9 Investment Properties

in € million

 

 

 

 

 

As of Jan. 1, 2017

 

26,980.3

Additions due to business combinations

 

2,469.6

Additions

 

26.1

Capitalized modernization costs

 

303.3

Grants received

 

-1.5

Transfer from property, plant and equipment

 

6.1

Transfer from assets held for sale

 

0.6

Transfer to assets held for sale

 

-292.0

Disposals

 

-214.7

Net income from fair value adjustments of investment properties

 

1,164.7

Revaluation of assets held for sale

 

53.2

As of June 30, 2017

 

30,495.7

in € million

 

 

 

 

 

As of Jan. 1, 2016

 

23,431.3

Additions

 

304.8

Capitalized modernization costs

 

518.8

Grants received

 

-1.2

Transfer from property, plant and equipment

 

14.1

Transfer to property, plant and equipment

 

-27.1

Transfer from assets held for sale

 

0.1

Transfer to assets held for sale

 

-230.8

Disposals

 

-317.0

Net income from fair value adjustments of investment properties

 

3,236.1

Revaluation of assets held for sale

 

51.2

As of Dec. 31, 2016

 

26,980.3

Fair Values

Vonovia determines fair value in accordance with the requirements of IAS 40 in conjunction with IFRS 13. We refer to the detailed information set out in the consolidated financial statements for 2016.

This information shows that Vonovia values its portfolio using a method known as the discounted cash flow (DCF) method. Under the DCF methodology, the expected future income and costs of a property are forecast over a period of ten years and discounted to the date of valuation as the net present value. In addition, the terminal value of the property at the end of the ten-year period is determined using the expected stabilized net operating income and again discounted to the date of valuation as the net present value.

Due to the market momentum recognized across Germany in the first half of 2017, Vonovia decided to perform a new valuation on the 20 German locations that account for the largest fair value shares. This list was extended to include Vienna and four other locations that were expected to have seen more significant changes in value. The selection constitutes the major share of the portfolio, accounting for around 2/3 of the total fair value.

As for the purposes of the annual financial statements, Vonovia determined the fair values as of June 30, 2017, in its in-house valuation department on the basis of the methodology described above. The property assets are also assessed by the independent property appraiser CBRE GmbH. The market value resulting from the external review deviates from the internal valuation result by less than 0.1 %. For the part of the portfolio that was not revalued, the valuation from the end of 2016 is applied again, with updates to reflect capitalization.

As far as conwert’s portfolio is concerned, the result of the valuation performed by the external expert CBRE was applied to the interim financial statements. The fair values for the conwert portfolio in Germany were calculated using a DCF methodology that is comparable to the procedure used by Vonovia, as explained above. The properties in Austria were also valued by CBRE using a gross rental method. This involved calculating the value of a property by multiplying the net income (income that can be generated in the long term less property management costs that cannot be passed on, the risk of loss of rent and maintenance measures) by a multiplier. This multiplier depends on the capitalized interest rate and the remaining useful life.

The real estate portfolio of Vonovia is to be found in the balance sheet items investment properties, property, plant and equipment (owner-occupied properties) and assets held for sale. The fair value of the real estate portfolio comprising residential buildings, commercial properties, garages and parking spaces as well as undeveloped land and any inheritable building rights granted was € 30,830.2 million as of June 30, 2017 (Dec. 31, 2016: € 27,115.6 million). This corresponds to a net initial yield of 3.9 %* (Dec. 31, 2016: 4.0 %) for the developed land, an in-place-rent multiplier of 18.5 (Dec. 31, 2016: 17.6) and a fair value per m2 of € 1,341 (Dec. 31, 2016: € 1,264).

The material valuation parameters for the investment properties (level 3) are as follows as of June 30, 2017, broken down by regional markets:

 

 

Valuation results*

 

Valuation parameters investment properties (Level 3)

Jun. 30, 2017
Regional Market

 

Fair Value (in € million)

 

thereof Assets held for sale (in € million)

 

thereof Owner-occupied properties (in € million)

 

thereof Investment properties (in € million)

 

Manage­ment costs residential (€ per residential unit p.a.)

