26 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 € 2.3 million (December 31, 2023: € 2.5 million).
• Amount by which the fair value of plan assets exceeds the corresponding obligation of € 1.2 million (December 31, 2023: € 1.5 million).
• Provisions for pensions and similar obligations: € 480.0 million (December 31, 2023: € 512.4 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 of the consolidated financial statements as of December 31, 2023.

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 vis-à-vis the comparative period.

Securities are generally measured using the quoted prices in active markets (Level 1).

For the measurement of derivative financial instruments, cash flows are first 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 15 to 205 basis points, depending on the residual maturities. Vonovia’s own risk premiums were trading at between 60 and 190 basis points on the same cut-off date, depending on the maturities. Risk premiums of 155 basis points (GBP bonds), 65 basis points (SEK bond) and 100 basis points (CHF bond) are applied to the market values of the cross currency swaps.

As part of the valuation of the current cross currency swaps, the currency cash flows are converted into EUR using the EUR/GBP, EUR/SEK or EUR/CHF FX forward curve, after which all EUR cash flows are discounted using the EUR ESTR 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.

Risk in the area of rent receivables was examined through an analysis of the reduced general creditworthiness (as a special forward-looking parameter of impairment losses for financial assets as defined by IFRS 9). As Vonovia receives rent payments mostly in advance, only deferred rents and similar receivables are affected. Since these receivables are in any case very quickly subject to a specific valuation allowance, an additional need for impairment loss is currently not foreseeable. The further development of the receivables is continuously monitored.

The maximum default risk on the receivables from the sale of properties is limited to the margin and the transaction unwinding costs as the title to the properties remains with Vonovia as security until receipt of payment.

Contingent liabilities exist at Vonovia for cases in which Vonovia SE and its subsidiaries give guarantees to various contractual counterparts. These have not changed to any significant extent since the consolidated financial statements dated December 31, 2023.

Vonovia is involved in a number of legal disputes resulting from normal business activities. In particular, these involve tenancy, construction and sales law disputes and, in individual cases, company law disputes (mainly following squeeze-out processes). Furthermore, there are legal disputes with a social insurance provider. The expected loss in this regard has been estimated as € 150.0 – € 375.0 million, with an unchanged probability of occurrence of 5–39%. None of the legal disputes, taken in isolation, will have any material effects on the net assets, financial position or results of operations of Vonovia.

Bochum, July 26, 2024