Fair Values
Major market developments and valuation parameters that have an impact on the fair values of Vonovia are assessed every quarter. In addition to the revaluations performed during the year, the entire portfolio was revalued at the end of 2022.
The demand for housing continues to outstrip the supply. The extensive investments made in the energy-efficient modernization of our buildings and improvements to the fittings in our apartments also had a positive impact on rental growth. The return expectations of property buyers increased for the first time in a long time, particularly in the second half of 2022. The positive effects resulting from the high demand and modernization were largely offset by the increase in return expectations and resulted in only a slight 0.5% increase in the fair value of our property portfolio compared with the previous year, after adjustments for acquisitions and sales and excluding currency effects. In addition to the internal valuation, Vonovia’s residential real estate portfolio was also valued by the independent property appraisers CBRE GmbH, Jones Lang LaSalle SE and Savills Sweden AB. The market value resulting from the external report is consistent with the internal valuation result.
Vonovia’s project developments for subsequent management within its own portfolio are measured using the cost approach until the construction work is complete given that the fair value cannot be reliably calculated on a continuing basis. This is subject to a review of the values applied if triggering events occur. The fair value for the nursing care properties was initially calculated by the external appraiser W&P Immobilienberatung GmbH using a DCF method. The valuation included looking not only at the results of the external appraiser, but also at feedback from the market test as part of the strategic review of the Care segment.
Regular Determination of the Fair Values Creates a Transparent Valuation of the Company’s Properties
Calculating and showing the fair values provides a control parameter inside the company and also helps to make the development of the value of our assets transparent to people outside the company.
The fair value of the portfolio of residential properties was determined, in accordance with IAS 40 and IFRS 13, on the basis of the International Valuation Standard Committee’s definition of market value.
Vonovia, in principle, 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 residential property are forecast and discounted to the date of valuation as the net present value. The income in the DCF model mainly comprises expected rental income (current in-place rent, current inclusive rent in Sweden, market rents as well as their development) taking vacancy losses and also sales revenues for an Austrian subportfolio into account. The expected rental income is derived for each location from the latest rent indices and rent tables (including Value AG, Immobilienverband Deutschland [IVD] and the Austrian Economic Chambers [WKÖ]) as well as from studies on spatial prosperity (Federal Institute for Research on Building, Urban Affairs and Spatial Development [BBSR], Prognos, Value AG, Federal Statistical Office, Statistics Austria, etc.). In Sweden, rents and rent increases are defined as part of negotiations with the Swedish tenants’ association (“Hyresgästföreningen”) and are reflected accordingly in the valuation model. The expected sales revenues in Austria are derived from historical sale prices as well as market data (e.g., the Austrian Economic Chamber [WKÖ], EHL).
On the cost side, maintenance expenses and administrative costs are taken into account. Further cost items are, for example, ground rents, non-allocable ancillary costs, rent losses and, in Austria, selling costs. In the Swedish valuation, further expenses to be borne by the owner are also taken into account in the DCF model due to the inclusive rents that are a special feature of this market. All cost items are inflated in the reporting period. Modernization measures carried out in the housing stocks are factored in by decreasing the current maintenance expenses and adjusting market rents. The commercial properties in the portfolio are mainly small commercial units for the supply of the local residential environment. Different cost approaches are used to those for residential properties, and the capitalized interest rates were adjusted to reflect the market specifics.
The recognition and valuation of investment properties are explained in detail in the notes to the consolidated financial statements (see [D28] Investment Properties).
The fair value of Vonovia’s real estate portfolio comprising residential buildings, commercial properties, garages and parking spaces as well as completed project developments, existing areas with construction potential and land areas with inheritable building rights granted, as well as nursing care facilities, was € 94,694.5 million as of December 31, 2022 (2021: € 97,845.3 million). Net income from fair value adjustments of investment properties in the income statement comes to € -1,269.8 million (2021: € 7,393.8 million).