Risks Related to Financing

With regard to financing, we identified the five amber risks (2022: five) explained below at the end of 2023.

Restricted access to the bond market and a poorer rating could give rise to refinancing risks for Vonovia, meaning that too little liquidity might be available temporarily.

Vonovia implemented extensive refinancing measures successfully in the 2023 fiscal year. Ratings also met the company’s expectations. Details can be found in the chapter The Company and Its Shares in the management report. The financing risk with an impact on profit and loss classified as amber in 2022, “restricted access to the bond market” was consolidated with the risk formerly assessed as a green risk, “loss of the BBB+ (S&P) or A3 (Moody’s) rating,” in 2023 to create a new amber risk with an impact on profit and loss, “higher refinancing costs due to changes in risk profile.” At the end of the reporting period, we expect the loss associated with this risk to amount to € 375–750 million and assess the expected probability of occurrence as 5–39%. The higher probability of occurrence reflects developments on the real estate market, which has come under pressure due to supply problems, inflation and the associated higher refinancing interest rates. In 2022, the risk “restricted access to the bond market” was still assessed with a potential amount of loss of >€ 750 million and an expected probability of occurrence of <5%. In 2022, the risk “loss of the BBB+ (S&P) or A3 (Moody’s) rating” was assessed with a potential amount of loss of € 25-100 million and an expected probability of occurrence of <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 dialog 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. As the updated interest rates have been taken into account for planning purposes, the financing risk with an impact on profit and loss classified as amber “unfavorable interest rate developments” was downgraded in 2023 in terms of the expected amount of loss to € 375–750 million based on the latest assessment (2022: >€ 750 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 six 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, at the end of the 2023 reporting period, as having an expected amount of loss of >€ 750 million (2022: >€ 750 million) and an expected probability of occurrence of <5% (2022: <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 five to ten 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, at the end of the reporting period, as having an expected amount of loss of >€ 750 million (2022: >€ 750 million) and an expected probability of occurrence of <5% (2022: <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.

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. This involves comparing the recoverable amount with the carrying amount of the group of cash-generating units (CGUs). The recoverable amount of the group of CGUs is either its value in use or fair value less costs of sale, whichever is higher. If the carrying amount of a CGU is higher than the recoverable amount, impairment losses need to be recognized. This can have an impact on our covenants. At present, we consider this amber risk affecting the balance sheet to have an expected amount of loss of € 600–2,400 million (2022: € 600–2,400 million) and a probability of occurrence of 40–59% (2022: 40–59%). 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 2023 (previous years in parentheses), the net risks identified can be summarized as follows:

Net Risks