4 Scope of Consolidation and Business Combinations

All in all, and including Vonovia SE, 520 companies (Dec. 31, 2017: 350) – thereof 318 (Dec. 31, 2017: 259) domestic companies and 202 (Dec. 31, 2017: 91) foreign companies – have been included in the consolidated financial statements as of December 31, 2018. In addition, joint activities were performed with two domestic companies (Dec. 31, 2017: none). In addition, four (Dec. 31, 2017: four) domestic companies and two (Dec. 31, 2017: one) foreign companies were included as joint ventures and two (Dec. 31, 2017: none) foreign companies were included as associated companies valued using the equity method.

For all subsidiaries included in the consolidated financial statements, the reporting date is December 31.

The list of Vonovia shareholdings is appended to the Notes to the consolidated financial statements as an integral part thereof.

Companies that have made use of the exemption provision set out in Section 264 (3) of the German Commercial Code (HGB) are marked accordingly in the list of shareholdings.

The changes as of December 31, 2018, compared with the previous year result from the acquisition of the BUWOG Group (128 companies, of which two have joint activities), the Victoria Park Group (71 companies, of which two are associated companies) and 14 further acquisitions, including one joint venture, four newly established companies, 31 mergers, seven accruals, two liquidations and two sales.

Acquisition of BUWOG

In connection with the voluntary public takeover offer that Vonovia SE made on December 18, 2017, to the shareholders of BUWOG AG, Vienna, Austria (BUWOG), a total of 82,844,967 shares had been tendered after the end of the acceptance deadline on March 12, 2018, at a price of € 29.05 per Vonovia share. In addition, 2,988 BUWOG convertible bonds, which account for 99.6% of the total par value of the convertible bonds, were tendered at a price of € 115,753.65 each.

The acquisition date at which Vonovia SE obtained control of the BUWOG Group is March 26, 2018. This was the date on which the offer was settled. This transaction shall be treated as a business combination in accordance with IFRS 3.

The second extended tender phase started in accordance with Section 19 (3) 3 of the Austrian Takeover Act (ÜbG) on March 16, 2018, and ended at 5 p.m. CEST on June 18, 2018. With the conclusion of this second extended tender period, a further 15,281,786 shares were tendered to Vonovia. Furthermore, the 2,988 convertible bonds that were tendered during the first tender period, in addition to ten that were tendered in the second tender period, were converted into 11,904,382 shares. Since the acquisition of shares and the conversion were effected under exactly the same conditions as in the first acceptance deadline and the two actions were related in terms of content and timing, a linked transaction can be assumed. Taking the second acceptance period into account along with the 550,000 shares acquired on the market as of March 26, 2018, Vonovia possessed 89.1% of the share capital of BUWOG at the end of the second extended tender phase.

As of September 30, 2018, Vonovia acquired another 2,091,517 shares on the market at a purchase price which was below the offer price. This transaction is presented as a separate acquisition. Overall, Vonovia thus possessed more than 90.7% of the share capital of BUWOG as of December 31, 2018.

On June 20, 2018, Vonovia requested a squeeze-out at the next Annual General Meeting according to the Austrian Squeeze Out Act (Gesellschafterausschlussgesetz). The Annual General Meeting held on October 2, 2018, in Vienna passed a resolution on the transfer of the shares held by the minority shareholders to the main shareholder, Vonovia SE, in return for a cash settlement of € 29.05 per share. The squeeze-out became effective on November 16, 2018.

The consideration transferred comprises the following:

The allocation of the total purchase price to the acquired assets and liabilities (PPA) of the BUWOG Group as of the date of first-time consolidation is based on the updated quarterly figures of BUWOG as of January 31, 2018, and on the necessary adjustments to the fair values of the assets and liabilities.

The measurement period for the first-time recognition of the merger with BUWOG ended on December 31, 2018.

The assets and liabilities assumed in the course of the business combination had the following fair values as of the date of first-time consolidation:

The goodwill represents synergies from the future integration of the BUWOG Group, in particular by way of the joint administration and management of the German and Austrian residential units, the development of process know-how, the expansion of the value chain and the optimization of cost structures.

Since April 2018, the BUWOG Group has recognized income from property management in the amount of € 242.1 million, as well as an earnings contribution in terms of earnings before fair value adjustments of investment properties, interest, taxes, depreciation and amortization (EBITDA IFRS) of € 186.2 million. If the BUWOG Group had already been fully included in the consolidated Group as of January 1, 2018, it would have contributed to the income from property management in the amount of € 322.7 million and to EBITDA IFRS in the amount of € 204.5 million.

Out of the trade receivables that were acquired, an amount of € 6.1 million is likely to have been uncollectible at the time of acquisition. The gross amount of the acquired trade receivables was € 163.1 million. The net carrying amount, which corresponds to the fair value, was € 157.0 million.

In the 2018 fiscal year, transaction costs related to the acquisition of the BUWOG Group in the amount of € 35.1 million were recognized in other operating expenses affecting net income. € 29.0 million of this amount was recognized in other operating expenses and € 6.1 million in financial expenses.

