Deutsche Annington

From Low to High Rent

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A Deutsche Annington building in the west-German city of Bochum.
  • Why it matters

    Why it matters

    Deutsche Annington will need to prove it is ready for big-time scrutiny from investors if it becomes the first real estate firm among the top 30 German companies in the blue-chip DAX index.

  • Facts


    • Deutsche Annington, founded in 2001, is Germany’s largest publicly traded property manager and the second largest real estate firm in Europe.
    • Deutsche Börse decides once a year whether to add or drop companies from its top 30 DAX blue-chip index, basing the decision on market capitalization and trading volume.
    • Tenants in the 370,000 residential units owned by Deutsche Annington have a host of complaints about the condition of their apartments, and critics say the firm overcharges tenants for maintenance work.
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Rolf Buch has tried his best to play down the importance of his company climbing into the premier league of German firms.

The chief executive of Deutsche Annington, Germany’s largest publicly-traded property manager, pretends that everything will run as normal if his firm is chosen next week to become a member of Germany’s blue-chip DAX index of the largest 30 firms in Europe’s largest economy.

“The company will not change as a result of membership in the DAX,” Mr. Buch said in an exclusive interview with Handelsblatt. “We are already big enough that politicians, associations and capital markets already take note of us.”

That might be true for his core business, which involves renting out and managing some 370,000 residential units acquired across the country over the last decade – a meteoric rise up the ranks for the Bochum-based company that was founded only in 2001.

But his investor relations department will almost certainly need an overhaul. Becoming a DAX-listed firm will mean answering calls from new, bigger investors in Germany and across the globe, particularly from funds that only invest their money in blue-chip firms.

With new interest will also come much tougher scrutiny of the company, its business model and the way it treats its tenants: The world’s biggest investors will want to know that they’re placing their money in a firm that is built to last.

Whether Annington, potentially the first real estate company to be listed on the DAX, is even large enough to qualify will be decided next week. But the company’s image in recent years – of run-down apartments and angry tenants – doesn’t quite coincide with that of Germany’s top companies.

Interviews with tenants, lawyers, consumer advocates and experts across Germany reveal that, while there have been some improvements and investments over the past two years, there remain a host of ongoing complaints about the conditions at Deutsche Annington’s apartments.

Critics also say the firm overcharges for maintenance work by classifying about half the work it does as “modernization,” which allows it to raise the rent on its tenants by as much as 30 percent.

Deutsche Annington is the largest publicly traded property management company in Germany and the second largest real estate company in Europe. About a million people live in its apartments, and they are expected to pay €1.4 billion ($1.6 billion) in rent this year.

Mr. Buch, who left the Bertelsmann Group in 2013 to assume the top spot at Annington, is well aware of this reputation. He has made it his mission to turn around the company and help it shed its grungy image to become a flagship German corporation.

“We will not be able to pay any reliable dividends in the long term if our customers are dissatisfied. That’s my fundamental belief,” Mr. Buch said.

“It would be presumptuous to say that we have everything under control when it comes to quality. If you spend close to a decade renting apartments with the sole purpose of making money... it will take more than a few years to catch up.”

Rolf Buch, CEO, Deutsche Annington

Whether Mr. Buch has to answer to a new type of investor or not will be clear next week. Once a year, at the start of September, Deutsche Börse, which runs the German stock exchange, decides which companies get added and which ones get booted from its blue-chip DAX index.

Most are convinced that the Bochum-based property manager will be promoted: “Deutsche Annington will replace Lanxess,” predict analysts from German bank LBBW. The decision is based on a company’s market capitalization and trading volume. Annington ranks 22nd in the first – above the likes of chemicals firm Lanxess, airline Lufhansa and potash firm K&S – and 31st in the latter.

If Mr. Buch were to be interviewed for the DAX spot, he could point to a number of successes over the past years: Taking the company public in 2013, significantly increasing its share price, increasing its operating profits by 150 percent since coming into office, and keeping the competition substantially at bay with a major takeover of Luxembourg-based Gagfah earlier this year.