 

Mainte­nance costs residential (per m2 p.a.)

 

Market rent residential (per m2 p.a.)

 

Market rent increase residential

 

Stabilized vacancy rate residential

 

Discount rate

 

Capitalized interest rate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

*

Fair value of the developed land excluding € 156.0 million for other countries, undeveloped land, inheritable building rights granted and other, thereof € 134.4 million investment properties.

**

The gross rental method for the portfolio in Austria uses valuation parameters that are only partially comparable.

Berlin

 

4,624.8

 

16.4

 

7.8

 

4,600.7

 

248

 

13.95

 

6.71

 

1.4 %

 

1.5 %

 

4.5 %

 

3.1 %

Rhine Main Area (Frankfurt, Darmstadt, Wiesbaden)

 

3,196.4

 

15.8

 

4.9

 

3,175.7

 

268

 

14.07

 

8.25

 

1.4 %

 

1.3 %

 

5.4 %

 

4.0 %

Rhineland (Cologne, Düsseldorf, Bonn)

 

3,105.1

 

2.8

 

4.6

 

3,097.6

 

264

 

13.73

 

7.26

 

1.3 %

 

2.1 %

 

5.4 %

 

4.2 %

Dresden

 

2,697.4

 

0.0

 

5.3

 

2,692.0

 

236

 

14.51

 

6.30

 

1.2 %

 

2.2 %

 

5.5 %

 

4.4 %

Southern Ruhr Area (Dortmund, Essen, Bochum)

 

2,678.5

 

5.0

 

4.2

 

2,669.3

 

262

 

13.27

 

5.97

 

1.1 %

 

2.6 %

 

5.7 %

 

4.8 %

Hamburg

 

1,786.6

 

3.8

 

2.7

 

1,780.2

 

255

 

14.32

 

7.49

 

1.2 %

 

1.3 %

 

5.0 %

 

4.0 %

Munich

 

1,691.9

 

9.6

 

2.4

 

1,679.9

 

258

 

13.84

 

10.56

 

1.5 %

 

0.8 %

 

5.1 %

 

3.6 %

Stuttgart

 

1,591.6

 

2.8

 

7.5

 

1,581.3

 

266

 

14.06

 

8.18

 

1.4 %

 

1.6 %

 

5.5 %

 

4.2 %

Northern Ruhr Area (Duisburg, Gelsenkirchen)

 

1,325.9

 

4.2

 

4.1

 

1,317.7

 

262

 

13.30

 

5.56

 

0.9 %

 

3.9 %

 

6.0 %

 

5.4 %

Hanover

 

1,100.1

 

1.9

 

1.3

 

1,096.9

 

255

 

13.77

 

6.41

 

1.3 %

 

2.1 %

 

5.5 %

 

4.3 %

Kiel

 

928.3

 

0.3

 

3.1

 

925.0

 

254

 

14.46

 

6.21

 

1.2 %

 

1.8 %

 

5.5 %

 

4.5 %

Bremen

 

853.7

 

0.0

 

4.1

 

849.6

 

259

 

13.37

 

5.90

 

1.3 %

 

2.6 %

 

5.2 %

 

4.0 %

Leipzig

 

679.6

 

0.1

 

0.5

 

679.0

 

241

 

14.20

 

5.98

 

1.2 %

 

3.8 %

 

5.5 %

 

4.3 %

Westphalia (Münster, Osnabrück)

 

613.4

 

0.2

 

1.1

 

612.1

 

256

 

13.60

 

5.97

 

1.2 %

 

2.3 %

 

5.7 %

 

4.7 %

Freiburg

 

508.4

 

0.5

 

1.7

 

506.1

 

264

 

14.24

 

7.58

 

1.4 %

 

1.1 %

 

4.9 %

 

3.6 %

Other Strategic Locations

 

1,966.9

 

4.1

 

3.2

 

1,959.6

 

264

 

13.59

 

6.68

 

1.2 %

 

