Annual Report 2019

23 Segment Reporting

Vonovia is an integrated residential real estate company with operations across Europe. The company’s strategy is focused on sustainably increasing the value of the company. This is achieved by managing the company’s own portfolio with a view to enhancing its value, investing in existing residential properties in order to create value, building new residential buildings and selling individual apartments, as well as by engaging in active portfolio management and offering property-related services. For the purposes of managing the company, we make a distinction between four segments: Rental, Value-add, Recurring Sales and Development. We also report the Other segment, which is not relevant from a corporate management perspective, in our segment reporting. This includes the disposal, only as and when the right opportunities present themselves, of entire buildings or land (Non-core Disposals) that are likely to have below-average development potential in terms of rent growth in the medium term and are located in areas that can be described as peripheral compared with Vonovia’s overall portfolio and in view of future acquisitions.

The Rental segment combines all of the business activities that are aimed at the value-enhancing management of our own residential real estate. It includes our property management activities in Germany, Austria and Sweden. The consolidation of our property management activities in Germany, Austria and Sweden to form one single reporting segment is based on the similarities that we see in the property management business in these three countries. This applies to the way in which services are provided and the individual service processes that form part of the property management business, as well as to the customers in the residential rental market and the type of customer acquisition used. Overall, the residential rental market in all three countries is characterized by a shortage of housing and is regulated by statutory requirements, resulting in return expectations that are similar in the long term.

The Value-add segment bundles all of the housing-related services that we have expanded our core rental business to include. These services include both the maintenance and modernization work on our residential properties and services that are closely related to the rental business. We allocate the activities relating to the craftsmen’s and residential environment organization, the condominium administration business, the cable TV business, metering services, energy supplies and our insurance services to the Value-add segment. Energy supply is a new service that we have been offering our tenants since 2018.

The Recurring Sales segment includes the regular and sustainable disposals of individual condominiums and single-family houses from our portfolio. The consolidation of our sales activities in Germany and Austria to form one single reporting segment is based on the similarities that we see in the property management business in these two countries. 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 the Recurring Sales segment. We report these opportunistic sales in the Other column of the segment report.

The Development segment combines cross-country development activities and includes the project development of new residential buildings. The consolidation of our development activities in Germany, Austria and Sweden to form one single reporting segment is based on the similarities that we see in the business in these three countries. The business covers the value chain starting with the purchase of land without any development plan/dedicated purpose and ending with the completion of new buildings and new construction measures on our own properties. These properties are either incorporated into our own portfolio or sold to third parties. The Development segment deals with projects in selected attractive locations. Project development work is currently focusing on Berlin, Hamburg and Vienna. The consolidation of our development activities in Germany, Austria and Sweden to form one single reporting segment is based on the similarities that we see in the business in these three countries. The adjusted EBITDA of the Development segment includes the fair value step-up for properties that were completed in the reporting period and have been added to our own portfolio.

A Group-wide planning and controlling system ensures that resources are efficiently allocated and their successful use is monitored on a regular basis. Reporting to the chief decision-makers and thus the assessment of business performance as well as the allocation of resources are performed on the basis of this segmentation. Asset and liability items are not reported separately by segment. Internal reporting is based on the IFRS reporting standards in general.

The Management Board as chief decision-maker of Vonovia monitors the contribution made by the segments to the company’s performance on the basis of the segment revenue as well as the adjusted EBITDA.

The following table shows the segment information for the reporting period:

in € million

Rental

Value-add

Recurring Sales

Develop­ment

Segments total

Other*

Consolida­tion*

Group

*

The income for the Rental, Value-add, Recurring Sales and Development segments constitutes income that is regularly reported to the Management Board as the chief operating decision-maker and that reflects Vonovia’s sustainable business. The income/costs in the “Other” and “Consolidation” columns are not part of the Management Board’s segment management.

 

 

 

 

 

 

 

 

 

Jan. 1 – Dec. 31, 2019

 

 

 

 

 

 

 

 

Segment income

2,074.9

1,677.3

365.1

249.5

4,366.8

145.6

-841.5

3,670.9

thereof external income

2,074.9

248.4

365.1

249.5

2,937.9

145.6

587.4

3,670.9

thereof internal income

 

1,428.9

 

 

1,428.9

-1,428.9

 

Carrying amount of assets sold

 

 

-302.9

 

-302.9

-138.7

 

 

Revaluation from disposal of assets held for sale

 

 

44.5

 

44.5

13.0

 

 

Expenses for maintenance

-308.9

 

 

 

-308.9

 

 

 

Production costs development

 

 

 

-197.3

-197.3

 

 

 

Operating expenses

-328.6

-1,531.0

-14.8

-26.6

-1,901.0

-8.4

797.6

 

Net income from fair value adjustments of new construction/development to hold

 

