Notes to the consolidated financial statements

as of 31 December 2020

1. The Group

S IMMO Group (S IMMO AG and its subsidiaries) is an international real estate group. The ultimate parent company of the Group,  S IMMO  AG , has its registered office and headquarters at Friedrichstrasse 10, 1010  Vienna ,  Austria . The company has been listed on the Vienna Stock Exchange since 1987, since 2007 in the Prime Market segment. S IMMO was included in the Austrian ATX benchmark index for the first time on 18 September 2017. It has subsidiaries in Austria, Germany, Czechia, Slovakia, Hungary, Croatia, Romania and Bulgaria as of the reporting date. As of 31 December 2020, S IMMO Group owned properties in all the above countries. S IMMO Group engages in buying, selling, real estate project development, letting, asset management and operating hotels and shopping centres as well as in revitalising and renovating properties in Austria, Germany and CEE (Slovakia, Czechia, Hungary, Romania, Bulgaria and Croatia).

2. Accounting and valuation policies

2.1. Accounting policies

The consolidated financial statements comply with the International Financial Reporting Standards (IFRS), including the interpretations of the IFRS Interpretations Committee, the application of which is mandatory in the European Union at the balance sheet date, as well as supplementary provisions according to section 245a (1) Austrian Commercial Code (UGB).

The accounting policies of all companies included in consolidation are based on the uniform accounting regulations of S IMMO Group. The financial year for all companies included in consolidation ends on 31 December.

The consolidated financial statements are presented rounded to the nearest 1,000 euros (EUR ’000 or kEUR). The totals of rounded amounts and the percentages may be affected by rounding differences caused by the use of computer software.

All receivables and liabilities and all income and expenses between companies in the scope of consolidation are eliminated as part of debt consolidation and the consolidation of income and expenses. Interim results from intercompany transfers of properties are likewise eliminated.

2.2. Consolidation group and basis of consolidation

2.2.1. Subsidiaries

The consolidated financial statements include all the companies (subsidiaries) over which the parent company has a controlling influence through full consolidation. A controlling interest exists where the parent company is directly or indirectly in a position to have the power of disposition over the associated subsidiary and determine the financial and business policies of the subsidiary in such a way that the yield level can be influenced (risk exposure by or claims related to fluctuating yields). A subsidiary is consolidated from the time the controlling influence is acquired, and deconsolidated when that influence ceases to exist.

The acquisition date is the date on which control of the new acquisition is acquired. Costs incurred by S IMMO Group in the course of acquisition, such as fees for due diligence reviews, measurements and other consulting services, are recognised as expenses in the period in which they have incurred.

If acquisitions result in business combinations as defined by IFRS 3, they are recognised according to the acquisition method. Assessing whether a transaction includes the acquisition of a business requires a detailed analysis of the relevant structures and processes.

If the company obtains control of a business through an acquisition, the acquisition costs are offset against the attributable fair value of the identifiable net assets acquired to determine any difference. A positive difference is recognised as goodwill. If the amount is negative, the underlying calculations and assumptions are reviewed once again and said amount is only recognised in profit or loss if this further critical review of the recognition and measurement of the assets and liabilities acquired results in a negative difference.

If there are no business combinations as defined by IFRS 3, the assets and liabilities acquired are recognised at the proportionately attributable acquisition costs. Typically, hidden reserves recognised as part of share deals are mostly or exclusively attributable to properties.

Changes to interests in subsidiaries that do not lead to the establishment or loss of control are classified as equity transactions. The book values of the interests held by the Group and accordingly those held by the controlling shareholders are adjusted in such a way that they reflect the changes to the ownership interests appropriately. The difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration received is recognised under equity and allocated to the shareholders of S IMMO AG.

In the event of loss of control over a subsidiary, the attributable assets and liabilities and the related non-controlling interests are derecognised on the basis of the fictitious stand-alone disposal. The remeasurement of any retained interests at fair value as of the date of the loss of control is performed via the income statement and represents the starting point for the future measurement as an associate, joint venture or equity investment. When obtaining control over an existing joint venture or associate, the equity interest previously held in the acquired enterprise should be remeasured at fair value at the acquisition date.

