Vonovia's Shareholders Weigh Tax-Free Dividend Against Debt Reduction as Stock Trades at Half Book Value

Vonovia's new CEO Luka Mucic navigates a divided shareholder vote on €1.25 dividend amid deep discount to book value, high debt, and weak property market.

When Luka Mucic steps before Vonovia's shareholders in Bochum on Thursday, he will face a room divided between those demanding cash today and those arguing the money is needed to fix the portfolio. The new chief executive inherits a stock that closed Monday at €22.10 — less than half the EPRA net tangible asset value of €46.57 per share recorded at the end of the first quarter. That gap between market price and book value frames every decision on the agenda.

The proposed €1.25-per-share dividend has become the flashpoint. Vonovia plans to pay it from the company's tax-contributed equity account, meaning shareholders initially receive the distribution free of withholding tax. The catch: each payout reduces the tax cost basis of the shares, deferring the capital gains levy until sale. For long-term holders who never sell, the tax advantage is permanent. But shareholder activists have filed a counter-motion to redirect the entire retained profit toward modernising the existing housing stock, arguing that the group's capital would be better spent on energy upgrades and portfolio repairs.

The debate over capital allocation sits against a backdrop of heavy debt. Vonovia aims to sell assets worth €5 billion to reduce borrowings, while also pushing forward with the privatisation of individual apartments. Its loan-to-value ratio edged down to 45.1% and net debt-to-EBITDA stood at 13.7x — a slight improvement from the prior quarter but still well above the targets management has set for 2028. By then, Vonovia wants leverage below 12x, LTV around 40%, and interest coverage above 3x. The urgency is underlined by a wall of maturing bonds in the next two years.

Operationally, the letting business delivered modest gains. Vonovia's adjusted EBITDA climbed 6.3% in the first quarter, even as the portfolio shrank by roughly 4,000 units. Another adjusted EBITDA measure came in at €712 million, up 1.4% year-on-year. Organic rental growth hit 4.0%. However, higher financing costs pushed adjusted pre-tax profit down to €462.2 million. The company reaffirmed its full-year guidance: around €3 billion for total adjusted EBITDA and nearly €2 billion for adjusted EBT.

The broader market mood offers little tailwind. The ifo business climate index for residential real estate dropped from –19.3 points in March to –28.4 in April, reflecting persistent pressure from high interest rates and construction costs. That weak sentiment partly explains why Vonovia's stock has lost roughly 9% since the start of the year and 24% over twelve months, with the 52-week high of €30.16 now a distant memory.

Several board changes are also up for a vote. Dr Anne-Marie Großmann-Minkwitz is proposed for election to the supervisory board, while Jürgen Fenk stands for re-election. The board's future remuneration structure sets a fixed annual fee of €132,000, with 20% to be paid in Vonovia shares. If the dividend proposal passes, the ex-date falls on 22 May and the cash is due on 26 May.

For Mucic, the AGM is his first major public test since taking the helm. The market already knows the financial mechanics of the deleveraging plan. What it wants on Thursday is conviction that the machinery will work even if the sector stays under a cloud.