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, 2017

 

31.2

 

4.7

 

12.1

 

2,718.9

 

2,766.9

Additions due to business combinations

 

8.2

 

 

 

231.9

 

240.1

Additions

 

7.6

 

1.8

 

 

 

9.4

Disposals

 

–9.7

 

 

 

 

-9.7

As of Dec. 31, 2017

 

37.3

 

6.5

 

12.1

 

2,950.8

 

3,006.7

Accumulated amortization

 

 

 

 

 

 

 

 

 

 

As of Jan. 1, 2017

 

19.8

 

1.6

 

2.4

 

 

23.8

Additions due to business combinations

 

4.7

 

 

 

 

4.7

Amortization in reporting year

 

8.9

 

1.7

 

2.9

 

 

13.5

Impairment

 

 

 

 

337.3

 

337.3

Disposals

 

-9.7

 

 

 

 

-9.7

As of Dec. 31, 2017

 

23.7

 

3.3

 

5.3

 

337.3

 

369.6

Carrying amounts

 

 

 

 

 

 

 

 

 

 

As of Dec. 31, 2017

 

13.6

 

3.2

 

6.8

 

2,613.5

 

2,637.1

 

 

 

 

 

 

 

 

 

 

 

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

Goodwill

Goodwill came to € 2,613.5 million as of December 31, 2017. Compared with December 31, 2016, goodwill has dropped by € 105.4 million. The change is due to an increase resulting from the acquisition of conwert in 2017 in the amount of € 231.9 million and the complete write-off of goodwill in the “East business area” of the Rental segment in the amount of € 337.3 million.

The allocation of goodwill to the regional business areas and to the Value-add Business 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 Management Board-approved detailed plan with a planning period of five years. This was derived from the five-year plan at Group level that was adopted by the Management Board and the Supervisory Board. 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 by an average of 4.3% every year, as well as the planned reduction in the to 2.3% at the end of the detailed planning period. Developments in the Value-add Business 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 the 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 value in use 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 1.29% calculated as a three-month average using the Svensson method, a market risk premium of 6.75% and a beta of 0.54. The beta and the equity ratio used are determined on the basis of a peer comparison.

Groups of cash-generating units

in € million

 

North area

 

East area

 

South­east area

 

West area

 

Middle area

 

South area

 

Central area

 

Value-add Business segment

 

Group

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill 2016

 

481.4

 

307.7

 

337.7

 

527.8

 

400.1

 

455.3

 

11.2

 

197.7

 

2,718.9

Additions due to business combinations

 

39.6

 

29.6

 

32.3

 

48.2

 

32.2

 

33.0

 

2.6

 

14.4

 

231.9

Disposal due to depreciation

 

 

-337.3

 

 

 

 

 

 

 

-337.3

Goodwill 2017

 

521.0

 

 

370.0

 

576.0

 

432.3

 

488.3

 

13.8

 

212.1

 

2,613.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

WACC before tax 2017 in %

 

4.5

 

4.5

 

4.5

 

4.6

 

4.5

 

4.5

 

4.5

 

4.7

 

WACC before tax 2016 in %

 

3.8

 

3.8

 

3.9

 

3.9

 

3.9

 

3.9

 

3.8

 

4.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sustainable rate of increase 2017 in %

 

1.0

 

1.1

 

1.0

 

0.8

 

1.0

 

1.1

 

0.9

 

1.0

 

1.0

Sustainable rate of increase 2016 in %

 

1.0

 

1.0

 

1.0

 

0.8

 

1.1

 

1.1

 

1.0

 

1.0

 

1.0

Aside from the “East business area,” the results of the assessment confirm the value of the goodwill from the acquisitions. The need for impairment arose for the East region due to a further increase in property values due in particular in Berlin to further noticeable yield compression in connection with a rise in the cost of capital (WACC) as a result of an increased base interest rate and a lower level of indebtedness of the peer group.

The impairment loss was recognized in the consolidated income statement under “depreciation and amortization.” The value in use for the East area amounted to approx. € 4.5 billion as of the reporting date.

No need for further impairment would arise up to an increase of the average weighted cost of capital (before tax) by 0.26 percentage points. If a similar increase occurs in the 2018 fiscal year as it did in the 2017 fiscal year by 0.65 percentage points, further impairment of € 0.5 billion would arise in the South area, € 0.4 billion in the North area, € 0.2 billion in the Central area and € 0.1 billion in the Southeast area.

Possible changes to the additional key parameters have no impact on the value of goodwill compared with December 31, 2017.

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 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.