Vonovia Annual Report 2023

44 Leases

Accounting Policies

IFRS 16 “Leases,” which has applied as a mandatory requirement since January 1, 2019, introduces only one accounting model (right-of-use model) for lessees, based on which all leases are to be recognized in the balance sheet as a matter of principle. The distinction between operating and finance leases only remains in place for accounting as the lessor.

All contracts that give the Vonovia Group the right to control the use of an identified asset over a certain period of time in return for consideration are considered leases within the meaning of IFRS 16.

For all lease contracts that meet the definition of leases according to IFRS 16, Vonovia recognizes lease liabilities equal to the present value of the future lease payments, discounted using the term-specific incremental borrowing rate. Correspondingly, right-of-use assets are recognized in the amount of the lease liabilities, plus any advance payments or any initial direct costs.

The lease liabilities are adjusted in line with financial principles. They are increased by the periodic interest expenses and reduced by the lease payments made.

The right-of-use assets are generally recognized at amortized cost, taking depreciation and impairments into account. Right-of-use assets that meet the definition of investment properties (IAS 40) are recognized at fair value in line with the recognition and measurement rules set out in IAS 40.

Changes within the lease term or within the lease payments lead to a remeasurement of the present value and, as a result, to an adjustment of the lease liability and the right-of-use asset.

Periods resulting from extension or termination options granted on a unilateral basis are assessed on a lease-by-lease basis and are only taken into account if their use is sufficiently probable – for example, due to financial incentives.

There is an accounting option available for short-term leases and leases of low-value assets. Vonovia makes use of this option, meaning that such leases are not recognized. As far as rented IT equipment and metering technology is concerned, portfolios are set up for leases with similar terms and a single discount rate is applied to these portfolios.

Such variable lease payments, which are not included in the measurement of the lease liabilities, as well as lease payments associated with short-term leases, with leases of low-value assets and with lease contracts that do not meet the definition of leases according to IFRS 16 are recognized as expenses on a straight-line basis over the lease term.

In addition to conventional vehicle leasing over a fixed lease term of three to five years, the Vonovia Group also leases IT equipment (IT leasing), rented residential, commercial and nursing care properties for subleasing (interim rental agreements; rented nursing care properties reported under the assets/liabilities of discontinued operations as of December 31, 2023), heat generation plants to supply the Group’s own properties with heat (contracting), water and heat meters (metering technology), leasing of land for the construction of owner-occupied commercial properties, as well as office buildings, office spaces, warehouse spaces and parking spaces (lease agreements for commercial premises). Under license agreements with public-sector institutions, Vonovia is granted the right to use public properties as storage locations or parking spaces, to lay heating pipes or cables, or to construct playgrounds. Long-term leasehold contracts have the biggest impact on the company’s net assets, financial position and results of operations. These involve Vonovia leasing land for the rental of constructed residential and commercial properties. These contracts generally have a term of 99 years.

Development of Right-of-use Assets

Development of Right-of-use Assets
in € million	Dec. 31, 2022	Dec. 31, 2023

Right-of-use assets
Leasehold contracts	2,016.8	1,798.0
Interim rental agreements	3.0	0.5
Right-of-use assets within investment properties	2,019.8	1,798.5
Leasing of land for the construction of owner-occupied commercial properties	30.9	32.2
Lease agreements for commercial premises	41.7	48.3
Contracting	91.8	78.0
Vehicle leases	4.7	4.9
License agreements	0.5	0.0
Leases of IT equipment	1.5	1.0
Metering technology	22.6	22.1
Right-of-use assets within property, plant and equipment	193.7	186.5
	2,213.5	1,985.0

As of December 31, 2023, the right-of-use assets resulting from leases amount to € 1,985.0 million (2022: € 2,213.5 million).

The majority of the right-of-use assets amounting to € 1,798.5 million is reported under investment properties and does not only result from interim lease agreements (leased and subleased residential and commercial properties), but mainly from leasehold contracts (€ 1,798.0 million). The other right-of-use assets totaling € 186.5 million are reported under property, plant and equipment and mainly include right-of-use assets resulting from heat contracting (€ 78.0 million), concluded lease agreements for commercial premises (€ 48.3 million), the leasing of land for the construction of owner-occupied commercial properties (€ 32.2 million), contracts connected with leased metering technology (€ 22.1 million) and vehicle leases (€ 4.9 million).

Development of Lease Liabilities

	Dec. 31, 2022			Dec. 31, 2023
in € million	Due within one year	Due in 1 to 5 years	Due after 5 years	Due within one year	Due in 1 to 5 years	Due after 5 years

Lease liabilities
Leasehold contracts (IAS 40)	12.2	39.5	430.6	12.2	40.4	428.9
Interim rental agreements	1.4	1.7	–	0.5	0.0	0.0
Leasing of land for the construction of owner-occupied commercial properties	0.1	0.6	31.3	0.2	0.7	32.7
Lease agreements for commercial premises	10.3	21.3	10.7	11.7	28.8	9.7
Contracting	11.4	40.1	41.8	11.8	30.7	36.4
Vehicle leases	2.2	2.5	–	2.4	2.6	0.0
License agreements	–	–	0.5	0.0	0.0	0.0
Leases of IT equipment	0.7	0.8	–	0.5	0.5	0.0
Metering technology	3.2	12.4	7.2	4.7	13.8	4.0
	41.5	118.9	522.1	43.9	117.5	511.8

As of December 31, 2023, the lease liabilities amount to € 673.2 million (2022: € 682.5 million).

