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56 Cash Flow Hedges and Stand-alone Hedging Instruments

On the reporting date, the nominal volume of cash flow hedges held in euros, including swaptions, amounts to € 1,501.7 million (December 31, 2021: € 1,109.5 million). Interest rates on hedging instruments are between 0.064% and 3.760% with original swap periods of between 5.25 and 20 years.

In order to partially hedge a secured fixed-rate loan issue in favor of Vonovia SE for an expected amount of € 1.2 billion, with a planned issue date of April 13, 2023 and a term of 10 years, three zero-cost swaption collars (financial options on three interest rate swaps) with a total nominal volume of € 1.0 billion were concluded with different banks in each case between December 5, 2022 and December 8, 2022. Annual interest payments are planned for the hedged item, and no contractual agreements have been reached on repayments during the term. The conclusion of the derivatives caps Vonovia’s interest expense from the financing at 3.00% for the term of 10 years. The hedge only relates to the interest rate risk. In order to maximize hedge effectiveness, only the intrinsic value of the options is designated in the hedge. The fair value of the swaption is not part of the hedge and is recognized periodically in the income statement affecting net income. The option on the interest rate swap can only be exercised on the option expiry date. All swaptions concluded are cash-settled, i.e., the market values of the derivatives are settled on the option due date.

For the hedging instruments that are maintained within a so-called passive hedge accounting, € 7.9 million was reclassified affecting net income in the reporting year in line with the expected cash flows from the underlying hedged items. This reduced the value recognized in other comprehensive income to € 10.8 million.

All derivatives are included in netting agreements with the issuing banks.

Due to the current interest rate environment, both the cross currency swaps and the other euro interest rate swaps are reported with positive market values as of the reporting date.

No economic or accounting offsetting was performed in the reporting year.

Key parameters of the interest rate swaps were as follows:

Key parameters of the interest rate swaps

Carrying amount Dec. 31, 2022

Balance sheet item including the hedging instrument

Face value

Beginning of term

End of term

Current average interest rate (incl. margin)

Changes in the value of the hedging instrument recognized in other compre­hen­sive income

Ineffective­ness of the hedging instrument recognized in profit or loss

Profit or loss item including hedge ineffective­ness

Reporting year reclassi­fication

Profit or loss item including the reclassi­fi­cation of the hedge

Change in fair value of the hedged item

in € million

(+) Increase of equity
(-) Decrease of equity

(+) Increase of equity
(-) Decrease of equity

Bank of America (future fixed interest loan issue)

Hedged item

400.0

Apr. 12, 2023

Apr. 11, 2033

6-M-EURIBOR Marge 0.0%

Swaption

11.9

Financial assets

400.0

Dec. 05, 2022

Apr. 06, 2023

3.00%/ 2.299%

7.4

4.5

Interest expenses

n.a.

n.a.

n.a.

Deutsche Bank (future fixed interest loan issue)

Hedged item

300.0

Apr. 13, 2023

Apr. 12, 2033

6-M-EURIBOR Marge 0.0%

Swaption

9.2

Financial assets

300.0

Dec. 08, 2022

Apr. 11, 2023

3.00%/ 2.2275%

5.6

3.6

Interest expenses

n.a.

n.a.

n.a.

BNP Paribas (future fixed interest loan issue)

Hedged item

300.0

Apr. 14, 2023

Apr. 13, 2033

6-M-EURIBOR Marge 0.0%

Swaption

9.1

Financial assets

300.0

Dec. 07, 2022

Apr. 12, 2023

3.00%/ 2.286%

5.6

3.5

Interest expenses

n.a.

n.a.

n.a.

HELABA

Hedged item

146.6

Jan. 28, 2019

Apr. 30, 2024

1-M-EURIBOR Marge 0.0%

-6.3

Interest rate swaps

5.6

Financial assets

146.6

Jan. 28, 2019

Apr. 30, 2024

0.390%

6.3

0.0

n.a.

0.1

Interest expenses

Berlin Hyp

Hedged item

146.6

Jan. 28, 2019

Apr. 30, 2024

1-M-EURIBOR Marge 0.0%

-6.3

Interest rate swaps

5.6

Financial assets

146.6

Jan. 28, 2019

Apr. 30, 2024

0.390%

6.3

0.0

n.a.

0.1

Interest expenses

Norddeutsche Landesbank

Hedged item

75.9

June 28, 2013

June 30, 2023

3-M-EURIBOR Marge 1.47%

-3.3

Interest rate swaps

0.2

Financial assets

75.9

June 28, 2013

June 30, 2023

2.290%

3.9

-0.6

Interest expenses

1.7

Interest expenses

UniCredit Bank AG

Hedged item

43.1

Oct. 01, 2018

Nov. 30, 2038

3-M-EURIBOR Marge 1.32%

-11.6

Interest rate swaps

6.5

Financial assets

43.1

Oct. 01, 2018

Nov. 30, 2038

1.505%

10.9

0.7

Interest expenses

0.7

Interest expenses

UniCredit Bank Austria AG

Hedged item

89.5

Jan. 02, 2015

Dec. 31, 2034

3-M-EURIBOR Marge 1.12%

-16.0

Interest rate swaps

17.6

Financial assets

89.5

Sep. 18, 2020

Dec. 31, 2034

0.064%

15.5

0.5

Interest expenses

0.1

Interest expenses

In 2013, two cross currency swaps were contracted in equal amounts with each of JP Morgan Limited and Morgan Stanley Bank International Limited; these hedging instruments (cross currency swaps/CCS) became effective on the issuance of two bonds for a total amount of USD 1,000 million. The CCS, each for an amount of USD 375.0 million, fell due in October 2017 in line with the bonds. The hedging instruments, each for an amount of USD 125.0 million, originally had a term of ten years. This means that the EUR/USD currency risk resulting from the coupon and capital repayments was eliminated for the entire term of the bonds.

