23 Investment Properties

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in € million

As of Jan. 1, 2018		33,182.8
Additions due to business combinations		6,214.7
Additions		365.8
Capitalized modernization costs		1,006.0
Grants received		-2.6
Transfer from property, plant and equipment		10.7
Transfer to property, plant and equipment		-6.5
Transfer from assets held for sale		24.4
Transfer to assets held for sale		-323.9
Disposals		-597.6
Disposals due to changes in scope of consolidation		-2.3
Net income from fair value adjustments of investment properties		3,517.9
Revaluation of assets held for sale		68.5
Revaluation from currency effects		33.0
As of Dec. 31, 2018		43,490.9

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

The additions in 2018 include € 86.9 million (Dec.31, 2017: € 65.7 million) in production costs for new construction activities.

In the amount of € 71.0 million (Dec. 31, 2017: € 59.9 million), the investment properties contain leased assets that are defined as finance leases according to IAS 17 and are treated as if they were the Group’s economic property. These relate to the Spree-Bellevue (Spree-Schlange) property in Berlin. The property has been leased from DB Immobilienfonds 11 Spree-Schlange von Quistorp KG until 2044. The lease agreement includes an obligation to pay compensation for loss of use as agreed by contract. At the end of 2028, each fund subscriber is entitled to return his share to the property fund at a fixed redemption price. If all of the fund investors make use of this option, Vonovia is obliged to acquire the property at a fixed purchase price after deduction of borrowings. If more than 75% of the shares are returned in this way, Vonovia has a call option for the purchase of all fund shares. Details of minimum lease payments are given under note [37] Non-derivative Financial Liabilities.

For the investment properties encumbered with land charges in favor of various lenders, see note [35] Non-derivative Financial Liabilities.

Directly Attributable Operating Expenses

Rental income from investment properties amounted to € 1,897.8 million during the fiscal year (2017: € 1,672.1 million). Operating expenses directly relating to these properties amounted to € 195.1 million during the fiscal year (2017: € 200.8 million). These include expenses for maintenance, ancillary costs that cannot be passed on to the tenants, personnel expenses from the caretaker and craftsmen’s organizations, and income from the capitalized internal expenses. The capitalized internal expenses relate to the work performed by the Group’s own craftsmen’s organization and the management costs for major modernization projects.

Long-term Leases

Vonovia as a lessor has concluded long-term leases on commercial properties. These are non-cancelable operating leases. The minimum future lease receipts from these leases are due as follows:

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in € million	Dec. 31, 2017	Dec. 31, 2018

Total minimum lease payments	82.2	82.1
Due within 1 year	26.0	25.8
Due in 1 to 5 years	50.7	50.7
Due after 5 years	5.5	5.6

Fair Values

The value of the entire portfolio of residential properties was determined on the basis of the International Valuation Standard Committee’s definition of market value. Portfolio premiums and discounts, which can be observed when portfolios are sold in market transactions, were not included. Nor were time restrictions in the marketing of individual properties. Vonovia determines fair value in accordance with the requirements of IAS 40 in conjunction with IFRS 13.

Vonovia, in principle, measures its portfolio on the basis of the discounted cash flow (DCF) procedure. 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. The income mainly comprises expected rental income (current in-place rent, market rents as well as their development) taking vacancy losses into account. These are derived for each location from the latest rent indices and rent tables (empirica and IVD), as well as from studies on spatial prosperity (Federal Institute for Research on Building, Urban Affairs and Spatial Development (BBSR), Prognos, empirica, Bertelsmannstiftung, etc.).

On the cost side, maintenance expenses and administrative costs are taken into account in accordance with the II. Berechnungsverordnung and inflated in the reporting period (II. BV; German Regulation on Calculations for Residential Buildings in accordance with the Second Housing Construction Law, stipulating how economic viability calculations for accommodation are to be performed). Further cost items are, for example, ground rents, non-allocable ancillary costs and rent losses. Modernization measures carried out in the housing stocks are factored in by decreasing the current maintenance expenses and adjusting market rents.

On this basis, the forecast cash flows are calculated on an annual basis 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. The discount rate applied reflects the market situation, location, type of property, special property features (e.g. inheritable building rights, rent restrictions), the yield expectations of a potential investor and the risk associated with the forecast future cash flows of the property. The present value calculated in this way is reconciled to the market value by deducting standard market transaction costs, such as real estate transfer taxes, agent and notary costs.