2.2.2. Non-controlling interests

S IMMO Group recognises non-controlling interests as the proportionate share of identifiable net assets of the subsidiary.

Transactions with non-controlling interests not resulting in loss of control are treated in the same way as transactions with the Group’s shareholders. Any difference between the consideration given and the relevant share of the book value of the net assets of the subsidiary arising from the acquisition of a non-controlling interest is recognised in equity. Gains and losses on the disposal of non-controlling interests are also recognised in equity.

Changes to the shareholdings of the non-controlling interests that do not lead to a loss of control of the S IMMO Group are recognised as set out in 2.2.1.

2.2.3. Associates and joint ventures

Companies over whose business and financial policies the parent company can directly or indirectly exercise a significant influence (as a rule, through a direct or indirect interest ranging from 20% to 50% of the share capital) and joint companies are included in the consolidated financial statements at equity.

Interests in companies included at equity are initially recognised at cost of acquisition. For associated companies and jointly controlled companies included at equity, differences resulting from consolidation are calculated in the same way as for fully consolidated companies. The goodwill resulting from the acquisition of a company included at equity is part of the book value and is not subject to amortisation. As part of the investment in the company included at equity, the goodwill is reviewed for impairment. S IMMO AG’s interest in the profit or loss of a company consolidated at equity after the date of acquisition is included in the consolidated income statement. The share of other comprehensive income is recognised directly in the item other comprehensive income in the consolidated statement of comprehensive income. The cumulative share of such changes increases or reduces the book value of the interest. If S IMMO AG’s attributable share of the accumulated losses of a company consolidated at equity exceeds the book value of the interest, excess shares of losses are not recognised, except to the extent that they give rise to obligations. In the event of distributions, the book value of the interest is reduced by the proportionate amount. Intercompany profits and losses between S IMMO AG and companies consolidated at equity are eliminated on consolidation.

If the ownership interest in companies recognised at equity changes and the equity method continues to be applied, the proportion of the gain or loss previously recognised in other comprehensive income attributed to the reduction in ownership interest is to be reclassified to profit or loss if this gain or loss would be required to be reclassified to profit or loss on the disposal of the related assets or liabilities.

2.2.4. Consolidation scope

Apart from S IMMO AG, the consolidated financial statements include 80 (2019: 77) companies (property holding and intermediary holding companies) that are fully consolidated and directly or indirectly owned by S IMMO AG, and 5 (2019: 11) companies included at equity.

Changes in the consolidation group in the financial year 2020

Zagrebtower d.o.o., Croatia, was acquired by way of a share deal in the third quarter of 2020. The purchase price (not including ancillary purchase costs) of kEUR 33,379 consisted entirely of cash and cash equivalents. The loan of kEUR 12,304 included in non-current liabilities was repaid in the course of the settlement of the purchase. The company acquired had the following book values at the time of the acquisition:

In the first quarter of 2020, S IMMO Property Zwölf GmbH, Austria, was also fully consolidated in the consolidated financial statements of S IMMO AG for the first time. This was followed by SIAG Multipurpose Center, s.r.o., Slovakia, in the second quarter of 2020. Due to their immateriality in previous years, neither company was included in the consolidation group and were instead reported as an investment. Cash at the time of initial consolidation amounted to kEUR 25 (S IMMO Property Zwölf GmbH) and kEUR 10 (SIAG Multipurpose Center, s.r.o.). The newly founded company THE MARK II OFFICES S.R.L., Romania, was fully included in the consolidation group in the third quarter of 2020. A business combination as per IFRS 3 did not occur for any of the newly consolidated companies, as the definition of a business according to IFRS 3 was not met. In the fourth quarter of 2020, the previously consolidated Szegedi út Kft., Hungary, was merged with the fully consolidated Hungarian subsidiary CEE Property-Invest Hungary 2003 Kft.

