December 6, 2018 / 7:06 AM / 9 days ago

UPDATE 1-Vonovia to cut back on modernisation projects as core profit jumps 13 pct

* 9-month FFO 1 rises 13 pct to 778 mln EUR

* Affirms 2018 guidance for FFO 1 of 1.05-1.07 bln EUR

* Forecasts 2019 FFO 1 of 1.14-1.19 bln EUR

* Proposes dividend of 1.44 EUR per share, up 0.12 EUR (Recasts, adds details on modernisation projects, quote)

By Caroline Copley

BERLIN, Dec 6 (Reuters) - Vonovia, Germany’s biggest residential property company, bowed to pressure from tenants and said it will curtail modernisation projects that lead to steep rent rises as it posted a 13 percent jump in core profit in the first nine months.

Affordable housing has become a hot political topic in Germany this year and Vonovia has faced a backlash from tenants who say rents have risen sharply following modernisation projects.

In response, Vonovia said on Thursday that it has decided not to carry out any costly modernisation projects to improve energy-efficiency planned for 2019/2020 that would lead to a rent rise of more than 2 euros ($2.27) per square metre.

This represents a 40 percent cut in its investment for energy-efficient refurbishment, Vonovia said.

“We have ... found that there is a lack of acceptance for extensive energy-efficient modernisation measures and that many tenants are not in a position to bear the costs of the associated rent increases,” Chief Executive Rolf Buch said.

Vonovia, which owns around 400,000 flats in Germany, Austria and Sweden, said rents rose by 1.5 percent in the first nine months due to market-related factors, while modernisation pushed up rents by a further 2.5 percent.

For decades, Germans enjoyed comparably cheap housing. But ultra-low interest rates, foreign investment and a failure to build enough flats to keep pace with an influx of people to big cities have pushed up house prices and rents in recent years.

In April, some 10,000 people took to the streets of Berlin to protest about rising living costs.

Vonovia said it also planned to increase the number of new apartments it was building to 2,900 in 2019 to try and tackle a shortage of housing in cities.

The company reported core profit (funds from operations 1) of 778 million euros ($881 million) at the end of September, boosted by its acquisition of Sweden’s Victoria Park and strong demand for housing in cities.

It confirmed its guidance for 2018 core profit of 1.05-1.07 billion euros and said it expects core profit, including its acquisition of Austria’s Buwog, to rise to between 1.14 and 1.19 billion euros in 2019.

Vonovia plans to propose a dividend of 1.44 euros per share at its annual general meeting in May, an increase of 0.12 euros.

($1 = 0.8825 euros)

$1 = 0.8827 euros Reporting by Caroline Copley; editing by Thomas Seythal and Stephen Coates

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