The commercial properties in the portfolio are mainly small commercial units for the supply of the local residential area. Different cost approaches were used to those for residential properties, and discount rates were adjusted to reflect the market specifics.

The valuation is, in principle, performed on the basis of homogeneous valuation units. These meet the criteria of economically cohesive and comparable land and buildings. They include:

Geographical location (identity of the microlocation and geographical proximity)
Comparable types of use, building class, construction year class and condition of property
Same property features such as rent restrictions, inheritable building rights and full or part ownership

The Vonovia portfolio also contains project developments, development areas and land areas with inheritable building rights. Project developments are measured at the capitalized construction costs until the construction work is complete. If the project is then to be managed within Vonovia’s own portfolio, it is measured at fair value using the DCF procedure described above. Development areas are valued using a comparable method on the basis of the local standard land value evaluated. Deductions are taken into account in particular for the readiness for construction and potential use as well as for likelihood of development and the development situation. Inheritable building rights granted are valued in the same way as the property portfolio using a DCF method. The input parameters here are the duration and amount of ground rent and the value of the land.

Vonovia determined the fair values of Vonovia’s real estate portfolio in Germany (excl. the BUWOG German subportfolios) as of December 31, 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 contractually fixed remuneration for the valuation report is not linked to the valuation results. The market value resulting from the external review deviates from the internal valuation result by less than 0.1%.

As far as the portfolio of BUWOG and the portfolio of non-German real estate of conwert is concerned, the result of the valuation of the external appraiser CBRE GmbH was applied. For the portfolio of Victoria Park, the result of the external appraiser Savills Sweden AB in cooperation with Malmöbryggan Fastighetsekonomi AB was applied. The fair values of the BUWOG, conwert and Victoria Park portfolio were also calculated using a DCF procedure that is comparable to the procedure used by Vonovia explained above. In addition, the valuation of the BUWOG portfolio in Austria was based on the assumption of sales strategies for the recurring sales of apartments for a subportfolio. Attainable income was recognized in line with the calculation procedure and reported in the appropriate period in the DCF model. In order to take the sales potential into account, the DCF detailed period was extended to 80 years for the Austrian properties and no terminal value was used.

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 € 44,239.9 million as of December 31, 2018 (Dec. 31, 2017: € 33,436.3 million). This corresponds to a net initial yield for the developed land of 3.4%* (December 31, 2017: 3.6%). For Germany, this results in an in-place-rent multiplier of 21.5 for the portfolio (Dec. 31, 2017: 19.7) and a fair value per m² of € 1,677 (Dec. 31, 2017: € 1,475). For the portfolio in Austria, the in-place-rent multiplier and fair value is 23.6 and € 1,346 per m²; for Sweden it is 14.6 and € 1,563 per m².

* Overall portfolio including Austria and Sweden.

The material valuation parameters for the investment properties (level 3) in the real estate portfolio are as follows as of December 31, 2018, broken down by regional markets:

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Valuation results*

Valuation parameters investment properties (Level 3)

Dec. 31, 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 total residential (€ per m²p.a.)

Market rent residential (€ per m² per month)

Market rent increase residential

Stabilized vacancy rate residential

Discount rate total

Capitalized interest rate total

*	Fair value of the developed land excluding € 1,356.8 million in development, undeveloped land, inheritable building rights granted and other, thereof € 760.4 million in investment properties.
**	The valuation methods for the properties in Austria and Sweden provided only partially comparable valuation parameters. Administrative and maintenance expenses are not shown separately.