 

 

58.9

58.9

 

-58.9

 

Adjusted EBITDA Total

1.437.4

146.3

91.9

84.5

1,760.1

11.5

-102.8

1,668.8

 

 

 

 

 

 

 

 

 

Non-recurring items

 

 

 

 

 

 

 

-93.1

Period adjustments from assets held for sale

 

 

 

 

 

 

 

2.2

Income from investments in other real estate companies

 

 

 

 

 

 

 

1.7

EBITDA IFRS

 

 

 

 

 

 

 

1,579.6

 

 

 

 

 

 

 

 

 

Net income from fair value adjustments of investment properties

 

 

 

 

 

 

 

4,131.5

Depreciation and amortization

 

 

 

 

 

 

 

-2,175.8

Income from other investments

 

 

 

 

 

 

 

-11.8

Interest income

 

 

 

 

 

 

 

8.9

Interest expenses

 

 

 

 

 

 

 

-417.5

Other financial result

 

 

 

 

 

 

 

24.0

EBT

 

 

 

 

 

 

 

3,138.9

 

 

 

 

 

 

 

 

 

Income taxes

 

 

 

 

 

 

 

-1,844.6

Profit for the period

 

 

 

 

 

 

 

1,294.3

in € million

Rental

Value-add

Recurring Sales

Develop­ment

Segments total

Other*

Consolida­tion*

Group

*

The income for the Rental, Value-add, Recurring Sales and Development segments constitutes income that is regularly reported to the Management Board as the chief operating decision-maker and that reflects Vonovia’s sustainable business. The income/costs in the “Other” and “Consolidation” columns are not part of the Management Board’s segment management.

 

 

 

 

 

 

 

 

 

Jan. 1 – Dec. 31, 2018

 

 

 

 

 

 

 

 

Segment income

1,894.2

1,462.2

356.1

225.1

3,937.6

741.4

-648.2

4,030.8

thereof external income

1,894.2

203.9

356.1

225.1

2,679.3

741.4

610.1

4,030.8

thereof internal income

 

1,258.3

 

 

1,258.3

 

-1,258.3

 

Carrying amount of assets sold

 

 

-298.5

 

-298.5

-635.2

 

 

Revaluation from disposal of assets held for sale

 

 

35.7

 

35.7

32.3

 

 

Expenses for maintenance

-289.7

 

 

 

-289.7

 

 

 

Production costs development

 

 

 

-181.8

-181.8

 

 

 

Operating expenses

-289.4

-1,341.0

-14.2

-22.6

-1,667.2

-9.3

609.4

 

Net income from fair value adjustments of new construction/development to hold

 

 

 

18.7

18.7

 

-18.7

 

Adjusted EBITDA Total

1.315.1

121.2

79.1

39.4

1,554.8

129.2

-57.5

1,626.5

 

 

 

 

 

 

 

 

 

Non-recurring items

 

 

 

 

 

 

 

-106.6

Period adjustments from assets held for sale

 

 

 

 

 

 

 

0.5

Income from investments in other real estate companies

 

 

 

 

 

 

 

14.0

EBITDA IFRS

 

 

 

 

 

 

 

1,534.4

 

 

 

 

 

 

 

 

 

Net income from fair value adjustments of investment properties

 

 

 

 

 

 

 

3,517.9

Depreciation and amortization

 

 

 

 

 

 

 

-737.9

Income from other investments

 

 

 

 

 

 

 

-23.1

Interest income

 

 

 

 

 

 

 

5.8

Interest expenses

 

 

 

 

 

 

 

-420.8

Other financial result

 

 

 

 

 

 

 

-2.0

EBT

 

 

 

 

 

 

 

3,874.3

 

 

 

 

 

 

 

 

 

Income taxes

 

 

 

 

 

 

 

-1,471.5

Profit for the period

 

 

 

 

 

 

 

2,402.8

To show the development of operating performance and to ensure comparability with previous periods, we calculate adjusted EBITDA for each of our segments: Rental, Value-add, Recurring Sales and Development. The sum of these key figures produces the Group’s Adjusted EBITDA Total. The adjustments made include items that are not related to the period, items that recur irregularly and items that are atypical for business operation. The non-recurring items include the expenses for pre-retirement part-time work arrangements and severance payments, the development of new fields of business and business processes, acquisition projects including integration costs and expenses for refinancing and equity increases (where not treated as capital procurement costs).

The following table gives a detailed list of the non-recurring items for the reporting period:

in € million

2018

2019

*

Including one-time expenses in connection with acquisitions, such as HR measures relating to the integration process.

