57 Cash Flow Hedges and Stand-alone Hedging Instruments

On the reporting date, the nominal volume of cash flow hedges held in euros, including pre-hedges, amounts to € 1,165.0 million (December 31, 2022: € 1,501.7 million). Interest rates on hedging instruments are between 1.505% and 3.513% with original swap periods of between 3.5 and 20 years.

In order to manage its interest rate risk, Vonovia concluded five float-to-fix interest rate swaps in the period between June 30, 2023 and July 6, 2023. These were supplemented by a forward starting interest rate swap concluded on July 5, 2023. All of the transactions concluded by Vonovia SE were included in a hedge, while two interest rate swaps concluded by Deutsche Wohnen SE remain stand-alone interest rate swaps. The float-to-fix interest rate swaps will run for between 3.5 years and 6.25 years, hedge a total nominal amount of € 775 million and took effect between July 4, 2023 and July 10, 2023. The forward swap, with a nominal value of € 500 million and a term of ten years, will take effect on April 16, 2024; cash settlement was agreed. The new interest rate hedges exchange a 3M or 6M EURIBOR for a fixed interest rate of between 2.989% and 3.513%.

All of the zero-cost swaption collars discussed at this point in the report in the previous year were settled in cash in the reporting year.

For the hedging instruments that are maintained through passive hedge accounting, € 6.6 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 € 4.2 million.

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

With the exception of one transaction, the euro interest rate swaps are reported with negative 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:

The two USD 175.0 million cross-currency swaps, which were contracted in equal amounts with each of JP Morgan Limited and Morgan Stanley Bank International Limited with an original maturity of ten years, matured on October 2, 2023, in line with the bonds.

As of the reporting date, Deutsche Wohnen Group recognized 18 stand-alone interest rate swaps. The nominal value hedged came to € 853.0 million as of December 31, 2023 (December 31, 2022: € 704.8 million); three transactions result in a negative market value of € 7.7 million, while the positive market values of the other interest rate swaps total € 39.4 million (December 31, 2022: only positive market values of € 66.4 million).

The hedged nominal volume of currently twelve stand-alone interest rate swaps of BUWOG amounted to € 335.0 million as of December 31, 2023 (December 31, 2022: € 299.9 million), while positive market values of € 16.6 million were offset by negative market values totaling € 1.6 million (December 31, 2022: only positive market values of € 27.1 million).

On the reporting date, the Victoriahem Group recognized nine stand-alone interest rate swaps, one forward and one interest rate cap. The nominal value hedged in Swedish krona amounted to € 809.4 million as of December 31, 2023 (December 31, 2022: € 1,296.9 million), while positive market values of € 7.7 million were offset by negative market values totaling € 1.2 million (December 31, 2022: only positive market values of € 23.8 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 2023, two new derivatives in the form of long-term call options to buy back shares were recognized for the first time in the amount of € 838.0 million. For details on the call options, please refer to the chapter entitled [D29] Financial Assets

All in all, the positive market values of cash flow hedges in the amount of € 4.4 million were offset in the reporting year by negative market values of € 48.6 million (December 31, 2022: only positive market values of € 65.7 million).

At the same time, positive market values from stand-alone interest rate derivatives of Deutsche Wohnen, BUWOG and Victoriahem were recognized in the amount of € 63.8 million (December 31, 2022: € 99.8 million) and were offset in the reporting year by negative market values of € 10.6 million.

The positive deferred interest balance across the board came to € 4.4 million in the reporting year (December 31, 2022: € 1.1 million).

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

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

In the reporting year, after allowing for deferred taxes, negative cumulative ineffectiveness for cash flow hedges amounted to € 0.3 million (2022: € -0.4 million), meaning that net interest deteriorated by € 0.7 million.

On the basis of the valuation as of December 31, 2023, Vonovia used a sensitivity analysis for all interest rate swaps to determine the change in equity given a parallel shift in the interest rate structure of 50 basis points in each case:

Another sensitivity analysis revealed that, for a minority of variable-rate loans not designated as hedges, a parallel shift of 50 basis points in each case would have an effect in the income statement of € 15.3 million (or € -15.3 million), as against an effect of € 18.4 million (or € -18.4 million) in the previous year.