer be reinvested in full. By the end of the second quarter of 2023, holdings are to have been reduced by an average of € 15 billion a month.
In as early as December 2021, the US Federal Reserve (“FED”), the world’s largest central bank, had signaled that it would be tightening the monetary policy reins. The key interest rate, which had been at an extremely low level of between 0.00% and 0.25% since March 2020, has since been gradually lifted to between 4.25% and 4.50% – the highest level since 2007. All in all, this already marked the seventh increase of 2022, with the FED most recently raising its key rate by 0.75 percentage points four times in a row. The Bank of England (“BoE”) also raised its key interest rate to 3.50% in December. This was the ninth time in a row that the BoE had tightened the key rate by 0.5 percentage points.
One of the World’s Biggest Capital Market Issuers
The rating agency Standard & Poor’s has assigned Vonovia SE and Deutsche Wohnen SE a long-term corporate credit rating of BBB+ and a short-term credit rating of A-2. The outlook was changed from “positive” to “stable” in November. The Berlin-based Scope Group has also issued Vonovia SE a rating of A- with a stable outlook. Moody’s became the third rating agency to publish ratings for Vonovia, with its first rating in May 2021. This is also an investment grade rating. The rating was lowered from A3 with a stable outlook to Baa1 in November.
Vonovia’s first-class credit rating continues to give the company unrestricted access to the international capital markets. At the start of 2022, we harmonized the existing Green Bond Frameworks of Vonovia SE and Deutsche Wohnen, added social criteria and made the Framework fully consistent with the EU Taxonomy, which was confirmed by a third, independent party in a Second Party Opinion (SPO). In March 2022, we were able to issue green and social bonds in EUR and SEK for the very first time based on this new Sustainable Finance Framework.
In a phase that proved very challenging for the real estate sector, Vonovia once again demonstrated its excellent access to the capital market in November 2022, reopening the bond market for the real estate sector and focusing on liability management. With a bond issue volume of € 4.1 billion (2021: € 11.1 billion), Vonovia (incl. Deutsche Wohnen) once again ranks among the top 5 euro-investment grade issuers in the world in 2022 (2021: also among the top 5 euro-investment grade issuers) based on analyses performed by Dealogic. The volume-weighted average interest cost of the new bonds comes to 2.99% in 2022 (2021: 0.63% p.a.) with a weighted average maturity of 6.5 years (2021: 10.9 years).