In the fourth quarter of 2020, the shares in the associated Austrian companies QBC Immobilien GmbH & Co Alpha KG, QBC Immobilien GmbH & Co Omega KG, QBC Immobilien GmbH & Co Zeta KG, QBC Alpha SP Immomanagement GmbH, QBC Omega SP Immomanagement GmbH and QBC Immobilien GmbH were sold.

Overview of the consolidation group 2020 on a company basis

The following subsidiaries were not included in the consolidation group due to their immateriality for the consolidated financial statements as of 31 December 2020. They had a book value in the amount of kEUR 56 as of 31 December 2020 (31 December 2019: kEUR 59). The non-consolidated subsidiaries include Einkaufs-Center Sofia Verwaltungs G.m.b.H., Germany, Hamburg (nominal capital kEUR 25, Group share 65%) and the SOPOT Property d.o.o., Croatia, Zagreb (nominal capital kHRK 70, Group share 100%). Due to company law-related rules, IPD – International Property Development, s.r.o. is valued at equity.

2.3. Reporting currency and currency translation


The Group’s reporting currency is the euro. For subsidiaries that prepare their accounts in foreign currencies and investments accounted for using the equity method, the functional currency of individual Group companies is determined by the main economic environment in which the respective company operates.A key determining factor here is the currency in which the majority of cash flows, goods and services are settled in the relevant country. When the functional currency is not obvious, in accordance with IAS 21 management uses its judgement to determine the functional currency that most faithfully represents the economic effects of the underlying transactions and events.

For the subsidiaries in Romania, Croatia, Czechia and the majority of the subsidiaries in Hungary, management has defined the euro as the functional currency. The decision took account of the fact that the macroeconomic development of these economies is significantly influenced by the euro area. In addition, S IMMO concludes lease agreements in these countries predominantly in euros. Property financing is also in euros.

For one subsidiary operating in Bulgaria and two subsidiaries in Hungary, the functional currency is the local currency. For those Group companies for which the local currency is equivalent to the functional currency, functional currencies are translated into the reporting currency in accordance with IAS 21 as follows:

(a) assets and liabilities at the closing rate

(b) income and expenses at the average rate for the period

(c) equity at historical rates

(d) all resulting exchange differences are recognised in the foreign currency translation reserve under equity

Foreign currencies have been translated using the following exchange rates:

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing on the transaction date or, in the case of revaluations, on the valuation date. Gains and losses resulting from the settlement of such transactions or from the translation of monetary assets and liabilities denominated in foreign currencies at the exchange rate prevailing on the balance sheet date are recognised in the income statement.

2.4. New mandatory accounting regulations

2.4.1. New and amended standards to be applied in 2020

In preparing the consolidated financial statements, the following amendments to existing IAS, IFRS and interpretations and the newly issued standards and interpretations were taken into consideration, provided they had been published in the Official Journal of the European Union by 14 January 2021 and entered into force by this date:

IFRS 16 “COVID-19-Related Rent Concessions”

Due to the COVID-19 pandemic, rent concessions have been granted to lessees in various forms (e.g. payment exemptions and deferral of lease payments). In May 2020, the IASB published amendments to IFRS 16 in connection with COVID-19. The amendments provide for optional, temporary COVID-19-related relief for lessees. Under certain conditions, they permit lessees to refrain from assessing whether a rent concession constitutes a lease modification in accordance with IFRS 16 and instead to account for the rent concession as if it were variable lease payments rather than a modification. This relief only applies to rent concessions that are made as a direct consequence of the COVID-19 pandemic, and only if certain conditions are met.

Entities that apply the exemption must disclose that fact as well as disclosing whether the exemption has been applied to all qualifying leases, and if not, to which type of leases it has been applied. In addition, the amount from rent concessions recognised in profit or loss must be disclosed.

A lessee applies this amendment retrospectively in accordance with IAS 8, but without any obligation to restate the previous year’s figures.

