42 Leases
Accounting Policies
The new leasing standard IFRS 16 “Leases”, which applies as a mandatory requirement for fiscal years beginning on or after January 1, 2019, replaces, in particular, the previous leasing standard, IAS 17 “Leases,” and introduces only one accounting model (right-of-use model) for lessees, based on which all leases are to be recognized in the balance sheet as a matter of principle. The previous distinction between operating and finance leases only remains in place for accounting at the level of the lessor.
All contracts that give the Vonovia Group the right to control the use of an identified asset over a certain period of time in return for consideration are considered leases within the meaning of IFRS 16.
For all contracts that meet the definition of leases according to IFRS 16, Vonovia recognizes lease liabilities equal to the present value of the future lease payments, discounted to reflect the term-specific incremental borrowing rate. Correspondingly, right-of-use assets are recognized in the amount of the lease liabilities, plus any advance payments that have already been made or any initial direct costs.
The lease liabilities are adjusted in line with financial principles. They are increased by the periodic interest expenses and reduced by the lease payments made.
The right-of-use assets are generally recognized at amortized cost, taking depreciation and impairments into account. Right-of-use assets that meet the definition of investment properties (IAS 40) have been recognized at fair value since the time of initial application in line with the recognition and measurement rules set out in IAS 40.
Changes within the lease term or within the lease payments lead to a remeasurement of the present value and, as a result, to an adjustment of the lease liability and the right-of-use asset.
Periods resulting from extension or termination options granted on an unilateral basis are assessed on a case-by-case basis and are only taken into account if their use is sufficiently probable – for example, due to financial incentives.
There is an accounting option available for short-term leases and leases of low-value assets. Vonovia makes use of this option, meaning that such leases are not recognized. Lease contracts that expired within the 2019 fiscal year in line with the contractual conditions were treated as short-term leases, meaning that they were not recognized. As far as rented IT equipment is concerned, portfolios have, in some cases, been set up for leases with similar terms and a single discount rate has been applied to these portfolios.
Lease payments associated with short-term leases, with leases of low-value assets and with lease contracts that do not constitute leases within the meaning of IFRS 16 are recognized as expenses on a straight-line basis over the lease term.
In addition to conventional vehicle leasing over a fixed lease term of three to five years, the Vonovia Group also leases IT equipment (IT leasing), residential and commercial property for subletting (interim leasing), heat generation plants to supply the Group’s own properties with heat (contracting) as well as office buildings, office spaces and parking spaces (rental). Under license agreements with public-sector institutions Vonovia is granted the right to use public properties as storage locations or parking spaces, to lay heating pipes or cables, or to construct playgrounds. However, long-term leasehold contracts have the biggest impact on the company’s net assets, financial position and results of operations. These involve Vonovia leasing land for the rental of constructed residential and commercial properties. As a matter of principle, these contracts have a term of 99 years.
Development of Right-of-Use Assets
in € million |
Jan. 1, 2019 |
Dec. 31, 2019 |
||
|---|---|---|---|---|
|
||||
|
|
|
||
Right-of-use assets |
|
|
||
Leasehold contracts |
1,019.5 |
1,223.7 |
||
Interim rental agreements |
1.4 |
1.1 |
||
Right-of-use assets within investment properties |
1,020.9 |
1,224.8 |
||
Leasing of land for the construction of commercial properties used by the Group |
26.5 |
26.2 |
||
Lease agreements |
22.8 |
21.4 |
||
Contracting |
21.2 |
19.7 |
||
Vehicle leases |
11.8 |
6.3 |
||
Tenancy and license agreements |
2.6 |
2.4 |
||
Leases of IT equipment |
2.0 |
4.4 |
||
Right-of-use assets within property, plant and equipment |
86.9 |
80.4 |
||
|
1,107.8 |
1,305.2 |
||
As of December 31, 2019, the right-of-use assets resulting from leases amount to € 1,305.2 million. This amount includes right-of-use assets resulting from leases previously classified as finance leases according to IAS 17 in the amount of € 82.4 million, € 78.1 million of which is recognized as investment properties (Spree-Bellevue) and € 4.3 million of which is recognized under property, plant and equipment (heat generation plants).
The majority of the right-of-use assets amounting to € 1,305.2 million is reported under investment properties and results not only from interim lease agreements (€ 1.1 million) but mainly from leasehold contracts (€ 1,223.7 million). The other right-of-use assets totaling € 80.4 million are reported under property, plant and equipment and mainly include right-of-use assets resulting from the leasing of land for the construction of a commercial property to be used by the company itself (€ 26.2 million), from concluded rental agreements (€ 21.4 million), heating supply contracts (€ 19.7 million) and vehicle lease contracts (€ 6.3 million).
