52 Additional Financial Instrument Disclosures

The section below provides information on the financial assets and financial liabilities not covered by IFRS 9:

• Employee benefits in accordance with IAS 19: gross presentation of right to reimbursement arising from transferred pension obligations in the amount of € 2.6 million (December 31, 2021: € 3.5 million).
• Amount by which the fair value of plan assets exceeds the corresponding obligation of € 1.6 million (December 31, 2021: € 1.0 million).
• Provisions for pensions and similar obligations: € 512.5 million (December 31, 2021: € 684.5 million).

The following table shows the assets and liabilities that are recognized in the balance sheet at fair value and their classification according to the fair value hierarchy:

In general, Vonovia measures its investment properties on the basis of the discounted cash flow (DCF) methodology (Level 3). The material valuation parameters and valuation results can be found in chapter [D28] Investment Properties.

The investment properties classified as assets held for sale are recognized at the time of their transfer to assets held for sale at their new fair value, the agreed purchase price (Level 2).

No financial instruments were reclassified to different hierarchy levels as against the comparative period.

Securities and shares in listed companies included in other investments are generally measured using the quoted prices in active markets (Level 1).

All investments in equity instruments that do not relate to associates are measured at fair value in other comprehensive income. The Group’s primary aim is to hold its investments in equity instruments in the long term for strategic purposes. Measurement is consistent with Level 2 as the expected cash flows do not involve any considerable estimation uncertainties as the business model can be planned based on the contractual agreements, and discounting can use the same approach as that used for other financial instruments.

For the measurement of financial instruments, cash flows are initially calculated and then discounted. In addition to the tenor-specific EURIBOR/STIBOR rates (3M; 6M), the respective credit risk is taken as a basis for discounting. Depending on the expected cash flows, either Vonovia’s own credit risk or the counterparty risk is taken into account in the calculation.

Due to the current interest rate environment (and the return to more positive market values as a result), counterparty risk premiums were relevant for the interest rate swaps in the consolidated financial statements alongside Vonovia’s own credit risk. As with Vonovia’s own risk, they are derived from rates observable on the capital markets and ranged from 0 to 230 basis points, depending on the residual maturities. Vonovia’s own risk premiums were trading at between 25 and 280 basis points on the same cut-off date, depending on the maturities. Regarding the positive market values of the cross currency swaps, a counterparty risk of -20 basis points was taken into account.

As part of the valuation of the cross currency swaps, the USD cash flows are converted into EUR using the EUR/USD FX forward curve, after which all EUR cash flows are discounted using the 6M EURIBOR curve (Level 2).

The fair values of the cash and cash equivalents, trade receivables and other financial receivables approximate their carrying amounts at the reporting date owing to their mainly short maturities. The amount of the estimated impairment loss on cash and cash equivalents was calculated based on the losses expected over a period of twelve months. It was determined that the cash and cash equivalents have a low risk of default due to the external ratings and short residual maturities and that there is no need for any material impairment of cash and cash equivalents.

The fair value of the purchase price liabilities from put options/rights to reimbursement granted to minority shareholders is generally based on the going concern value of the respective company; if a contractually agreed minimum purchase price is higher than this amount, this purchase price is recognized (Level 3). The unobservable valuation parameters may fluctuate depending on the going concern values of these companies. However, a major change in value is not likely, as the business model is very predictable.