A total of 89 domestic and 39 foreign companies of the BUWOG Group were newly included in the scope of consolidation as of the date of acquisition.

Acquisition of Victoria Park

In connection with the voluntary public takeover offer that Vonovia SE made on May 3, 2018, via its subsidiary Deutsche Annington Acquisition Holding GmbH (DA Acquisition) to the shareholders of Victoria Park AB (publ), Malmö, Sweden (Victoria Park), a total of 34,056,463 class A shares, 97,962,486 class B shares and 663,172 preference shares had been tendered to Vonovia after the end of the acceptance deadline on June 18, 2018. The offer price for the class A and class B shares was SEK 38.00, and for preference shares SEK 316.00. The settlement of the offer for shares tendered through June 18, 2018, occurred on June 28, 2018. In addition, a further 158,035 class A and 965,494 class B shares had been acquired on the market by June 28, 2018.

Although Vonovia had less than 50% of the voting rights as of June 28, 2018, in accordance with IFRS 10.B41–B43, de facto control must be assumed as of this point in time, since it held a majority of votes present at the Annual General Meeting. This is why June 28, 2018, is considered the date of acquisition on which Vonovia SE obtained control over the Victoria Park Group. This transaction shall be treated as a business combination in accordance with IFRS 3.

On June 18, 2018, DA Acquisition announced that it would extend the offer period until July 3, 2018, at 5 p.m. (CEST) in order to give shareholders who had not accepted the offer the possibility of doing so. A total of 1,649,385 class A shares, 2,542,719 class B shares and 108,891 preference shares were tendered. Since the acquisition of the shares as part of the extended acceptance period was effected under exactly the same conditions as in the first acceptance period and the two aspects were related in terms of content and timing, a linked transaction can be assumed.

Furthermore, call options were granted to DA Acquisition by the shareholders during the original offer period. They allow Vonovia to purchase 10,235,198 class A shares and 14,264,946 class B shares in Victoria Park (“call option shares”) at a fixed price between May 15 and May 29, 2019.

Including the shares acquired by June 28, 2018, the shares tendered during the extended offer period leading up to July 3, 2018, and the call option shares, the stake acquired corresponds to around 66.7% of the share capital and 61.1% of all voting rights in Victoria Park.

On September 5, 2018, Vonovia also acquired the entire interest held by Starwood Capital Group in Victoria Park. This interest, comprised of 27,074,397 class A shares and 32,486,304 class B shares, was held by a company controlled by the Starwood Capital Group. On the basis of the separate agreement reached with the company selling the interest, the acquisition is to be viewed separately from the tender period and the extended tender period and constitutes a separate acquisition transaction.

In addition, a further 103,501 class A and 663,870 class B shares had been acquired on the market by December 31, 2018. As the purchase was at the valid market price in each case and due to the fact that the purchase date fell after June 28, 2018, these additional purchases are also presented as separate acquisitions.

All in all, this means that, including the call options, Vonovia holds 91.4% of the share capital and 93.5% of all voting rights in Victoria Park as of December 31, 2018.

As part of the provisional purchase price allocation using the anticipated acquisition method, the consideration transferred for the business combination comprises the following:

The provisional allocation of the total purchase price to the acquired assets and liabilities (PPA) of the Victoria Park Group as of the date of first-time consolidation is based on the quarterly figures of Victoria Park as of June 30, 2018, and on the adjustments to the fair values of the acquired assets and liabilities that are necessary.

The assets and liabilities assumed in the course of the business combination had the following preliminary fair values as of the date of first-time consolidation:

Goodwill represents benefits from the future cooperation between the Victoria Park Group and Vonovia through the partial transfer of Vonovia’s business strategy, in particular regarding its property and portfolio management strategy for the administration and management of the residential units, the utilization of Vonovia’s modernization know-how to further modernize the portfolio and the Value-add strategy with a focus on expanding the value chain.

Since July 2018, the Victoria Park Group has recognized income from property management in the amount of € 59.5 million, as well as an earnings contribution in terms of earnings before fair value adjustments of investment properties, interest, taxes, depreciation and amortization (EBITDA IFRS) of € 33.7 million. If the Victoria Park Group had already been fully included in the consolidated Group as of January 1, 2018, it would have contributed to the income from property management in the amount of € 117.2 million and to EBITDA IFRS in the amount of € 59.3 million.

Out of the trade receivables that were acquired, an amount of € 0.9 million is likely to have been uncollectible at the time of acquisition. The gross amount of the acquired trade receivables was € 3.3 million. The net carrying amount, which corresponds to the fair value, was € 2.4 million.

In the 2018 fiscal year, transaction costs related to the acquisition of the Victoria Park Group in the amount of € 22.0 million were recognized in other operating expenses affecting net income. € 11.8 million of this amount was recognized in other operating expenses and € 10.2 million in financial expenses.

A total of 71 foreign companies, thereof two associated companies, were newly included in the scope of consolidation as of the date of acquisition. Two of these companies were valued using the equity method.