But there are other sets of figures that put the company in a different, less positive light.

Wolfgang Hartmann, an attorney in the small Bavarian city of Kempten, is grappling with more than 700 unresolved complaints in the city. Some 180 of the roughly 370 Annington tenants living in the city have turned to him for assistance.

The complaints relate to high operating costs, drafty windows, crumbling façades and poorly operating heating systems in the postwar buildings, which have seen few repairs in the past. Some 90 tenants have also filed suits against the company over rent increases they say were not allowed.

Mr. Buch is sending the message that the company finally gets it. To complete the rebirth, the chief executive and his colleagues used an old trick to demonstrate to the outside world that they have turned the company around: a new name.

“Vonovia,” a made-up word, has a harmonious sound and is neither offensive nor suspect – not just in German but also in the many languages that Annington’s tenants speak. According to company sources, the cost of printing the new name on its letterhead and business cards by this fall will run into the low seven figures.

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High rise buildings by Annington in Germany’s port city of Hamburg. Renters wait for the buildings to be renovated. Source: Johannes Arlt for Handelsblatt


Tenants would rather see more money invested in their apartments. “In one housing complex, the apartments still had individual oil heaters until recently. There were two units for four-room apartments, and tenants had to light them themselves,” said Kempten attorney Hartmann.

Mr. Buch freely acknowledges some of the problems: “Kempten is a difficult property, but we are investing in it and giving it our special attention,” he said.

So to what extent has the new Deutsche Annington been renovated from the bottom up, and how much is purely a façade?

Of course, there are also Annington buildings that are in good shape, including attractive, renovated old buildings with happy tenants. But there are also buildings that some tenants wish they had never moved into.

One of the many problems stems from Gagfah, the German-founded, Luxembourg-based realty group that Deutsche Annington acquired this spring for nearly €4 billion, a record takeover in Germany’s property market.

“Publicly traded companies will always minimize ongoing maintenance. Deutsche Annington ... will tend to post borderline cases as modernization rather than maintenance.”

Stefan Kofner, Director of Trawos Institute at University of Zittau/Görlitz

When Mr. Buch announced the Gagfah deal, he declared, with much fanfare: “I can personally vouch for the fact that we will consistently continue to pursue our new direction, ‘Increasing Value By Paying Attention to the Needs of Tenants,’ in the merged company.”

That is not evident to Christine Kiene, who represents tenants in Hamburg: “It still isn’t even evident that Gagfah has a new owner,” she said.

Ms. Kiene holds office hours every Tuesday at a local café in Steilshoop, a development of prefabricated apartment blocks in Hamburg, Germany’s second largest city.

Her clients are tenants who have nowhere else to turn. In the 1970s, when the first of the development’s 22,000 residents moved in, most of them were railroad employees, craftsmen and blue-collar workers. Today there are many foreign names on the doorbell nameplates. In addition to cooperatives and public companies, Gagfah has about 2,000 apartments in the complex.

If it weren’t for Gagfah, Ms. Kiene says she wouldn’t be nearly as busy as she is today.

On an afternoon in late June, 12 tenants came to seek her advice at a small table at the back of the café. They were upset by the mold in their apartments, confused by their utility statements or disagreed with the post-renovation rent increases.

Ms. Kiene, an attorney for a group called “Renters Helping Renters,” typed her notes directly into her laptop. She would assemble the necessary records in her office a few days later, so that she could discuss the cases with the Gagfah employee in the neighborhood. They often discussed 15 to 30 tenants at these meetings.

But now, two months later, the face-to-face meetings have been discontinued.

“Now we only communicate in writing,” said Ms. Kiene, with a note of disappointment in her voice. According to an Annington representative, the number of cases is too small to justify the weekly meetings.

That isn’t quite the reality. When Ms. Kiene and her colleague, Helmut Kecskes, a former longtime Gagfah employee, walk through the neighborhood, they can clearly tell which buildings belong to which companies.