Berlin

6,535.9

2.5

5.4

6,527.9

251

14.29

7.38

1.8%

1.3%

4.4%

2.7%

Rhine Main Area

3,949.6

20.9

6.3

3,922.4

274

14.20

8.81

1.8%

1.2%

5.1%

3.5%

Rhineland

3,424.5

2.8

7.9

3,413.8

271

13.81

7.68

1.7%

2.0%

5.3%

3.8%

Southern Ruhr Area

3,354.0

5.4

4.2

3,344.3

267

12.78

6.42

1.5%

2.5%

5.4%

4.1%

Dresden

3,104.1

0.0

5.5

3,098.6

239

14.36

6.73

1.7%

2.0%

5.6%

4.2%

Hamburg

2,456.1

0.3

3.0

2,452.8

259

14.50

8.03

1.6%

1.4%

5.0%

3.6%

Munich

2,050.6

9.8

3.1

2,037.7

262

13.88

10.66

1.8%

0.6%

4.8%

3.1%

Stuttgart

1,935.6

4.8

1.8

1,929.0

272

14.41

8.73

1.8%

1.3%

5.2%

3.5%

Kiel

1,909.9

0.0

2.5

1,907.4

259

14.62

6.80

1.6%

1.7%

5.2%

3.9%

Hanover

1,622.7

0.4

1.8

1,620.5

260

14.14

7.03

1.7%

2.0%

5.4%

3.9%

Northern Ruhr Area

1,566.8

12.1

4.5

1,550.2

269

13.33

6.06

1.2%

3.4%

5.7%

4.8%

Bremen

1,071.2

0.0

2.6

1,068.6

264

13.25

6.33

1.8%

2.1%

5.2%

3.6%

Leipzig

867.6

0.1

1.0

866.5

255

14.65

6.33

1.7%

3.6%

5.3%

3.8%

Westphalia

783.2

0.0

1.1

782.1

264

13.41

6.65

1.5%

1.8%

5.5%

4.2%

Freiburg

602.4

0.2

2.0

600.2

270

14.86

7.96

1.7%

0.9%

4.8%

3.2%

Other strategic Locations

2,604.6

6.1

3.9

2,594.7

268

14.46

7.20

1.6%

2.3%

5.4%

4.0%

Total strategic locations

37,838.9

65.3

56.9

37,716.7

262

13.98

7.29

1.7%

1.9%

5.2%

3.6%

Non-strategic Locations

789.5

29.0

1.4

759.2

259

14.50

6.90

1.7%

2.8%

5.5%

3.9%

Vonovia Germany

38,628.4

94.3

58.2

38,475.8

262

13.99

7.28

1.7%

2.0%

5.2%

3.6%

Vonovia Austria**

2,517.0

0.0

2,517.0

n.a.

5.87

0.9%

n.a.

5.2%

n.a.

Vonovia Sweden**

1,737.7

0.0

1,737.7

n.a.

9.20

2.0%

0.7%

6.1%

4.2%

(XLS:) Download

Valuation results*

Valuation parameters investment properties (Level 3)

Dec. 31, 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 total residential (€ per m²p.a.)

Market rent residential (€ per m² per month)

Market rent increase residential

Stabilized vacancy rate residential

Discount rate total

Capitalized interest rate total

*	Fair value of the developed land excluding € 331.4 million in development, undeveloped land, inheritable building rights granted, assets under construction and other, thereof € 255.9 million in investment properties.
**	The gross rental method for the portfolio in Austria uses valuation parameters that are only partially comparable.

