19 Intangible Assets

in € million

 

Concessions, industrial property rights, licences and similar rights

 

Self-developed software

 

Customer relationships and similar values

 

Goodwill

 

Total

 

 

 

 

 

 

 

 

 

 

 

Cost

 

 

 

 

 

 

 

 

 

 

As of Jan. 1, 2016

 

25.8

 

2.9

 

 

2,714.7

 

2,743.4

Additions due to business combinations

 

0.1

 

 

7.8

 

4.2

 

12.1

Additions

 

9.3

 

2.0

 

4.3

 

 

15.6

Disposals

 

-4.0

 

-0.2

 

 

 

-4.2

As of Dec. 31, 2016

 

31.2

 

4.7

 

12.1

 

2,718.9

 

2,766.9

Accumulated amortization

 

 

 

 

 

 

 

 

 

 

As of Jan. 1, 2016

 

19.3

 

0.1

 

 

 

19.4

Additions due to business combinations

 

0.1

 

 

 

 

0.1

Amortization in reporting year

 

4.4

 

1.5

 

2.4

 

 

8.3

Disposals

 

-4.0

 

 

 

 

-4.0

As of Dec. 31, 2016

 

19.8

 

1.6

 

2.4

 

 

23.8

Carrying amounts

 

 

 

 

 

 

 

 

 

 

As of Dec. 31, 2016

 

11.4

 

3.1

 

9.7

 

2,718.9

 

2,743.1

 

 

 

 

 

 

 

 

 

 

 

Cost

 

 

 

 

 

 

 

 

 

 

As of Jan. 1, 2015

 

9.2

 

7.4

 

15.8

 

106.0

 

138.4

Additions due to business combinations

 

12.0

 

 

 

2,608.7

 

2,620.7

Additions

 

5.2

 

2.9

 

 

 

8.1

Disposals

 

-0.6

 

-7.4

 

-15.8

 

 

-23.8

As of Dec. 31, 2015

 

25.8

 

2.9

 

 

2,714.7

 

2,743.4

Accumulated amortization

 

 

 

 

 

 

 

 

 

 

As of Jan. 1, 2015

 

6.7

 

7.4

 

15.8

 

 

29.9

Additions due to business combinations

 

10.7

 

 

 

 

10.7

Amortization in reporting year

 

2.4

 

0.1

 

 

 

2.5

Disposals

 

-0.5

 

-7.4

 

-15.8

 

 

-23.7

As of Dec. 31, 2015

 

19.3

 

0.1

 

 

 

19.4

Carrying amounts

 

 

 

 

 

 

 

 

 

 

As of Dec. 31, 2015

 

6.5

 

2.8

 

 

2,714.7

 

2,724.0

Goodwill

Goodwill came to € 2,718.9 million as of December 31, 2016. The increase of € 4.2 million is attributable to the acquisition of the IVV Group and to an adjustment to the SÜDEWO acquisition in 2015.

The allocation of goodwill to the regional business areas and to the Extension segment was performed based on the two indicators that reflect the synergy effects expected to be generated as a result of the business combination: “direct planned synergies” and “fair values.”

In the fourth quarter, the mandatory annual impairment test was performed. As part of the impairment test and in accordance with IAS 36.19, first the value in use was calculated based on the medium-term plans, with a planning period of five years, approved by the Management Board and adjusted to reflect portfolio effects. With regard to the regional business areas of the Rental segment, the main drivers behind the results of the five-year plan are the increase in gross and the planned reduction in the . Developments in the Extension segment are characterized primarily by the extension of existing business areas (craftsmen’s organization, multimedia, management of residential property, smart metering, etc.). On the other hand, there is an increase in operating expenses, taking into account the rate of inflation. The development in these values is in line with our past experience of business model development. The cash flows from the last detailed planning year were derived to calculate the perpetual annuity. The plans were drawn up taking into account both factors that can be influenced, and factors that cannot be influenced at all, or can hardly be influenced.

The main parameters for calculating the recoverable amount are the sustainable rate of increase, the weighted average cost of capital (WACC) and payments for and as well as rent increases.

The growth rate was calculated in a regionally specific manner based on in-place rents. The weighted average cost of capital before tax is based on the risk-free interest rate of 0.95% calculated as a three-month average using the Svensson method, a market risk premium of 7.0% and a beta of 0.52. The beta and the equity ratio used are determined on the basis of a peer comparison.

Groups of cash-generating units as of December 31, 2016

in € million

 

North
area

 

East
area

 

South­east area

 

West
area

 

Middle
area

 

South
area

 

Central
area

 

Extension segment

 

Group

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

481.4

 

307.7

 

337.7

 

527.8

 

400.1

 

455.3

 

11.2

 

197.7

 

2,718.9

WACC before tax in %

 

3.8

 

3.8

 

3.9

 

3.9

 

3.9

 

3.9

 

3.8

 

4.1

 

Sustainable rate of increase in %

 

1.0

 

1.0

 

1.0

 

0.8

 

1.1

 

1.1

 

1.0

 

1.0

 

1.0

Groups of cash-generating units as of December 31, 2015

in € million

 

North
area

 

East
area

 

South­east area

 

West
area

 

Middle
area

 

South
area

 

Central
area

 

Extension segment

 

Group

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

481.0

 

307.5

 

337.4

 

527.4

 

399.7

 

455.0

 

11.2

 

195.5

 

2,714.7

WACC before tax in %

 

3.8

 

3.8

 

3.8

 

3.9

 

3.9

 

3.8

 

3.8

 

4.2

 

Sustainable rate of increase in %

 

1.0

 

1.1

 

1.1

 

0.8

 

1.1

 

1.1

 

1.1

 

1.0

 

1.0

The results of the assessment confirm the value of the goodwill from the acquisitions. No need for impairment would arise up to an increase of the weighted average cost of capital (after tax) by 0.4 percentage points. The value of the goodwill is also confirmed in a sensitivity analysis based on realistic changes in the additional key parameters.

Rental Income
Rental income refers to the current gross income for rented units as agreed in the corresponding rent agreements before the deduction of non-transferable ancillary costs.
Vacancy Rate
The vacancy rate is the number of empty units as a percentage of the total units owned by the company. The vacant units are counted at the end of each month.
Maintenance
Maintenance covers the measures that are necessary to ensure that the property can continue to be used as intended over its useful life and that eliminate structural and other defects caused by wear and tear, age and weathering effects.
Modernization Measures
Modernization measures are long-term and sustainable value-enhancing investments in housing and building stocks. Energy-efficient refurbishments generally involve improvements to the building shell and communal areas as well as the heat and electricity supply systems. Typical examples are the installation of heating systems, the renovation of balconies and the retrofitting of prefabricated balconies as well as the implementation of energy-saving projects, such as the installation of double-glazed windows and heat insulation, e.g., facade insulation, insulation of the top story ceilings and basement ceilings. In addition to modernization of the apartment electrics, the refurbishment work upgrades the apartments, typically through the installation of modern and/or handicapped-accessible bathrooms, the installation of new doors and the laying of high-quality and non-slip flooring. Where required, the floor plans are altered to meet changed housing needs.