21 Intangible Assets

in € million

 

Concessions, industrial property rights, licenses and similar rights

 

Self-developed software

 

Customer relationships and non-competition clause

 

Trademark rights

 

Goodwill

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost

 

 

 

 

 

 

 

 

 

 

 

 

 

As of Jan. 1, 2018

 

37.3

 

6.5

 

12.1

 

 

2,950.8

 

3,006.7

 

Additions due to business combinations

 

19.6

 

 

 

66.6

 

906.4

 

992.6

 

Additions

 

17.5

 

1.0

 

 

 

 

18.5

 

Disposals

 

-9.6

 

-0.8

 

-3.6

 

 

 

-14.0

 

Changes in value from currency translation

 

 

 

 

 

3.7

 

3.7

 

Transfers

 

3.5

 

 

 

 

 

3.5

 

As of Dec. 31, 2018

 

68.3

 

6.7

 

8.5

 

66.6

 

3,860.9

 

4,011.0

 

Accumulated amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

As of Jan. 1, 2018

 

23.7

 

3.3

 

5.3

 

 

337.3

 

369.6

 

Additions due to business combinations

 

9.1

 

 

 

 

 

9.1

 

Amortization in reporting year

 

15.7

 

2.4

 

1.1

 

 

 

19.2

 

Impairment

 

 

 

 

 

681.2

 

681.2

 

Disposals

 

-9.3

 

-0.8

 

-3.6

 

 

 

-13.7

 

Transfers

 

2.4

 

 

 

 

 

2.4

 

As of Dec. 31, 2018

 

41.6

 

4.9

 

2.8

 

 

1,018.5

 

1,067.8

 

Carrying amounts

 

 

 

 

 

 

 

 

 

 

 

 

 

As of Dec. 31, 2018

 

26.7

 

1.8

 

5.7

 

66.6

 

2,842.4

 

2,943.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships and similar values

The brand name “BUWOG Group” for the development business was identified within the framework of the purchase price allocation for BUWOG as a material asset with indefinite useful life and recognized at a value of € 66.6 million.

Goodwill

Goodwill came to € 2,842.4 million as of December 31, 2018. Compared with December 31, 2017, goodwill has increased by € 228.9 million. The change is due, first, to an increase resulting from the acquisition of BUWOG in 2018 in the amount of € 713.6 million, the addition from the Victoria Park acquisition and associated currency effects of € 196.5 million in total. Second, the € 3,517.9 million increase in the value of the real estate portfolio in the 2018 fiscal year increased the carrying amount of the groups of cash-generating units (regions) affected by the valuation, which in turn led to impairment losses being recognized on the goodwill allocated to the regions in the amount of € 681.2 million.

The allocation of goodwill to the regional business areas and to the Value-add and Development segments 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 approved 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 4.0% every year, as well as the planned on the level of 2018 at the end of the detailled planning period.

Developments in the Value-add 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 past experiences of business model development. The cash flows from the last detailed planning year were derived to calculate the perpetual annuity.

For the Development segment, which is still being set up, a six-year plan was derived from the five-year plan approved by the Management Board and the Supervisory Board at Group level to reflect a “steady state.” The main drivers of the results in the Development segment are the investment costs, the number of units sold and the sales margin that can be generated.

The growth rate for the CGUs of the rental segment was calculated regionally on the basis of actual rents and limited to 1% for the segment as a whole. A constant growth rate of 1% was assumed for the Value-add and Development segments.

The main parameters for calculating the value in use are the sustainable growth rate, the weighted average cost of capital (WACC) and the expected cash flows.

The weighted average cost of capital before tax is based on the risk-free interest rate calculated as a three-month average using the Svensson method, a market risk premium and a levered beta. The levered beta and the equity ratios used are determined on the basis of a peer comparison. In addition, country-specific cost surcharges were calculated for the Austria business area, the Sweden business area and the Development business area. The main parameters are shown in the following table:

Dec. 31, 2018

 

Rental Germany

 

Rental Austria

 

Rental Sweden

 

Value-add

 

Development

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk-free interest rate in %

 

1.1

 

1.1

 

1.1

 

1.1

 

1.1

 

Market risk premium in %

 

7.0

 

7.0

 

7.0

 

7.0

 

7.0

 

Levered beta

 

0.53

 

0.53

 

0.53

 

0.53

 

0.91

 

Country-specific premium in %

 

 

0.2

 

0.2

 

 

0.1

 

 

 

 

 

 

 

 

 

 

 

 

 

Dec. 31, 2017

 

Rental Germany

 

Rental Austria

 

Rental Sweden

 

Value-add

 

Development

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk-free interest rate in %

 

1.3

 

 

 

1.3

 

 

Market risk premium in %

 

6.8

 

 

 

6.8

 

 

Indebted beta

 

0.54

 

 

 

0.54

 

 

Country-specific premium in %

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Groups of Cash-generating Units

 

 

Segment Rental

 

 

 

 

 

 

in € million

 

North area

 

East area

 

Southeast area

 

West area

 

Middle area

 

South area

 

Central area

 

Austria Business Area

 

Sweden Business Area

 

Segment Value-add

 

Segment Develop­ment

 

Group

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill 2017

 

521.0

 

 

370.0

 

576.0

 

432.3

 

488.3

 

13.8

 

 

 

212.1

 

 

2,613.5

Additions due to business combinations

 

111.8

 

75.3

 

70.6

 

104.8

 

69.0

 

72.5

 

5.4

 

31.6

 

196.6

 

66.4

 

106.1

 

910.1

Disposal due to depreciation

 

-299.3

 

-75.3

 

-5.0

 

 

 

-270.0

 

 

-31.6

 

 

 

 

-681.2

Goodwill 2018

 

333.5

 

 

435.6

 

680.8

 

501.3

 

290.8

 

19.2

 

 

196.6

 

278.5

 

106.1

 

2,842.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

WACC before tax 2018 in %

 

4.5

 

4.5

 

4.6

 

4.6

 

4.6

 

4.5

 

4.5

 

4.5

 

4.7

 

5.1

 

6.6

 

WACC before tax 2017 in %

 

4.5

 

4.5

 

4.5

 

4.6

 

4.5

 

4.5

 

4.5

 

n.a.

 

n.a.

 

4.7

 

n.a.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sustainable rate of increase 2018 in %

 

1.0

 

1.1

 

1.0

 

0.8

 

1.1

 

1.1

 

1.0

 

1.0

 

1.0

 

1.0

 

1.0

 

1.0

Sustainable rate of increase 2017 in %

 

1.0

 

1.1

 

1.0

 

0.8

 

1.0

 

1.1

 

0.9

 

n.a.

 

n.a.

 

1.0

 

n.a.

 

1.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The results of the assessment confirm the value of the goodwill for the areas West, Central, Development, Sweden and the Value-add segment. Any need for impairment of € 681.2 million was calculated for the North, East, Southeast, South and Austria business areas. In these regions, the further increase in property values due to noticeable yield compression resulted in carrying amounts for the relevant group of CGUs that exceed the recoverable amount.

The impairment loss was recognized in the consolidated income statement under “depreciation and amortization.” The value in use for the North area amounts to € 6.4 billion, with a value of € 4.9 billion for the East area, € 3.7 billion for the Southeast area, € 6.1 billion for the South area and € 1.9 billion for the Austria area.

An increase in the cost of capital will result in the following need for impairment:

 

 

Segment Rental

 

 

 

 

 

 

North area

 

Southeast area

 

West area

 

Middle area

 

South area

 

Central area

 

Sweden area

 

Segment Value-add

 

Segment Develop­ment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill 2018 in € million

 

333.5

 

435.6

 

680.8

 

501.3

 

290.8

 

19.2

 

196.6

 

278.5

 

106.1

Amortization in € million based on an increase in WACC by 0.1%

 

259.6

 

155.8

 

 

225.6

 

257.5

 

 

 

 

Inpairment starts with an increase of the WACC in percentage points

 

 

 

0.2

 

 

 

0.6

 

0.3

 

8.4

 

1.6

Full write-off in the event of an increase in the WACC in %

 

0.2

 

0.3

 

0.6

 

0.3

 

0.2

 

0.8

 

0.7

 

20.4

 

2.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Any negative deviation of the values planned for the key assumptions would lead to a further impairment in the North, South and Southeast business areas. If the planned sustainable growth rate were to decline by 0.25 percentage points, the goodwill remaining would be written off entirely in the North, Central and South business areas, while impairment losses of up to € 350 million would be incurred in the Southeast business area.

Rental Income
Rental income refers to the current gross income for rented units as agreed in the corresponding lease agreements before the deduction of non-transferable ancillary costs. The rental income from the Austrian real estate portfolio also includes maintenance and improvement contributions (EVB). The rental income from the Swedish real estate portfolio shows inclusive rents, meaning that the rental amounts include operating and heating 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.