Berlin

5,181.9

12.6

7.0

5,162.3

251

14.02

6.98

1.5%

1.4%

4.3%

2.9%

Rhine Main Area

3,525.1

3.2

5.7

3,516.2

271

14.05

8.43

1.4%

1.3%

5.1%

3.7%

Rhineland

3,240.3

2.2

7.6

3,230.5

267

13.58

7.52

1.3%

2.0%

5.3%

4.0%

Southern Ruhr Area

2,884.2

2.8

3.7

2,877.7

263

12.96

6.18

1.1%

2.6%

5.5%

4.5%

Dresden

2,875.2

0.0

5.1

2,870.1

236

14.59

6.47

1.3%

2.1%

5.4%

4.3%

Hamburg

1,940.1

2.5

2.9

1,934.7

257

14.22

7.76

1.3%

4.9%

3.8%

Munich

1,820.2

6.6

2.4

1,811.2

258

13.79

10.69

1.5%

0.6%

4.9%

3.4%

Stuttgart

1,742.0

1.7

2.5

1,737.8

269

14.21

8.41

1.4%

1.5%

5.2%

3.8%

Northern Ruhr Area

1,417.5

2.3

3.8

1,411.5

266

13.31

5.79

0.9%

3.6%

5.8%

5.1%

Hanover

1,297.5

1.1

1.3

1,295.1

256

13.89

6.70

1.3%

1.9%

5.3%

4.0%

Kiel

992.3

4.5

2.8

985.1

255

14.39

6.37

1.2%

1.7%

5.3%

4.3%

Bremen

913.9

0.0

3.5

910.3

259

13.28

6.09

1.3%

2.4%

5.1%

3.9%

Leipzig

763.3

0.0

5.1

758.2

252

14.34

6.16

1.4%

4.0%

5.3%

4.0%

Westphalia

667.0

0.0

1.0

666.0

259

13.44

6.17

1.2%

2.0%

5.5%

4.4%

Freiburg

545.0

0.2

1.9

542.9

266

14.36

7.72

1.4%

1.0%

4.8%

3.4%

Other strategic Locations

2,102.8

4.3

4.5

2,094.0

267

13.82

6.96

1.2%

2.1%

5.3%

4.1%

Total strategic locations

31,908.2

44.0

60.8

31,803.5

259

13.82

7.01

1.3%

2.0%

5.2%

3.8%

Non-strategic Locations

645.1

68.9

1.0

575.2

269

13.43

5.51

1.0%

5.6%

5.7%

5.0%

Vonovia Germany

32,553.3

112.9

61.7

32,378.6

259

13.81

6.96

1.3%

2.1%

5.2%

3.9%

Vonovia Austria**

551.6

3.3

0.0

548.3

n.a.

9.15

n.a.

3.3%

The inflation rate applied to the DCF procedure is 1.6%. Net income from the valuation of investment properties amounted to € 3,517.9 million in the 2018 fiscal year (Dec. 31, 2017: € 3,434.1 million). For the Austrian portfolio, a sales strategy with an average selling price of € 1,953 per m² was assumed for 49.4% of the properties.

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 and maintenance 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, then 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, then 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.

(XLS:) Download

Change in value as a percentage under varying parameters

Dec. 31, 2018

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 total

Regional Market

-10%/+10%

-0.5%/+0.5% points

-2.0%/+2.0%

-0.2%/+0.2% points

-1%/+1% point

-0.25%/+0.25% points

*	The valuation methods for the portfolio in Austria and Sweden use valuation parameters that are only partially comparable. Administrative and maintenance expenses are not shown separately.