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Gagfah’s properties are rarely the ones that have been renovated or modernized. There is mold on the balconies, the paint is peeling from the old wooden windows, and there is so much graffiti on many of the walls that no one – except the graffiti sprayers themselves – even bothers to paint over them anymore.

The company did renovate one row of buildings. The entry doors, mailboxes and doorbell nameplates are new, the façade was painted crème-white, and the balconies are now an attractive green color. But old tiles in the lobby haven’t been replaced, and the elevator, in which less talented street artists have scrawled sentences like “Arslan is gay” over the years, is also old. There is little evidence of renovation in the grimy stairwell and in the hallways. The landlord promises that the stairwells are slated for renovation in 2016 and the elevator will be replaced next year.

This is what buildings owned by investors who have been more interested in profits than in renovations over the years look like.

Gagfah and its current parent company, Deutsche Annington, share similar backgrounds. Annington was founded in 2001 by financial investor Terra Firma and Guy Hands, its first chief executive, who began by buying the first 65,000 Annington rental units from Deutsche Bahn, the German railway company.

Mr. Hands had a simple concept: Buy large numbers of apartments for little money and then sell them individually at a steep markup, primarily to tenants. The only problem was that most tenants were uninterested in buying.

By the time Mr. Hands and his German partners realized that this was the case, it was 2005 and they had already completed another major deal: They bought 140,000 additional apartments, this time from the E.ON energy group.

Now the second objective came into focus: an IPO. While the financial crisis temporarily thwarted those plans, the company only managed to cash in the second time around, in 2013. By then Annington owned some 180,000 apartments.

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A building by one of Deutsche Annington’s subsidiaries in the German port city of Hamburg. You can see who owns a building by looking at its facade, experts say. Source: Johannes Arlt for Handelsblatt


After the IPO, the company, based in the western city of Bochum, continued its buying spree all the more vehemently, acquiring 41,000 units from property managers Dewag and Vitus, followed by 20,000 from Süddeutsche Wohnen (Südewo).

But the company’s most spectacular acquisition followed the exit of financial investor Terra Firma, with its purchase of 144,000 apartments from Gagfah, the third largest publicly traded property management company at the time. The deal, announced in December 2014, was worth €3.9 billion to Annington.

Annington now owns 370,000 apartments, with which it expects to earn €560-580 million in operating income this year. But apparently the company still isn’t finished.

Its management once hinted that it could easily manage a million apartments. This is not an acquisition goal, as Mr. Buch was quick to point out in the interview, but merely shows what is technically feasible.

Mr. Buch is also unwilling to depend entirely on growth through acquisitions, noting that Annington is pursuing a strategy that promises to grow sales and profits without new acquisitions. He envisions greatly expanding the company’s business model to include such businesses as outpatient care and thermal power stations to generate electricity and heat for tenants.

Annington already installs cable connections today, under an agreement with Deutsche Telekom: “This joint venture is a good example of economies of scale. Thanks to our size, we can buy at lower rates, which benefits our customers,” Mr. Buch said.

To address renters’ concerns, the company also plans to invest €620-640 million in maintenance and modernization this year, which translates to about €31 per square meter of living space. This is more than twice as much as it spent in 2010, and more than the industry spends on average.

Many tenant advocates are under the impression that landlords often renovate only when they have no other option, or when problems are brought to the public’s attention.

But the company aims to reduce the number of problems in the future by having more of the work done by its own personnel. Deutsche Annington has a team of 2,000 maintenance and repair workers who refurbish apartments, renovate bathrooms and will also provide landscape maintenance services in the future. It also intends to increase its staff by 1,000 workers in the next few years.

“It would be presumptuous to say that we have everything under control when it comes to quality,” said Mr. Buch. “If you spend close to a decade renting apartments with the sole purpose of making money, and if you only renovate them when you have the funds to do so, which is never the case, it will take more than a few years to catch up.”

Annington is also trying to score points with initiatives like the one in Essen’s Elting district, where it has formed a partnership with the city and other partners to upgrade an entire neighborhood. The project is unlikely to pay off in the short term, but it will certainly be worthwhile in the long run, say company officials.

