Risks Related to Financing
With regard to financing, we identified the five amber risks (2021: 3) explained below at the end of 2022.
Restricted access to the bond market could give rise to risks for Vonovia, as this could mean that too little liquidity is available temporarily. Due to the emerging changes on the capital market, the financing risk with an impact on profit and loss “restricted access to the bond market”, which was classified as green in 2021, was upgraded to amber and assigned an expected amount of loss of > € 750 million (2021: € 250–500 million). The expected probability of occurrence remained at <5%. The active and timely management of refinancing maturities allows Vonovia to ensure a balanced maturity profile so as to avoid cluster risks. Vonovia continues to use all financing instruments that are used as standard on the market and has the internal expertise to place these instruments. This prevents any one-sided reliance on specific types of financing.
Being awarded an investment-grade rating is the very top priority in all strategic decisions. As a result, we remain in close dialogue with our rating agencies. In the very unlikely event that refinancing via the capital market is temporarily impossible, Vonovia can resort to existing available credit lines.
A further increase in capital market interest rates could give rise to risks for Vonovia’s growth and result in planned investments being cut back, suspended or canceled completely. In addition, an increasing interest burden due to unfavorable interest rate developments could translate into lower growth or even a drop in Group FFO. The expected amount of loss for the financing risk with an impact on profit and loss relating to “unfavorable interest rate developments”, which had already been classified as an amber risk in 2021, was increased to > € 750 million (2021: € 100–250 million). The expected probability of occurrence remained unchanged at 5–39%. As well as diversifying debt capital instruments and maintaining a balanced maturity profile, risks are limited by ensuring a long-term average maturity/fixed-interest period of around eight years. Debt reduction by freeing up liquidity is another measure used to limit risk.
Vonovia is obliged to report certain key figures and adhere to certain covenants in connection with bonds, secured loans and transactions. If these covenants are not adhered to or these reporting obligations are not fulfilled on time, Vonovia could be subject to payment obligations and additional negative effects on earnings could result from new financing arrangements. The amber financial risk with an impact on profit and loss associated with a “failure to fulfill obligations (from bonds, secured loans, transactions)” was assessed as having an expected amount of loss of >€ 750 million (2021: >€ 500 million) and an unchanged expected probability of occurrence of <5%. In order to counter this risk, Vonovia has implemented standardized processes for monitoring and managing its obligations.
The amendments to the German Real Estate Transfer Tax Act that came into force on July 1, 2021, lowering the participation threshold from 95% to 90% and increasing the observation period from 5 to 10 years, could give rise to a subsequent liability to pay real estate transfer tax. The amber risk with an impact on profit and loss associated with an “amendment to the German Real Estate Transfer Tax Act due to share deals” was assessed as having an expected amount of loss of >€ 750 million (2021: >€ 500 million) and an unchanged expected probability of occurrence of <5%. In addition to monitoring court decisions and legislation on an ongoing basis, Vonovia also limits this risk by raising awareness among decision-makers in the context of share deals. This ensures the involvement of the internal Tax department, which then helps monitor the acquisition process. The internal Tax department has also developed an extended checklist to serve as guidance within this context.
Goodwill arose in the context of acquisitions in the past because the purchase price exceeded the value of the assets acquired less all liabilities. Goodwill is subjected to regular impairment testing, at least once a year. If the present value of future cash flows (value in use) is lower than the carrying amount (generally fair value plus goodwill), the goodwill has to be written down. This can have an impact on our covenants. At present, we consider this risk affecting the balance sheet to have an expected amount of loss of € 600–2,400 million (2021: € 400 million–1,600 million) and a probability of occurrence of 40–59% (2021: 5–39%). In order to counter this risk, an ongoing performance reporting system has been implemented to identify and monitor deviations from our plans. This allows us to take any corrective action required to be able to stick to our plans. Within this context, a dedicated synergy monitoring process also ensures that planned synergies from acquisition projects are actually leveraged.
At the end of 2022 (previous years in parentheses), the net risks identified can be summarized as follows: