16 Intangible Assets

Goodwill

Goodwill came to € 1,295.9 million as of June 30, 2021. This means that goodwill has dropped by € 198.8 million compared with December 31, 2020. The change is due to an impairment loss of € 192.1 million and to a negative effect resulting from currency changes affecting the Swedish krona in the amount of € 6.7 million. The goodwill resulting from the acquisition of Fjord Immobilien GmbH (formerly H&L Immobilien GmbH) has been allocated in full to the North business area and impaired together with the goodwill of the North business area.

The impairment loss is the result of the impairment test performed in the second quarter of 2021. Within the meaning of IAS 36, the triggering event was the increase in the value of the real estate portfolio in the first half of the 2021 financial year amounting to € 3,698.6 million (thereof € 3,039.5 million in Germany and € 596.8 million in Sweden) in combination with the increased cost of capital of the Rental segment’s business areas in Germany and the Sweden business area. Other than for these aforementioned business areas, no triggering events were identified for any other groups of cash-generating units.

The goodwill of the North and West business areas was impaired as a result of the impairment test. There was no need for impairment of the Sweden business area.

In general, an increase in the value of the real estate portfolio increases the carrying amount of the groups of cash-generating units affected by the measurement, which can, in turn, lead to impairment losses being recognized on the goodwill allocated to the business areas.

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 rental income and the planned vacancy rate.

The growth rate for the cash-generating units of the Rental segment was calculated regionally on the basis of in-place rents and limited to 1% for the segment as a whole. The main parameters for calculating the value in use are the sustainable rate of increase, the average total cost of capital (WACC) and the expected cash flows.

The identified need for impairment relates to the North and West business areas, with the goodwill allocated in each case being completely written off. With the impairment loss recognized as of June 30, 2021, there is no remaining goodwill in the business areas of the Rental segment in Germany.

The impairment loss was recognized in the consolidated income statement under depreciation and amortization. The value in use for the North business area amounts to € 7.2 billion and to € 9.1 billion for the West business area.

The value in use for the Rental Sweden segment is € 6.9 billion.

In the Rental Sweden business area, all other things being equal, an impairment loss would be recognized against the allocated goodwill in the event of an increase in the average total cost of capital of 0.02 percentage points, with an increase of 0.30 percentage points triggering a full impairment. A decline in the growth rate of 0.02 percentage points would result in an impairment loss and a decline of 0.33 percentage points would result in a full impairment of the goodwill of the Rental Sweden business area.