55 Financial Risk Management

In the course of its business activities, Vonovia is exposed to various financial risks. The Group-wide financial risk management system aims to identify any potentially negative impact on the financial position of the Group early on and take suitable measures to limit this impact. For the structure and organization of financial risk management, we refer to the management report (see Risk Management Structure and Instruments). This system was implemented on the basis of Group guidelines, which were approved by the Management Board and which are continually reviewed. The risks associated with financial instruments and the corresponding risk management are described in detail as follows:

Market Risks

Currency Risks

Liquidity transfers from the German subgroup to Swedish subsidiaries are usually secured through the conclusion of foreign currency forwards. Nevertheless, currency fluctuations are expected to result from financing relationships. By way of example, Vonovia SE issued two bonds denominated in Swedish krona in a total amount of SEK 1,245.4 million in 2022. Based on the exchange rate as of December 31, 2023, a -5% change in the value of the Swedish krona against the euro would result in currency gains of € 5.9 million, while a change of +5% would result in a currency loss of € 5.3 million. Vonovia is subject to no further material currency risks in the scope of its usual business activities.

Interest Rate Risks

The investments measured at fair value are subject, in particular, to a price risk resulting from fluctuations in expected returns, market interest rates and expectations based on the operating business development of the investments. Other investments are long-term investments that are closely related to Vonovia’s operating business areas. As a result, short-term realization of the price fluctuations cannot generally be assumed.

In the course of its business activities, Vonovia is exposed to cash-effective interest rate risks as a result of floating-rate debt as well as new and follow-on loans. Within this context, the interest markets are continually monitored by the Finance and Treasury department. Its observations are incorporated into the financing strategy.

As part of its financing strategy, Vonovia uses derivative financial instruments, in particular interest rate swaps and caps, to limit or manage interest rate risks. Vonovia’s policies permit the use of derivatives only if they are associated with underlying assets or liabilities, contractual rights or obligations and planned, highly probable transactions.

A sensitivity analysis for cash flow hedges is provided under chapter [G57] Cash Flow Hedges and Stand-alone Hedging Instruments.

Other Risks

Vonovia also acts as an energy supply company through its subsidiary Vonovia Energie Service GmbH. Contracts used for procurement and in the context of sales do not constitute financial instruments under IFRS 9 as a general rule due to the own use exemption. However, because the contracts used are managed in a comparable manner, this business area is also presented below. Due in particular to the current fluctuations in energy procurement conditions, there is a risk that planned energy procurement prices may not be realized. This indirectly results in the risk of the energy sales business becoming loss-making. Vonovia hedges against these risks with a broad range of risk management instruments, which, in addition to a structured multi-year procurement strategy and systematic risk monitoring, also offers the option of price adjustments during the year. This has significantly reduced market price risks in the current dynamic situation on the energy procurement markets.

For all material equity instruments categorized at FVOCI, a 5% increase (reduction) in the share price would have increased (reduced) total equity by € 14.1 million (€ -14.1 million) (December 31, 2022: € 19.5 million (€ -19.5 million). With regard to the impact of the change in equity instruments at fair value in other comprehensive income during the reporting period, we refer to the statement of comprehensive income.

Credit Risks

Vonovia is exposed to a default risk resulting from the potential failure of a counterparty to fulfill its part of the contract. In order to minimize risks, financial transactions are generally only executed with banks and partners whose credit rating has been found by a rating agency to be at least equivalent to Vonovia’s. These counterparties are assigned volume limits set by the Management Board. The counterparty risks are managed and monitored centrally by the Corporate Finance and Treasury department.

Liquidity Risks

The companies of Vonovia are financed by borrowings to a notable degree. Due to their high volume, the loans are in some cases exposed to a considerable refinancing risk. The liquidity risks arising from financing transactions with high volumes (volume risks) have become apparent in the financial sector, especially in the wake of the financial crisis. In order to limit these risks, Vonovia is in constant contact with many different market players, continuously monitors all financing options available on the capital and banking markets and uses these options in a targeted manner. Moreover, Vonovia subjects its existing financings to an early review prior to the respective final maturity date in order to ensure refinancing.

Under the conditions of existing loan agreements, Vonovia is obliged to fulfill certain financial covenants such as the debt service coverage ratio or debt-equity ratio.  If financial covenants are violated, the breach is not rectified within so-called cure periods and no mutually acceptable agreement can be reached with the lenders, the financing may be restructured and the cost structure changed. Should all commonly practiced solutions be unsuccessful, the lenders could call in the loan. The fulfillment of these financial covenants is continually monitored by the Corporate Finance and Treasury department on the basis of current actual figures and budgetary accounting.

In order to ensure its ability to pay at all times, Vonovia has put a system-supported cash management system in place. This system monitors and optimizes Vonovia’s cash flows on an ongoing basis and provides the Management Board with regular reports on the Group’s current liquidity situation. Liquidity management is supplemented by short-term rolling, monthly liquidity planning for the current fiscal year, of which the Management Board is also promptly notified. In order to minimize credit risks, large amounts of cash on hand are avoided wherever possible. In the event that large reserves are necessary on a short-term basis due to pending investments or refinancing, these are distributed among various instruments and banking partners with good credit ratings.

The following table shows the forecast for undiscounted cash flows of the non-derivative financial liabilities and derivative financial instruments for the 2023 reporting year. The loan repayments shown for the following years contain only contractually fixed minimum repayment amounts:

Another maturity band for the remaining term was added to the information from the 2023 fiscal year onwards. The prior-year figures have not been restated.

Credit Facilities

Vonovia has concluded framework agreements with various banks with respect to accessing KfW funds. The vast majority of these loans are not secured by way of land charges. As of December 31, 2023, the total volume of these loan framework agreements stood at € 959.0 million (December 31, 2022: € 926.0 million), with € 678.0 million (December 31, 2022: € 835.0 million) drawn.

Since November 2021, an agreement has been in place between Vonovia SE and a banking consortium led by Commerzbank AG for a syndicated credit facility with a volume of € 3,000.0 million. Drawdowns can be made in euros or Swedish krona under the agreement, which originally ended in 2024, with interest based on the EURIBOR or STIBOR, plus an additional margin. This credit line had not been used as of December 31, 2023. As a contractual extension option was exercised at the end of September, the agreement will end in 2026.

A commercial paper master program with a total volume of € 3,000.0 million, in which Vonovia SE acts as the issuer, has also been in place since November 2021. Issues in an amount of € 500.0 million were outstanding as of December 31, 2023.

In September, a general loan agreement for around € 600.0 million was concluded between Vonovia SE and a consortium of four banks led by Unicredit Bank AG. It can be used exclusively to refinance liabilities and any drawdowns must be repaid using the proceeds subsequently received from capital market transactions or sales. This agreement will end after a two-year term.

As of December 31, 2023, the total volume available under guarantee loan agreements in the Group as a whole amounted to € 245.0 million. A total of € 117.2 million of this amount had been drawn down by the reporting date.

All in all, Vonovia has cash on hand and deposits at banking institutions of € 1,374.4 million as of the reporting date (December 31, 2022: € 1,302.4 million). The master credit agreements/the commercial paper program, together with the cash on hand, guarantee Vonovia’s ability to pay at all times.

We refer to the information on financial risk management in the management report.