13 Investment Properties

in € million

 

 

 

 

 

As of Jan. 1, 2018

 

33,182.8

Additions due to business combinations

 

6,214.7

Additions

 

118.7

Capitalized modernization costs

 

423.2

Grants received

 

-2.5

Transfer from property, plant and equipment

 

0.8

Transfer from assets held for sale

 

24.4

Transfer to assets held for sale

 

-164.7

Disposals

 

-212.6

Net income from fair value adjustments of investment properties

 

1,372.9

Revaluation of assets held for sale

 

34.6

Revaluation from currency effects

 

-0.1

As of June 30, 2018

 

40,992.2

in € million

 

 

 

 

 

As of Jan. 1, 2017

 

26,980.3

Additions due to business combinations

 

2,469.6

Additions

 

307.2

Capitalized modernization costs

 

771.8

Grants received

 

-0.6

Transfer from property, plant and equipment

 

18.0

Transfer to property, plant and equipment

 

-12.9

Transfer from assets held for sale

 

2.5

Transfer to assets held for sale

 

-471.4

Disposals

 

-396.5

Net income from fair value adjustments of investment properties

 

3,434.1

Revaluation of assets held for sale

 

81.1

Revaluation from currency effects

 

-0.4

As of Dec. 31, 2017

 

33,182.8

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 2017.

This information shows that Vonovia values its portfolio using 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 2018, Vonovia decided to perform a new valuation on the 20 German locations that account for the largest shares. This list was extended to the portfolio of conwert in Vienna and six other locations where more significant changes in value were observed. The selection includes the majority of the portfolio, accounting for more than two-thirds of the total fair value.

As for the purposes of the annual financial statements, Vonovia determined the fair values as of June 30, 2018, 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 2017 is applied again, with updates to reflect capitalization.

As far as the portfolio of BUWOG and the non-German real estate of the conwert portfolio are concerned, the result of the valuation of the external appraiser CBRE was applied to the interim financial statements. For the portfolio of Victoria Park, the result of the external appraiser Savills was applied to the interim balance sheet. The fair values of the BUWOG portfolio and the Victoria Park portfolio were also calculated using a DCF procedure. For the valuation of the BUWOG portfolio in Austria, sales strategies for the individual privatization of apartments have been assumed for a subportfolio. The recoverable amounts were recognized in line with the comparative value method and reported appropriate to the period in the DCF model. The conwert properties in Austria were also valued using the 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 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 items investment properties, property, plant and equipment (owner-occupied properties), real estate inventories, contractual assets, and assets held for sale. The fair value of the portfolio comprising residential buildings, commercial properties, garages and parking spaces, project developments as well as undeveloped land and any inheritable building rights granted was € 41,732.3 million as of June 30, 2018 (December 31, 2017: € 33,436.3 million). This corresponds to a net initial yield for the developed land of 3.5%* (December 31, 2017: 3.6%). For Germany, this results in an in-place-rent multiplier of 20.4 for the portfolio (December 31, 2017: 19.7) and a fair value per m2 of € 1,546 (December 31, 2017: € 1,475). For the portfolio in Austria, the in-place-rent multiplier is 22.8 and the fair value per m2 is € 1,299; for Sweden it is 14.0 and the fair value is € 1,462 per m2.

The material valuation parameters for the investment properties (level 3) in the real estate portfolio are as follows as of June 30, 2018, broken down by regional markets:

 

 

Valuation results*

 

Valuation parameters investment properties (Level 3)

June 30, 2018
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 (in € per m2 p.a.)

 

Market rent residential (in € per m2/month)

 

Market rent increase residential

 

Stabilized vacancy rate residential

 

Discount rate total

 

Capitalized interest rate total

*

Fair value of the developed land excluding € 1,205.4 million (previous year: € 331.4 million) in development, undeveloped land, inheritable building rights granted and other, thereof € 676.2 million in investment properties.

**

The valuation methods for the properties in Austria provided only partially comparable valuation parameters.

