17 Investment Properties

Fair Values

Vonovia determines fair value in accordance with the requirements of IAS 40 in conjunction with IFRS 13. We refer to the detailed information set out in the consolidated financial statements for 2020.

Vonovia measures its portfolio on the basis of the discounted cash flow (DCF) method. Under the DCF methodology, the expected future income and costs of a property are forecasted over a period of ten years and discounted to the date of valuation as the net present value. Furthermore, 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. In addition, the valuation of the portfolio in Austria is based on the assumption of sales strategies for the recurring sales of apartments for a subportfolio. Attainable revenues are calculated based on sales prices for comparable apartments (market approach) and are reported in the appropriate period in the DCF model. In order to take the sales potential into account, the DCF detailed period is extended to 100 years for the Austrian portfolios and no terminal value is used. For the portfolio in Sweden, the result of the external appraiser Savills Sweden AB was applied to the interim balance sheet. The fair values of the portfolio in Sweden were also calculated using a DCF procedure.

Due to the market momentum recognized in the first half of 2021, Vonovia decided to perform a new valuation on the 20 German locations that account for the largest fair value shares. The list of the locations to be valued was extended to include 10 additional German locations in which considerable changes in value had been observed, as well as Vienna and the portfolio in Sweden. The selection includes the lion’s share of the portfolio, accounting for roughly three quarters of the total fair value. The property assets in Germany and Austria are also assessed by the independent property appraiser CBRE GmbH. The market value resulting from the external review deviates from the internal valuation result by 0.1%.

For the part of the portfolio that was not revalued, the valuation from the end of 2020 is applied again, with updates to reflect capitalization.

On April 15, 2021, the Federal Constitutional Court declared the law passed by the Berlin House of Representatives that limited rents in Berlin’s residential market to be unconstitutional and therefore null and void. It is impossible to predict the possible effects of this decision on the development of real estate values at the present time. Any effects will materialize in transaction activity subject to a time lag. Vonovia will be keeping an eye on this process and incorporating any findings into the regular calculation of market values. The potential implications can be estimated via the sensitivities shown in the notes to the consolidated financial statements for 2020.

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 and undeveloped land, along with any inheritable building rights granted, was € 63,099.4 million as of June 30, 2021 (Dec. 31, 2020: € 58,910.7 million). This corresponds to a net initial yield for the developed land (overall portfolio including Austria and Sweden) of 2.7% (Dec. 31, 2020: 2.9%). For Germany, this results in an in-place rent multiplier of 26.7 for the portfolio (Dec. 31, 2020: 25.4) and a fair value per m² of € 2,251 (Dec. 31, 2020: € 2,099 per m²). The in-place rent multiplier for the Austrian portfolio comes to 25.7 (Dec. 31, 2020: 25.5) and a fair value per m² of € 1,603 (Dec. 31, 2020: € 1,570 per m²), for Sweden to 19.2 (Dec. 31, 2020: 17.4) and a fair value per m² of € 2,300 (Dec. 31, 2020: € 2,090 per m²).

Net income from the valuation of investment properties amounted to € 3,698.6 million in the first half of 2021 (first half of 2020: € 1,812.3 million). For the Austrian portfolio, a sales strategy with an average selling price of € 2,249 per m² was assumed for 52.5% of the portfolio. An inflation rate of 1.6% was applied in the DCF procedure.

Explanatory information on the prior-year figures can be found in the 2020 Annual Report of Vonovia SE.

Sensitivity Analyses

The sensitivity analyses performed on Vonovia’s real estate portfolio show the impact of value drivers dependent upon market developments. 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 cash flows, which is then reflected in adjusted discounting and capitalizing 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.