42 Leases
Accounting Policies
IFRS 16 “Leases,” which is applied as a mandatory requirement since January 1, 2019, introduces only one accounting model (right-of-use) for lessees, based on which all leases are to be recognized in the balance sheet as a matter of principle. The distinction between operating and finance leases only remains in place for accounting as 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 lease 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 using 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 impairment losses into account. Right-of-use assets that meet the definition of investment properties (IAS 40) are recognized at fair value 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 a 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. As far as rented IT equipment is concerned, portfolios are, in some cases, set up for lease contracts with similar terms and a single discount rate is applied to these portfolios.
Those variable lease payments, which are not included in the measurement of the lease liabilities, as well as 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. Long-term leasehold contracts, however, 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 general rule, these contracts have a term of 99 years.
in € million |
Dec. 31, 2019 |
Dec. 31, 2020 |
|---|---|---|
|
|
|
Right-of-use assets |
|
|
Leasehold contracts |
1,223.7 |
1,431.9 |
Interim rental agreements |
1.1 |
1.3 |
Right-of-use assets within investment properties |
1,224.8 |
1,433.2 |
Leasing of land for the construction of commercial properties used by the Group |
26.2 |
27.3 |
Lease agreements |
21.4 |
22.9 |
Contracting |
19.7 |
15.9 |
Vehicle leases |
6.3 |
2.6 |
Tenancy and license agreements |
2.4 |
0.6 |
Leases of IT equipment |
4.4 |
3.0 |
Right-of-use assets within property, plant and equipment |
80.4 |
72.3 |
|
1,305.2 |
1,505.5 |
|
|
|
As of December 31, 2020, the right-of-use assets resulting from leases amount to € 1,505.5 million (2019: € 1,305.2 million).
The majority of the right-of-use assets amounting to € 1,433.2 million is reported under investment properties and results not only from interim lease agreements (€ 1.3 million) but mainly from leasehold contracts (€ 1,431.9 million). The other right-of-use assets totaling € 72.3 million are reported under property, plant and equipment and mainly include right-of-use assets resulting from the rental of land for the construction of commercial properties to be used by the company itself (€ 27.3 million), from rental agreements that have been concluded (€ 22.9 million), from heating supply contracts (€ 15.9 million) as well as leases of IT-equipment (€ 3.0 million).
Development of Lease Liabilities
|
Dec. 31, 2019 |
Dec. 31, 2020 |
||||
|---|---|---|---|---|---|---|
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) |
10.6 |
39.7 |
338.3 |
10.6 |
35.3 |
371.9 |
Interim rental agreements |
0.9 |
0.2 |
– |
0.9 |
0.4 |
– |
Leasing of land for the construction of commercial properties used by the Group |
0.1 |
0.3 |
26.1 |
0.1 |
0.5 |
27.3 |
Lease agreements |
6.8 |
12.2 |
2.6 |
8.3 |
13.4 |
1.5 |
Contracting |
1.9 |
9.1 |
8.9 |
5.0 |
5.7 |
7.9 |
Vehicle leases |
4.7 |
1.6 |
– |
1.5 |
1.1 |
– |
Tenancy and license agreements |
1.8 |
0.1 |
0.5 |
0.1 |
0.1 |
0.5 |
Leases of IT equipment |
1.5 |
3.0 |
– |
1.3 |
1.7 |
– |
|
28.3 |
66.2 |
376.4 |
27.8 |
58.2 |
409.1 |
|
|
|
|
|
|
|
As of December 31, 2020, the lease liabilities amount to € 495.1 million (2019: € 470.9 million).
The increase in lease liabilities compared to the prior year amounting € 24.2 million is mainly due to an increase in lease liabilities attributable to leasehold contracts in the amount of € 29.3 million, mainly due to extensions of the lease term, increases in the lease payments and new leasehold contracts. The drop in miscellaneous lease liabilities is primarily due to expired lease contracts.
Totaling € 409.1 million, the majority of the lease liabilities recognized as of December 31, 2020, is due after more than five years. Of this amount, € 371.9 million is attributable to lease liabilities resulting from leasehold contracts. Lease liabilities due within the next year amount to € 27.8 million. € 10.6 million of this amount is attributable to leasehold contracts.
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, 2020 |
Additions 2020 |
Depreciation and amortization 2020 |
Carrying amount of right-of-use assets Dec. 31, 2020 |
Interest expenses 2020 |
|---|---|---|---|---|---|
|
|
|
|
|
|
Leasing of land for the construction of commercial properties used by the Group |
26.2 |
1.5 |
–0.3 |
27.3 |
0.7 |
Lease agreements |
21.4 |
9.3 |
–7.7 |
22.9 |
0.3 |
Contracting |
19.7 |
0.8 |
–4.5 |
15.9 |
0.5 |
Vehicle leases |
6.3 |
1.4 |
–4.9 |
2.6 |
– |
Tenancy and license agreements |
2.4 |
1.7 |
–1.5 |
0.6 |
– |
Leases of IT equipment |
4.4 |
0.2 |
–1.6 |
3.0 |
– |
|
80.4 |
14.9 |
–20.5 |
72.3 |
1.5 |
|
|
|
|
|
|
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 2020 fiscal year resulting from leases pursuant to IFRS 16 amounted to € 16.1 million (2019: € 14.0 million), mainly from leasehold contracts (€ 13.7 million).
In the 2020 fiscal year, a total of 479 lease contracts (2019: 1,176) were classified as short-term leases and thus were not recognized in line with the accounting option available. The corresponding leasing expenses, recognized in the 2020 fiscal year, amounted to € 1.7 million (2019: € 3.3 million). Expenses totaling € 9.1 million were incurred in connection with variable lease payments made in 2020 (2019: € 8.8 million). These have not been included in the measurement of the 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 € 38.4 million were incurred in 2020 (2019: € 36.4 million). Thus, the total cash outflow for leases within the reporting period amounted to € 49.2 million (2019: € 48.5 million).
Total income from subleasing, mostly from subleasing of right-of-use assets in connection with rented residential and commercial properties, amounts to € 8.3 million (2019: € 4.6 million). As of the reporting date, there were no significant non-cancellable subleases on the Spree-Bellevue property.
The loss arising from the rental of the sold Spree-Bellevue property (sale and leaseback transaction) in fiscal year 2020 amounted to € 0.7 million (2019: gain of € 1.0 million). This does not have any material impact on the Group’s cash flows.