***

Administrative and maintenance expenses are not shown separately for Sweden.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Berlin

 

6,327.9

 

3.4

 

5.5

 

6,319.1

 

249

 

14.47

 

7.19

 

1.5%

 

1.4%

 

4.3%

 

2.7%

Rhine Main Area

 

3,650.4

 

6.6

 

5.9

 

3,637.8

 

273

 

14.11

 

8.50

 

1.4%

 

1.2%

 

5.0%

 

3.5%

Rhineland

 

3,376.2

 

2.8

 

7.8

 

3,365.7

 

269

 

13.65

 

7.57

 

1.3%

 

2.0%

 

5.1%

 

3.8%

Southern Ruhr Area

 

3,124.4

 

4.2

 

4.0

 

3,116.2

 

266

 

13.03

 

6.32

 

1.2%

 

2.5%

 

5.4%

 

4.3%

Dresden

 

2,980.0

 

0.0

 

5.3

 

2,974.8

 

240

 

14.80

 

6.66

 

1.3%

 

2.1%

 

5.4%

 

4.3%

Hamburg

 

2,347.6

 

0.4

 

3.1

 

2,344.1

 

258

 

14.51

 

7.80

 

1.3%

 

1.4%

 

4.8%

 

3.7%

Munich

 

1,901.6

 

10.2

 

2.5

 

1,888.9

 

261

 

13.90

 

10.81

 

1.5%

 

0.7%

 

4.8%

 

3.3%

Stuttgart

 

1,825.9

 

1.6

 

2.5

 

1,821.8

 

271

 

14.31

 

8.50

 

1.4%

 

1.5%

 

5.1%

 

3.7%

Kiel

 

1,815.6

 

0.0

 

2.9

 

1,812.7

 

259

 

14.69

 

6.64

 

1.1%

 

1.7%

 

5.1%

 

4.1%

Hanover

 

1,510.9

 

1.7

 

1.4

 

1,507.8

 

259

 

14.07

 

6.85

 

1.3%

 

2.0%

 

5.2%

 

3.9%

Northern Ruhr Area

 

1,442.0

 

2.2

 

3.8

 

1,436.0

 

265

 

13.30

 

5.79

 

0.9%

 

3.6%

 

5.8%

 

5.1%

Bremen

 

1,036.1

 

0.0

 

3.6

 

1,032.5

 

263

 

13.37

 

6.14

 

1.4%

 

2.4%

 

4.9%

 

3.6%

Leipzig

 

808.5

 

0.0

 

5.3

 

803.2

 

254

 

14.44

 

6.24

 

1.4%

 

3.7%

 

5.1%

 

3.8%

Westphalia

 

723.2

 

0.0

 

1.1

 

722.1

 

263

 

13.56

 

6.38

 

1.2%

 

1.9%

 

5.3%

 

4.2%

Freiburg

 

554.1

 

0.3

 

1.9

 

551.9

 

268

 

14.44

 

7.72

 

1.4%

 

1.0%

 

4.6%

 

3.2%

Other Strategic Locations

 

2,347.7

 

2.7

 

4.5

 

2,340.5

 

265

 

14.29

 

6.89

 

1.2%

 

2.2%

 

5.4%

 

4.2%

Total Strategic Locations

 

35,772.3

 

36.2

 

61.0

 

35,675.1

 

260

 

14.04

 

7.11

 

1.3%

 

2.0%

 

5.0%

 

3.7%

Non-Strategic Locations

 

687.3

 

111.5

 

0.7

 

575.1

 

273

 

14.21

 

5.93

 

1.0%

 

3.7%

 

5.8%

 

4.9%

Vonovia Germany

 

36,459.6

 

147.6

 

61.7

 

36,250.3

 

260

 

14.04

 

7.08

 

1.3%

 

2.1%

 

5.1%

 

3.7%

Vonovia Austria**

 

2,468.3

 

1.6

 

0.0

 

2,466.7

 

n.a.

 

n.a.

 

5.96

 

n.a.

 

n.a.

 

n.a.

 

n.a.

Vonovia Sweden***

 

1,599.0

 

0.0

 

0.0

 

1,599.0

 

n.a.

 

n.a.

 

8.83

 

2.0%

 

0.7%

 

6.2%

 

4.2%

The inflation rate applied to the DCF procedure is 1.6%. This led to net income from fair value adjustments of investment properties of € 1,372.9 million in the first half of 2018 (2017 fiscal year: € 3,434.1 million). For the Austrian BUWOG portfolio, a sales strategy with an average selling price of € 1,932 per m2 was assumed for 55.0% of the properties.

Explanatory information on the prior-year figures can be found in the 2017 Annual Report of Vonovia SE.

Sensitivity Analyses

The sensitivity analyses performed on Vonovia’s real estate portfolio show the impact of the value drivers susceptible to the market. In particular, those are the market rents and their development, the amount of recognized administrative and expenses, cost increases, the 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 in 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 value as a percentage under varying parameters

June 30, 2018
Regional Market

 

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

 

-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 valuation methods for the properties in Austria provided only partially comparable valuation parameters.