Berlin

0.5/-0.5

1.7/-1.7

4.7/-4.8

-2.3/2.3

-8.7/10.4

1.7/-1.7

10.6/-8.8

Rhine Main Area

0.5/-0.5

1.5/-1.5

2.9/-3.0

-2.3/2.3

-6.4/7.3

1.2/-1.6

7.7/-6.7

Rhineland

0.5/-0.5

1.8/-1.8

3.4/-3.6

-2.3/2.3

-6.3/7.1

1.7/-1.8

7.3/-6.4

Southern Ruhr Area

0.8/-0.8

2.4/-2.3

4.4/-4.5

-2.4/2.5

-6.4/7.2

2.1/-2.1

6.8/-6.0

Dresden

0.7/-0.7

2.1/-2.1

3.9/-4.0

-2.5/2.5

-6.1/6.9

1.9/-1.9

6.8/-6.0

Hamburg

0.6/-0.6

1.8/-1.8

3.4/-3.5

-2.1/2.1

-6.6/7.6

1.3/-1.7

8.0/-6.9

Munich

0.4/-0.4

1.2/-1.2

3.4/-3.5

-2.1/2.1

-7.4/8.7

0.8/-1.5

9.5/-8.0

Stuttgart

0.5/-0.5

1.5/-1.5

3.0/-3.2

-2.2/2.2

-6.4/7.3

1.4/-1.6

7.6/-6.6

Kiel

0.8/-0.8

2.1/-2.1

2.7/-2.9

-2.1/2.0

-5.8/6.6

1.8/-1.8

6.9/-6.1

Hanover

0.6/-0.6

2.0/-2.0

3.5/-3.7

-2.3/2.2

-6.2/7.0

1.8/-1.8

7.1/-6.3

Northern Ruhr Area

1.0/-1.0

2.8/-2.8

4.4/-4.6

-2.6/2.6

-5.7/6.3

2.3/-2.3

5.6/-5.1

Bremen

0.8/-0.7

2.2/-2.2

4.9/-5.0

-2.3/2.3

-6.9/8.0

1.9/-1.9

7.7/-6.6

Leipzig

0.7/-0.7

2.3/-2.3

4.8/-4.9

-2.5/2.5

-6.8/7.8

2.0/-2.0

7.5/-6.5

Westphalia

0.7/-0.7

2.4/-2.4

4.0/-4.1

-2.3/2.3

-6.0/6.8

1.9/-2.0

6.5/-5.8

Freiburg

0.5/-0.5

1.8/-1.7

3.7/-3.8

-2.3/2.3

-7.2/8.5

1.3/-1.7

8.6/-7.3

Other strategic Locations

0.6/-0.7

2.0/-2.0

3.3/-3.4

-2.2/2.2

-6.0/6.8

1.7/-1.8

6.9/-6.0

Total strategic Locations

0.6/-0.6

2.1/-2.0

3.0/-3.1

-2.2/2.4

-6.6/7.7

2.1/-1.8

8.0/-7.0

Non-strategic Locations

0.6/-0.6

1.9/-1.9

3.8/-3.9

-2.3/2.3

-6.8/7.8

1.7/-1.8

7.9/-6.8

Vonovia Germany

0.6/-0.6

1.9/-1.9

3.8/-3.9

-2.3/2.3

-6.8/7.8

1.7/-1.8

7.9/-6.8

Vonovia Austria*

n.a.

-0.1/0.1

n.a.

4.2/-3.8

Vonovia Sweden*

n.a.