But the company needs to make good on these promises.


Trading Profits for Renovations-01


For Bernhard von Grünberg, chairman of the German Tenants Association in the western state of North Rhine-Westphalia, much of this is little more than talk. It is an early summer day, and he has just come from a meeting with Annington in Bonn. The tenant advocate, a member of the state parliament for the center-left Social Democratic Party (SPD), is convinced that little has actually been done.

“Now they want to increase their modernization and maintenance efforts, but they also want to make money in the process,” he said. In his view, it would be a real turnaround if Annington were to complete the necessary renovations and repairs in its units in a socially responsible way.

Tobias Scholz of the Dortmund Tenants Association does acknowledge that Annington is investing more money. There is only one catch, however: “In many cases, buildings that require extensive maintenance and repairs are modernized.”

One could split hairs over the use of terms like maintenance or modernization, but there are very real consequences for tenants. Landlords are not allowed to add the costs of maintenance to rents, but modernization is a different story.

Replacing decaying windows is considered maintenance, but if the new windows are more energy-efficient than the old ones, a portion of the work qualifies as modernization. “In many cases, landlords set too low a cost for the maintenance portion, which cannot be billed to tenants,” said Mr. Scholz.

Attorney Wolfgang Hartmann is familiar with these tactics. “After modernizing apartments, Deutsche Annington announced that it was raising rents by up to 25 or 30 percent,” he said.

But because the modernized buildings already had rotten windows, damaged façades and neglected stairwells, the work should actually be treated as maintenance. Annington says it has received 100 complaints. It acknowledged that only 80 of the 190 affected tenants provided their consent.

The company insists that it would have liked to sit down with tenants to discuss things. Mr. Buch bridles at the accusation that the company categorizes too much as modernization and too little as maintenance. “We are convinced that our accounting is correct,” he said, but added: “Of course, there is room for interpretation.”

The numbers in the company’s financial reports show that when spending on maintenance and modernization are combined, the portion attributable to modernization doubled between 2011 and 2014 – to 50 percent. It declined again slightly this year. “Publicly traded companies will always minimize ongoing maintenance. Deutsche Annington will also strive to exploit the modernization apportionment and will tend to post borderline cases as modernization rather than maintenance,” said Stefan Kofner, director of the Trawos Institute for Transformation and Real Estate at the University of Zittau/Görlitz.


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A newly renovated building by Deutsche Annington: After modernization, fights often follow over rent increases. Source: Deutsche Annington


So has the company not actually changed its ways?

There has been some progress when it comes to cooperation, say tenant advocates and attorney Mr. Hartmann. “Deficiencies have been corrected somewhat more quickly in the last two years.” Nevertheless, he added, everything is still taking too long. Mr. Hartmann expects to be back in court with Annington this fall to address its bills for utility costs.

Why do some tenants put up with so much, and why haven’t they just moved to new apartments managed by other landlords? Probably because many would be hard pressed to find anything else. A number of buildings owned by Annington and the companies it has acquired were, and some still are, publicly subsidized, and many residents have little or no income. Tenants currently pay an average of €5.70 per square meter, which is a 2.7-percent increase over last year’s rents.

But they also expect to see improvements in return for rent increases. Anna Schneider, who lives in a major city in western Germany and is unwilling to use her real name, has some very basic requirements: airtight windows, walls without the wallpaper peeling off and window frames that are not rotten. She has been wrangling with Annington for months, but not much has happened so far. “You constantly have to threaten to pay less rent, or else they don’t do anything,” said Ms. Schneider. At least an Annington employee came to her apartment once to make a list of the damage, and the window bars were replaced after that.

Perhaps Ms. Schneider’s account is a reflection of the situation at Annington in general: The company is starting to take some first basic steps.


Stefani Hergert reports on education for Handelsblatt. Reiner Reichel has been working for Handelsblatt since 1995 and specializes on real estate, closed-end fund and system models. To contact the authors: and

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