**

Administrative and maintenance expenses are not shown separately for Sweden.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Berlin

 

0.6/-0.6

 

2.0/-2.0

 

5.0/-5.0

 

-2.4/2.3

 

-8.6/10.2

 

1.7/-1.8

 

10.4/-8.6

Rhine Main Area

 

0.5/-0.5

 

1.7/-1.7

 

3.2/-3.4

 

-2.3/2.3

 

-6.4/7.3

 

1.3/-1.7

 

7.6/-6.6

Rhineland

 

0.6/-0.6

 

1.9/-1.9

 

3.6/-3.7

 

-2.3/2.2

 

-6.2/7.0

 

1.8/-1.8

 

7.2/-6.3

Southern Ruhr Area

 

0.9/-0.9

 

2.6/-2.6

 

4.5/-4.6

 

-2.4/2.4

 

-6.0/6.8

 

2.1/-2.1

 

6.3/-5.6

Dresden

 

0.8/-0.8

 

2.4/-2.4

 

4.1/-4.2

 

-2.3/2.3

 

-6.0/6.7

 

2.0/-2.0

 

6.5/-5.8

Hamburg

 

0.6/-0.6

 

1.9/-1.9

 

3.6/-3.7

 

-2.2/2.2

 

-6.5/7.5

 

1.4/-1.7

 

7.8/-6.7

Munich

 

0.4/-0.4

 

1.3/-1.3

 

3.3/-3.5

 

-2.0/2.0

 

-7.0/8.1

 

0.8/-1.5

 

8.9/-7.5

Stuttgart

 

0.5/-0.5

 

1.7/-1.7

 

3.3/-3.4

 

-2.1/2.2

 

-6.3/7.1

 

1.5/-1.6

 

7.4/-6.5

Kiel

 

0.8/-0.8

 

2.2/-2.2

 

2.9/-3.1

 

-2.2/2.2

 

-5.6/6.3

 

1.8/-1.8

 

6.6/-5.9

Hanover

 

0.7/-0.7

 

2.2/-2.2

 

3.9/-4.0

 

-2.4/2.3

 

-6.1/6.9

 

1.9/-1.9

 

7.0/-6.1

Northern Ruhr Area

 

1.1/-1.1

 

3.1/-3.1

 

4.7/-4.8

 

-2.6/2.6

 

-5.5/6.1

 

2.4/-2.4

 

5.3/-4.8

Bremen

 

0.9/-0.9

 

2.6/-2.6

 

5.7/-5.8

 

-2.4/2.3

 

-7.3/8.5

 

2.1/-2.1

 

7.9/-6.8

Leipzig

 

0.8/-0.8

 

2.5/-2.5

 

5.1/-5.2

 

-2.4/2.5

 

-6.8/7.7

 

2.1/-2.1

 

7.3/-6.4

Westphalia

 

0.8/-0.8

 

2.7/-2.7

 

4.5/-4.6

 

-2.4/2.3

 

-6.0/6.8

 

2.0/-2.2

 

6.3/-5.6

Freiburg

 

0.6/-0.6

 

1.9/-1.9

 

4.0/-4.1

 

-2.4/2.3

 

-7.1/8.3

 

1.3/-1.8

 

8.3/-7.1

Other Strategic Locations

 

0.7/-0.7

 

2.2/-2.2

 

3.5/-3.7

 

-2.3/2.3

 

-5.9/6.7

 

1.9/-1.9

 

6.6/-5.9

Total Strategic Locations

 

0.9/-1.0

 

2.8/-2.8

 

3.5/-3.6

 

-2.3/2.2

 

-5.2/5.8

 

1.9/-1.9

 

5.7/-5.1

Non-Strategic Locations

 

0.7/-0.7

 

2.1/-2.1

 

4.0/-4.1

 

-2.3/2.3

 

-6.6/7.6

 

1.7/-1.9

 

7.7/-6.6

Vonovia Germany

 

0.7/-0.7

 

2.1/-2.1

 

4.0/-4.1

 

-2.3/2.3

 

-6.6/7.6

 

1.7/-1.9

 

7.6/-6.6

Vonovia Austria*

 

n.a.

 

n.a.

 

n.a.

 

-0.4/0.4

 

n.a.

 

n.a.

 

n.a.

Vonovia Sweden**

 

n.a.

 

n.a.

 

1.5/-1.5

 

-3.1/3.1

 

-1.4/1.3

 

1.2/-1.9

 

5.4/-4.7

Fair Value
Valuation pursuant to IAS 40 in conjunction with IFRS 13. The estimated value of an asset. The fair value is the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction.
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.
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.