The year-on-year decrease in lease liabilities of € -9.3 million is mainly due to lower lease liabilities from heating supply contracts (€ -14.3 million), especially as a result of repayments made and prematurely terminated contracts in the 2023 reporting year. On the contrary, lease liabilities from lease agreements for commercial premises increased (€ +7.9 million), mainly due to index-based price increases and newly concluded leases, thereof € 7.0 million in connection with an office building in Berlin leased in January 2023 for Vonovia’s customer service.

Totaling € 511.8 million, the majority of the lease liabilities recognized as of December 31, 2023 are due after more than five years. Of this amount, € 428.9 million is attributable to lease liabilities from leasehold contracts. € 43.9 million is due within the next year. € 12.2 million of this amount is attributable to leasehold contracts, € 11.8 million is attributable to heating supply contracts.

The following table shows the development of the right-of-use assets reported under property, plant and equipment:

Development of the right-of-use assets reported under property, plant and equipment in the fiscal year

in € million	Carrying amount of right-of-use assets Jan. 1, 2023	Additions 2023	Depreciation 2023	Transfer into discontinued operations	Carrying amount of right-of-use assets Dec. 31, 2023	Interest expenses 2023

Leasing of land for the construction of owner-occupied commercial properties	30.9	1.8	-0.4	–	32.2	0.9
Lease agreements for commercial premises	41.7	20.7	-12.4	-1.2	48.3	1.0
Contracting	91.8	4.5	-13.3	-0.7	78.0	2.1
Vehicle leases	4.7	3.6	-2.7	-0.3	4.9	0.1
License agreements	0.5	–	–	–	–	–
Leases of IT equipment	1.5	0.5	-0.7	–	1.0	0.1
Metering technology	22.6	14.8	-3.7	–	22.1	0.7
	193.7	45.9	-33.2	-2.2	186.5	4.9

Development of the right-of-use assets reported under property, plant and equipment in the previous year

in € million	Carrying amount of right-of-use assets Jan. 1, 2022	Additions 2022	Depreciation 2022	Carrying amount of right-of-use assets Dec. 31, 2022	Interest expenses 2022 (adjusted)

Leasing of land for the construction of owner-occupied commercial properties	27.4	4.0	-0.4	30.9	0.8
Lease agreements for commercial premises	45.1	16.4	-12.2	41.7	0.4
Contracting	56.8	49.4	-12.2	91.8	1.3
Vehicle leases	4.8	2.7	-2.5	4.7	0.0
License agreements	0.5	0.0	-0.0	0.5	0.0
Leases of IT equipment	2.1	1.7	-1.0	1.5	0.0
Metering technology	38.2	0.8	-5.4	22.6	0.2
	174.9	75.0	-33.7	193.7	2.7

The interest expenses recognized in the 2023 fiscal year resulting from leases pursuant to IFRS 16 amounted to € 19.9 million in total (2022: € 17.6 million), mainly from leasehold contracts (€ 15.0 million).

In the 2023 fiscal year, a total of 207 lease contracts (2022: 161) were classified as short-term leases and thus were not recognized in line with the accounting option available. The corresponding expenses, recognized in the 2023 fiscal year, amounted to € 0.9 million (2022: € 0.6 million). Expenses relating to leases of low-value assets amounting to € 2.7 million in the 2023 fiscal year (2022: € 1.2 million) mostly result from leased bicycles/e-bikes. Expenses totaling € 38.8 million were incurred in connection with variable lease payments in the 2023 fiscal year (2022: € 33.1 million), basically due to energy costs under heat supply contracts. Variable lease payments have not been included in the measurement of lease liabilities.

In addition to variable lease payments as well as payments resulting from short-term leases and leases of low-value assets, each included in the cash flow from operating activities, interest payments and repayments of lease liabilities totaling € 58.8 million were incurred in the 2023 fiscal year (2022: € 59.2 million). Thus, the total cash outflow for leases in the reporting period amounted to € 101.2 million (2022: € 94.1 million).

Total income from subleasing, mostly from subleasing of right-of-use assets in connection with rented residential, commercial and care home properties, amounted to € 15.0 million in the reporting period (2022: € 14.4 million). As of the reporting date, there were no significant non-cancelable subleases on the Spree-Bellevue property.

The loss arising from the rental of the sold Spree-Bellevue property (sale and leaseback transaction) in fiscal year 2023 amounted to € 1.2 million (2022: loss of € 1.2 million). This does not have any material impact on the Group’s cash flows.