2.3 %

 

5.6 %

 

4.4 %

Total Regional Market

 

29,348.6

 

67.3

 

58.5

 

29,222.8

 

256

 

13.84

 

6.79

 

1.3 %

 

2.1 %

 

5.3 %

 

4.1 %

Non-Strategic Locations

 

711.6

 

164.6

 

1.0

 

546.0

 

260

 

13.38

 

5.17

 

0.9 %

 

5.3 %

 

5.9 %

 

5.2 %

Total

 

30,060.2

 

231.9

 

59.5

 

29,768.8

 

257

 

13.82

 

6.72

 

1.2 %

 

2.3 %

 

5.3 %

 

4.1 %

Vienna (Austria)**

 

614.0

 

21.5

 

0.0

 

592.5

 

n.a.

 

n.a.

 

9.40

 

n.a.

 

n.a.

 

n.a.

 

3.5 %

The inflation rate applied to the DCF procedure is 1.5 %. This led overall to net income from fair value adjustments of € 1,164.7 million in the first half of 2017 (2016 fiscal year: € 3,236.1 million).

Explanatory information on the prior-year figures can be found in the 2016 Annual Report of Vonovia SE.

Sensitivity Analyses

The sensitivity analyses performed on Vonovia’s real estate portfolio show the impact of the value drivers influenced by the market. Those influenced in particular are the market rents and their development, the amount of recognized administrative expenses, maintenance expenses, cost increases, vacancy rate and interest rates. The effect of possible fluctuations in these parameters is shown separately for each parameter according to regional market in the following.

Interactions between the parameters are possible but cannot be quantified owing to the complexity of the interrelationships. The “vacancy” and “market rent” parameters, for example, can influence each other. If rising demand for housing is not met by adequate supply developments, this can result in lower vacancy rates and, at the same time, rising market rents. If, however, the rising demand is compensated for by a high vacancy reserve in the location in question, the market rent level does not necessarily change.

Changes in the demand for housing can also impact the risk associated with the expected payment flows, which is then reflected in adjusted amounts recognized for discounting and capitalized interest rates. The effects do not, however, necessarily have to have a favorable impact on each other, for example if the changes in the demand for residential real estate are overshadowed by macroeconomic developments.

In addition, factors other than demand can have an impact on these parameters. Examples include changes in the housing stock, in seller and buyer behavior, political decisions and developments on the capital market.

The table below shows the percentage impact on values in the event of a change in the valuation parameters. The absolute impact on values is calculated by multiplying the percentage impact by the fair value of the investment properties.

 

 

Change in parameters

Jun. 30, 2017

 

Management costs residential

 

Maintenance costs residential

 

cost increase/inflation

 

Market rent residential

 

Market rent increase residential

 

Stabilized vacancy rate residential

 

Discounting and capitalized interest rates

Regional Market

 

-10 % / +10 %

 

-10 % / +10 %

 

-0.5 % / +0.5 %-
points

 

-2.0 % / +2.0 %

 

-0.2 % / +0.2 %-
points

 

-1 % / +1 %-
points

 

-0.25 % / +0.25 %-
points

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

*

The gross rental method for the portfolio in Austria uses valuation parameters that are only partially comparable.

Berlin

 

0.6 / -0.6

 

2.0 / -2.0

 

4.4 / -4.5

 

-2.3 / 2.3

 

-7.8 / 9.1

 

1.6 / -1.7

 

9.1 / -7.7

Rhine Main Area (Frankfurt, Darmstadt, Wiesbaden)

 

0.6 / -0.6

 

1.8 / -1.8

 

3.0 / -3.1

 

-2.2 / 2.2

 

-5.8 / 6.5

 

1.3 / -1.6

 

6.7 / -5.9

Rhineland (Cologne, Düsseldorf, Bonn)

 

0.6 / -0.6

 

2.0 / -2.0

 

3.3 / -3.4

 

-2.2 / 2.3

 

-5.7 / 6.5

 

1.7 / -1.7

 

6.6 / -5.9

Dresden

 