Key parameters of the cross currency swaps were as follows:

Key parameters of the cross currency swaps

Face value in USD million

Face value in € million

Beginning of term

End of term

Interest rate USD

Interest rate €

Hedging rate USD/€

J.P. Morgan Securities plc Morgan Stanley & Co. International plc

Hedged items

250.0

185.0

Oct. 02, 2013

Oct. 02, 2023

5.00%

CCS

250.0

185.0

Oct. 02, 2013

Oct. 02, 2023

4.58%

1.3517

On February 22, 2022, control of 20.5% of the shares in the Adler Group, which were previously held by Aggregate Holdings Invest S.A., passed to Vonovia as part of a debt recovery action. At the time of the debt recovery action, the shares in the Adler Group had been reported at their market value of € 251.4 million as investments in associates accounted for using the equity method. Within this context, the call option discussed at this point last year was lost.

As of the reporting date, Deutsche Wohnen Group recognized 16 stand-alone interest rate swaps. The hedged nominal volume amounted to € 704.8 million as of December 31, 2022 (December 31, 2021: € 652.9 million), while the positive market values amount to a total of € 66.4 million (December 31, 2021: € -20.8 million).

The hedged nominal volume of currently 13 stand-alone interest rate swaps of BUWOG amounted to € 299.9 million as of December 31, 2022 (December 31, 2021: € 312.3 million).

On the reporting date, the Victoriahem Group recognized 15 stand-alone interest rate swaps and three interest rate caps. The nominal volume hedged in Swedish krona amounted to € 1,296.9 million as of December 31, 2022 (December 31, 2021: € 1,668.2 million), while the positive market values amount to a total of € 23.8 million (December 31, 2021: € -1.0 million).

The designation of the cash flow hedges as hedging instruments is prospectively determined on the basis of a sensitivity analysis, retrospectively on the basis of the accumulated dollar offset method. The fair value changes of the hedged items are determined on the basis of the hypothetical derivative method. In the reporting year – as in the prior year – the impact of default risk on the fair values is negligible and did not result in any adjustments of the balance sheet item.

In the reporting year, the cash flow hedges held in euros, including swaptions, were shown at their clean fair values totaling € 65.7 million as of December 31, 2022 (December 31, 2021: € -12.3 million). At the same time, positive market values from cross currency swaps in the amount of € 47.0 million (December 31, 2021: € 35.2 million) and positive market values totaling € 99.8 million (December 31, 2021: € 30.6 million) from stand-alone interest rate derivatives of Deutsche Wohnen, BUWOG and Victoriahem were recognized.

In the previous year, financial liabilities still included negative fair values from stand-alone interest rate derivatives in the amount of € -53.9 million.

The total deferred interest came to € 1.1 million in the reporting year (December 31, 2021: € -1.4 million).

The impact of the cash flow hedges (after income taxes) on the development of other reserves is shown below:

Impact of the cash flow hedges (after income taxes) on the development of other reserves

Changes in the period

Reclassification affecting net income

in € million

As of Jan. 1

Changes in CCS

Other

Currency risk

Interest risk

As of Dec. 31

2022

-11.9

9.0

45.0

-9.4

8.5

41.2

2021

-32.9

12.1

6.1

-11.7

14.5

-11.9

The impact of the cash flow hedges (including income taxes) on total comprehensive income is shown below:

Cash Flow Hedges

Cash Flow Hedges

in € million

2021

2022

Change in unrealized gains/losses

26.5

77.9

Taxes on the change in unrealized gains/losses

-8.3

-23.9

Net realized gains/losses

-0.4

-5.0

Taxes due to net realized gains/losses

3.2

4.1

Total

21.0

53.1

In the reporting year, after allowing for deferred taxes, positive cumulative ineffectiveness for cash flow hedges amounts to € 8.1 million (2021: € -0.1 million), improving net interest by € 8.2 million. On the basis of the valuation as of December 31, 2022, Vonovia used a sensitivity analysis to determine the change in equity given a parallel shift in the interest rate structure of 50 basis points in each case:

Change in equity

Change in equity

in € million

Other reserves not affecting net income

Income statement affecting net income

Total

2022

+50 basis points

31.8

10.9

42.7

-50 basis points

-16.9

-20.9

-37.8

2021

+50 basis points

6.1

21.8

27.9

-50 basis points

-5.8

-19.7

-25.5

A further sensitivity analysis showed that a change in the foreign currency level of -5% (+5%) would lead, after allowance for deferred taxes, to a change in the other reserves not affecting net income of € -0.4 million (or € 0.4 million), while ineffectiveness affecting net income in the amount of € 0.3 million (or € -0.3 million) would result at the same time. In the previous year, a change in the other reserves not affecting net income of € -1.1 million (or € -0.9 million) was recognized in connection with ineffectiveness affecting net income in the amount of € +1.6 million (or € +0.5 million).