Development of Lease Liabilities
|
Jan. 1, 2019 |
Dec. 31, 2019 |
||||
|---|---|---|---|---|---|---|
in € million |
Due within one year |
Due in 1 to 5 years |
Due after 5 years |
Due within one year |
Due in 1 to 5 years |
Due after 5 years |
|
|
|
|
|
|
|
Lease liabilities |
|
|
|
|
|
|
Leasehold contracts (IAS 40) |
8.9 |
32.0 |
305.2 |
10.6 |
39.7 |
338.3 |
Interim rental agreements |
1.0 |
0.4 |
– |
0.9 |
0.2 |
– |
Leasing of land for the construction of commercial properties used by the Group |
0.1 |
0.4 |
26.0 |
0.1 |
0.3 |
26.1 |
Lease agreements |
6.8 |
12.3 |
3.7 |
6.8 |
12.2 |
2.6 |
Contracting |
1.8 |
9.4 |
10.0 |
1.9 |
9.1 |
8.9 |
Vehicle leases |
6.2 |
5.6 |
– |
4.7 |
1.6 |
– |
Tenancy and license agreements |
2.0 |
0.2 |
0.5 |
1.8 |
0.1 |
0.5 |
Leases of IT equipment |
0.9 |
1.1 |
– |
1.5 |
3.0 |
– |
|
27.7 |
61.4 |
345.4 |
28.3 |
66.2 |
376.4 |
|
|
|
|
|
|
|
As of December 31, 2019, the lease liabilities amount to € 470.9 million. This amount includes lease liabilities resulting from leases previously accounted for under IAS 17 in the amount of € 99.3 million. In addition to heat generation plants (€ 4.3 million), these are mainly attributable to the rented Spree-Bellevue property in Berlin (€ 95.0 million).
The majority of the newly recognized lease liabilities accounted for under IFRS 16 amounts to € 371.6 million and results from long-term leasehold contracts (€ 293.6 million).
Totaling € 376.4 million, the majority of the lease liabilities recognized as of December 31, 2019 are due after five years. Of this amount, € 338.3 million is attributable to lease liabilities from leasehold contracts (thereof € 72.5 million which were previously accounted for under IAS 17). Lease liabilities due within one year amount to € 28.3 million, € 5.4 million of which were previously accounted for under IAS 17.
The following table shows the development of the right-of-use assets reported under property, plant and equipment.
in € million |
Carrying amount of right-of-use assets Jan. 1, 2019 |
Additions 2019 |
Depreciation and amortization 2019 |
Carrying amount of right-of-use assets Dec. 31, 2019 |
Interest expenses 2019 |
|---|---|---|---|---|---|
|
|
|
|
|
|
Leasing of land for the construction of commercial properties used by the Group |
26.5 |
– |
0.3 |
26.2 |
0.7 |
Lease agreements |
22.8 |
5.9 |
7.1 |
21.4 |
0.2 |
Contracting |
21.2 |
0.6 |
1.9 |
19.7 |
0.6 |
Vehicle leases |
11.8 |
0.9 |
6.3 |
6.3 |
0.1 |
Tenancy and license agreements |
2.6 |
1.6 |
1.9 |
2.4 |
– |
Leases of IT equipment |
2.0 |
3.8 |
1.0 |
4.4 |
– |
|
86.9 |
12.8 |
18.5 |
80.4 |
1.6 |
|
|
|
|
|
|
The interest expenses recognized in the 2019 fiscal year resulting from leases pursuant to IFRS 16 amounted to € 14.0 million, mainly from leasehold contracts (€ 12.4 million).
In 2019, 1,176 lease contracts were classified as short-term leases and thus were not recognized in line with the accounting option available. The corresponding leasing expenses, recognized in fiscal year 2019, amounted to € 3.3 million. Expenses totaling € 8.8 million were incurred in connection with variable lease payments made in 2019. These have not been included in the measurement of lease liabilities.
In addition to variable lease payments as well as payments resulting from short-term leases, each included in the cash flow from operating activities, interest payments and repayments of lease liabilities totaling € 36.4 million were incurred in 2019. Of this amount, € 29.9 million relates to lease liabilities newly recognized in accordance with IFRS 16. Thus, the total cash outflow for leases within the 2019 fiscal year amounted to € 48.5 million.
Total income from subleasing right-of-use assets, mostly from subleasing of right-of-use assets in connection with rented residential and commercial properties, amounts to € 4.6 million. As of the reporting date, there were no significant non-cancellable subtenancies on the Spree-Bellevue property.
The gain arising from the rental of the sold Spree-Bellevue property (sale and leaseback transaction) in 2019 amounted to € 1.0 million. This does not have any material impact on the Group’s cash flows.