1.5/-1.5

-3.0/3.0

-1.3/1.3

1.2/-1.7

5.3/-4.7

(XLS:) Download

Change in value as a percentage under varying parameters

Dec. 31, 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 total

Regional Market

-10%/+10%

-0.5%/+0.5% points

-2.0%/+2.0%

-0.2%/+0.2% points

-1%/+1% point

-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

2.1/-2.0

5.3/-5.4

-2.4/2.4

-8.5/10.1

1.9/-1.9

10.0/-8.3

Rhine Main Area

0.6/-0.5

1.7/-1.7

3.2/-3.3

-2.2/2.3

-6.2/7.1

1.3/-1.7

7.4/-6.4

Rhineland

0.6/-0.6

1.9/-1.9

3.5/-3.6

-2.2/2.3

-6.0/6.8

1.8/-1.8

6.9/-6.1

Southern Ruhr Area

0.9/-0.9

2.6/-2.6

4.4/-4.5

-2.4/2.4

-5.8/6.5

2.1/-2.2

6.0/-5.4

Dresden

0.8/-0.8

2.4/-2.4

4.2/-4.3

-2.3/2.3

-6.0/6.7

2.0/-2.0

6.5/-5.8

Hamburg

0.6/-0.6

2.0/-2.0

3.9/-4.0

-2.2/2.2

-6.5/7.5

1.4/-1.8

7.6/-6.7

Munich

0.4/-0.4

1.3/-1.3

3.3/-3.4

-2.0/2.0

-6.8/7.9

0.8/-1.6

8.6/-7.4

Stuttgart

0.5/-0.5

1.7/-1.7

3.3/-3.4

-2.2/2.2

-6.1/6.9

1.6/-1.7

7.1/-6.2

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

Hanover

0.7/-0.7

2.3/-2.3

4.1/-4.2

-2.3/2.3

-6.1/6.9

1.9/-1.9

6.8/-6.0

Kiel

0.9/-0.9

2.6/-2.6

4.4/-4.5

-2.4/2.4

-6.1/6.9

2.1/-2.0

6.4/-5.7

Bremen

0.9/-0.9

2.7/-2.7

5.4/-5.5

-2.3/2.3

-6.7/7.8

2.1/-2.1

7.2/-6.3

Leipzig

0.8/-0.8

2.5/-2.5

5.0/-5.0

-2.5/2.5

-6.5/7.5

2.1/-2.1

7.0/-6.1

Westphalia

0.9/-0.9

2.8/-2.8

4.6/-4.7

-2.4/2.3

-6.0/6.7

2.1/-2.2

6.2/-5.5

Freiburg

0.6/-0.6

1.9/-1.9

3.9/-4.0

-2.4/2.3

-7.1/8.1

1.4/-1.8

8.1/-7.0

Other strategic locations

0.7/-0.7

2.2/-2.2

3.8/-4.0

-2.3/2.4

-6.0/6.9

1.9/-1.9

6.6/-5.9

Total strategic locations

0.7/-0.7

2.2/-2.1

4.2/-4.3

-2.3/2.3

-6.5/7.5

1.8/-1.9

7.4/-6.4

Non-strategic locations

1.1/-1.1

3.4/-3.4

5.5/-5.5

-2.6/2.6

-5.9/6.6

2.5/-2.5

5.7/-5.1

Vonovia Germany

0.7/-0.7

2.2/-2.2

4.2/-4.3

-2.3/2.3

-6.5/7.5

1.8/-1.9

7.4/-6.4

Vonovia Austria*

n.a.

-1,6/1,6

n.a.

7,3/-6,7

Contractual Obligations

In connection with major acquisitions, Vonovia entered into contractual obligations or assumed such obligations indirectly via acquired companies, among other things in the form of Social Charters, which could limit its ability to freely sell parts of its portfolio, increase rents or terminate existing rent agreements for certain units and which, in the event of a breach, could give rise to substantial contractual penalties in some cases. Moreover, when acquiring and financing some of the properties in the portfolio, Vonovia also entered into an obligation to spend a certain average amount per square meter on maintenance and improvements.

After a certain period of time, these obligations often cease to apply either in full or in part. As of December 31, 2018, around 133,000 units in Vonovia’s portfolio were subject to one or several contractual restrictions or other obligations.

Sale restrictions: As of December 31, 2018, around 62,000 units were subject to sale restrictions (excl. occupancy rights). Around 18,000 of these units cannot be freely sold before a certain date. Sale restrictions like these include a full or partial ban on the sale of units and provisions requiring the consent of certain representatives of the original seller prior to sale.
Preemptive rights on preferential terms: Around 7,000 units from the “Recurring Sales” subportfolio can only be sold if the tenants are offered preemptive rights on preferential terms. This means that Vonovia is obliged to offer these tenants the units at a price that is up to 15% below the price that could be achieved by selling the units in question to third parties.
Restrictions on the termination of rent agreements: Around 97,000 units are affected by restrictions on the termination of rent agreements. These restrictions include notice to vacate for personal use and notice to vacate for appropriate commercial utilization. In some cases, units are covered by a lifelong ban on the termination of rent agreements.
Expenses for minimum maintenance and restrictions on maintenance and modernization measures: Due to the expiry of minimum maintenance obligations in several portfolios, the number of residential units affected by minimum maintenance obligations has fallen to around 54,000. As several minimum maintenance obligations in varying amounts no longer apply, the weighted average of the annual necessary spending on maintenance and modernization has changed to € 15.94 per m². Furthermore, around 53,000 units are affected by restrictions relating to modernization and maintenance measures, which are designed to prevent changes in socio-economic tenant composition (i.e., to limit luxury modernization). Some of the restrictions to prevent luxury modernization have been agreed on a permanent basis.
Restrictions on rent increases: Restrictions on rent increases (including provisions stating that “luxury modernization” measures are subject to approval) affect around 60,000 units. These restrictions could prevent Vonovia from realizing the rent that could potentially be generated from the units in question.

In many cases, in the event that all or part of a portfolio is transferred or individual units are sold, the aforementioned obligations are to be assumed by the buyers, who are in turn subject to the obligation to pass them on to any future buyers.

Under structured financing programs, Vonovia is subject to fundamental restrictions on the use of excess property disposal proceeds, such restrictions being particularly in the form of mandatory minimum capital repayments. Excess cash from property management is also restricted to a certain extent.

Due to their structure and content, the aforementioned contractual obligations have no significant effect on the valuation of the investment properties.

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.

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.

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.

Fair Value

Recurring Sales

The Recurring Sales segment (formerly part of the “Sales” segment) includes the regular and sustainable disposals of individual condominiums from our portfolio. It does not include the sale of entire buildings or land (Non-core disposals). These properties are only sold as and when the right opportunities present themselves, meaning that the sales do not form part of our operating business within the narrower sense of the term. Therefore, these sales will be reported under “Other” in our segment reporting.

Maintenance

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.