 

 

 

Acquisition costs incl. integration costs*

87.8

48.2

Business model optimization/development of new field of business

0.8

27.6

Severance payments/pre-retirement part-time work arrangements

18.3

13.2

Refinancing and equity measures

-0.3

4.1

Total non-recurring items

106.6

93.1

The breakdown of external revenue from contracts with customers (pursuant to IFRS 15.114f.) and its allocation to the segments referred to above is as follows:

in € million

Rental

Value-add

Recurring Sales

Development

Other

Total

*

Includes land tax and buildings insurance.

 

 

 

 

 

 

 

Jan. 1 – Dec. 31, 2019

 

 

 

 

 

 

Revenue from ancillary costs (IFRS 15)

626.4

0.6

0.3

627.3

Income from the disposal of investment properties

184.9

42.2

227.1

Income from disposal of real estate inventories (Development)

249.5

249.5

Other revenue from contracts with customers

20.3

49.6

69.9

Revenue from contracts with customers

646.7

50.2

184.9

249.8

42.2

1,173.8

thereof period-related

 

 

 

183.6

 

183.6

thereof time-related

646.7

50.2

184.9

66.2

42.2

990.2

 

 

 

 

 

 

 

Income from rental income (IFRS 16)

2,074.9

1.9

1.1

2,077.9

Revenue from ancillary costs (IFRS 16)*

135.6

135.6

Income from sale of assets held for sale (IFRS 5)

180.2

103.4

283.6

Other revenue

2,210.5

1.9

180.2

1.1

103.4

2,497.1

Revenues

2,857.2

52.1

365.1

250.9

145.6

3,670.9

in € million

Rental

Value-add

Recurring Sales

Development

Other

Total

*

Includes land tax and buildings insurance.

 

 

 

 

 

 

 

Jan. 1 – Dec. 31, 2018

 

 

 

 

 

 

Revenue from ancillary costs (IFRS 15)

632.0

0.9

632.9

Income from the disposal of investment properties

186.0

575.4

761.4

Income from disposal of real estate inventories (Development)

225.1

225.1

Other revenue from contracts with customers

14.6

45.7

60.3

Revenue from contracts with customers

646.6

46.6

186.0

225.1

575.4

1.679.7

thereof period-related

 

 

 

167.0

 

167.0

thereof time-related

646.6

46.6

186.0

58.1

575.4

1,512.7

 

 

 

 

 

 

 

Income from rental income (IFRS 16)

1,894.2

3.6

1,897.8

Revenue from ancillary costs (IFRS 16)*

117.2

117.2

Income from sale of assets held for sale (IFRS 5)

170.1

166.0

336.1

Other revenue

2,011.4

3.6

170.1

166.0

2,351.1

Revenues

2,658.0

50.2

356.1

225.1

741.4

4,030.8

External income and non-current assets, excluding financial instruments, deferred taxes, post-employment benefits and rights under insurance contracts, are distributed among Vonovia’s country of origin and other countries as follows. The revenue and the assets are allocated based on the registered office of the unit providing the service.

 

External income

Assets

in € million

2018

2019

Dec. 31, 2018

Dec. 31, 2019

 

 

 

 

 

Germany

3,598.6

3,087.0

42,670.5

44,969.4

Austria

345.9

415.6

2,789.5

3,067.9

Sweden

59.5

168.1

1,977.0

6,777.8

France

0.0

0.0

87.0

104.1

Other countries

26.8

0.2

61.5

88.1

Total

4,030.8

3,670.9

47,585.5

55,007.3

 

 

 

 

 

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.
Non-core Disposals
We also report on the Other segment, which is not relevant from a corporate management perspective, in our segment reporting. This includes the sale, only as and when the right opportunities present themselves, of entire buildings or land (Non-core Disposals) that are likely to have below-average development potential in terms of rent growth in the medium term and are located in areas that can be described as peripheral compared with Vonovia’s overall portfolio and in view of future acquisitions.
Adjusted EBITDA Total (Earnings Before Interest, Taxes, Depreciation and Amortization)
Adjusted EBITDA Total is the result before interest, taxes, depreciation and amortization (including income from other operational investments and intragroup profits) adjusted for effects that do not relate to the period, recur irregularly and that are atypical for business operation, and for net income from fair value adjustments to investment properties. These non-recurring items include the development of new fields of business and business processes, acquisition projects, expenses for refinancing and equity increases (where not treated as capital procurement costs), IPO preparation costs and expenses for pre-retirement part-time work arrangements and severance payments. The Adjusted EBITDA Total is derived from the sum of the Adjusted EBITDA Rental, Adjusted EBITDA Value-add, Adjusted EBITDA Recurring Sales and Adjusted EBITDA Development.
Fair Value Step-up
Fair value step-up is the difference between the income from selling a unit and its current fair value in relation to its fair value. It shows the percentage increase in value for the company on the sale of a unit before further costs of sale.
Recurring Sales
The Recurring 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.