0.8 / -0.8

 

2.6 / -2.6

 

4.3 / -4.4

 

-2.4 / 2.3

 

-5.9 / 6.6

 

2.0 / -2.0

 

6.4 / -5.7

Southern Ruhr Area (Dortmund, Essen, Bochum)

 

1.0 / -1.0

 

2.8 / -2.8

 

4.2 / -4.3

 

-2.4 / 2.4

 

-5.5 / 6.1

 

2.1 / -2.1

 

5.7 / -5.1

Hamburg

 

0.6 / -0.6

 

2.1 / -2.1

 

3.8 / -3.9

 

-2.2 / 2.2

 

-6.2 / 7.0

 

1.4 / -1.8

 

7.1 / -6.3

Munich

 

0.4 / -0.4

 

1.4 / -1.4

 

3.1 / -3.2

 

-2.0 / 2.0

 

-6.5 / 7.4

 

0.8 / -1.5

 

8.0 / -7.0

Stuttgart

 

0.6 / -0.6

 

1.8 / -1.8

 

3.2 / -3.3

 

-2.2 / 2.2

 

-5.8 / 6.5

 

1.6 / -1.6

 

6.7 / -5.9

Northern Ruhr Area (Duisburg, Gelsenkirchen)

 

1.1 / -1.1

 

3.3 / -3.3

 

4.6 / -4.7

 

-2.6 / 2.6

 

-5.2 / 5.8

 

2.3 / -2.3

 

5.0 / -4.6

Hanover

 

0.8 / -0.8

 

2.4 / -2.4

 

4.0 / -4.1

 

-2.3 / 2.3

 

-5.8 / 6.5

 

1.9 / -1.9

 

6.4 / -5.7

Kiel

 

0.9 / -0.9

 

2.7 / -2.7

 

4.3 / -4.4

 

-2.4 / 2.3

 

-5.8 / 6.5

 

2.0 / -2.0

 

6.1 / -5.4

Bremen

 

0.9 / -0.9

 

2.8 / -2.8

 

5.2 / -5.3

 

-2.4 / 2.3

 

-6.5 / 7.4

 

2.0 / -2.1

 

6.9 / -6.1

Leipzig

 

0.8 / -0.7

 

2.1 / -2.1

 

2.2 / -2.5

 

-2.3 / 2.3

 

-5.3 / 5.9

 

1.6 / -1.6

 

6.2 / -5.5

Westphalia (Münster, Osnabrück)

 

0.9 / -0.9

 

3.0 / -3.0

 

4.5 / -4.6

 

-2.3 / 2.3

 

-5.6 / 6.3

 

2.1 / -2.1

 

5.8 / -5.2

Freiburg

 

0.6 / -0.6

 

2.0 / -2.0

 

3.7 / -3.9

 

-2.3 / 2.3

 

-6.7 / 7.7

 

1.4 / -1.7

 

7.6 / -6.7

Other Strategic Locations

 

0.7 / -0.7

 

2.3 / -2.3

 

3.7 / -3.8

 

-2.3 / 2.3

 

-5.7 / 6.4

 

1.8 / -1.9

 

6.2 / -5.5

Total Regional Market

 

0.7 / -0.7

 

2.2 / -2.2

 

3.8 / -3.9

 

-2.3 / 2.3

 

-6.1 / 7.0

 

1.7 / -1.8

 

6.9 / -6.1

Non-Strategic Locations

 

1.2 / -1.2

 

3.2 / -3.3

 

4.3 / -4.4

 

-2.5 / 2.6

 

-5.2 / 5.8

 

2.2 / -2.2

 

5.1 / -4.7

Total

 

0.7 / -0.7

 

2.2 / -2.2

 

3.8 / -4.0

 

-2.3 / 2.3

 

-6.1 / 6.9

 

1.7 / -1.8

 

6.9 / -6.0

Vienna (Austria)*

 

n.a.

 

n.a.

 

n.a.

 

-1.6 / 1.4

 

n.a.

 

n.a.

 

7.0 / -6.3