There were no direct effects on the assets, liabilities, financial position or profit or loss of S IMMO as lessor.

IFRS 3 “Definition of a Business”

In order to be considered a business, an acquisition must include inputs and a substantive process that together significantly contribute to the ability to create outputs. The new regulations provide a framework for assessing when there is a substantive process. For example, in the case of start-ups that have not yet generated any revenues, the acquisition of an organised workforce will be required in order to fit the definition of a business.

The definition of the term “outputs” has been narrowed and now relates only to goods and services for customers and the generation of investment income and other income. Returns in the form of cost savings and other economic benefits therefore will not be included in the future.

In addition, an assessment of whether market participants are capable of replacing any inputs and processes not acquired or integrating the acquired activities and assets is no longer necessary.

Entities have the option of performing a concentration test to determine whether essentially the entire fair value of the gross assets acquired is concentrated in one asset or a group of similar assets. If this is the case, it is concluded that no business has been acquired. A further review is then not required.

There were no effects on the Group’s assets, liabilities, financial position or profit or loss.

Interest Rate Benchmark Reform (IBOR Reform) – Phase 1: Amendments to IFRS 9, IAS 39 and IFRS 7

The amendments in the first phase of the IASB project on the interest rate benchmark reform provide for a temporary exemption from applying specific hedge accounting requirements for hedges that are directly affected by the IBOR reform. As a result, it is possible to continue hedges that would otherwise have had to be terminated due to uncertainty as to when and how interest rate benchmarks are to be replaced in the context of the IBOR reform. However, any ineffective portions are still to be recognised in profit or loss. In view of the widespread use of hedges with IBOR-based contracts, the exemptions will affect companies in all sectors.

There were no significant effects on the Group’s assets, liabilities, financial position or profit or loss.

Amendments to IAS 1 and IAS 8 “Definition of ‘Material’”

The amendments to IAS 1 “Presentation of Financial Statements” and IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors” and consequential amendments to other IFRSs:

i) harmonise the definition of materiality in all IFRSs and in the Conceptual Framework for Financial Reporting,

ii) contain clarifications on the definition of “material” and

iii) contain clarifications on on obscuring material information with immaterial information.

The amended definition is as follows:

“Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.”

The amendments clarify that the reference to obscuring information relates to situations in which the effects are comparable with those of omitting or misstating this information. They also state that an entity must assess materiality in relation to the financial statements as a whole.

In addition, the meaning of “primary users of general purpose financial statements” was clarified by defining these as “present and potential investors, lenders and other creditors” who mostly have to use the information provided in the financial statements for the financial information they require.

There were no significant effects on the Group’s assets, liabilities, financial position or profit or loss.

Revised Conceptual Framework for IFRSs

The IASB has published a revision of its Conceptual Framework for Financial Reporting that will be applied immediately when developing new standards and interpretations. The main changes are:

Increase in the importance of the management’s stewardship for the objective of financial reporting (provision of useful information for making decisions on resource allocation).

Emphasis on the principle of prudence, defined as exercising caution when making judgements in light of an uncertain environment, as a factor contributing to neutrality.

Definition of a reporting entity, which may be a legal entity or part of a legal entity.

Revision of the definition of an asset as a present economic resource controlled by the entity as a result of past events.

Revision of the definition of a liability as a present obligation of an entity to transfer an economic resource as a result of past events.

Removal of probability thresholds for the recognition and inclusion of additional guidelines for the disposal of assets and liabilities.

Inclusion of additional explanations on different measurement concepts and factors to be taken into account when selecting them.

Definition of profit or loss as the primary performance indicator and assessment that income and expenses recognised in other comprehensive income are generally to be reclassified to profit or loss (recycling) if this increases the relevance and faithful representation of the financial statements.

No existing IFRSs have been changed as a result of the revision of the Conceptual Framework. The revised Conceptual Framework will be applied when developing new standards and interpretations in the future. The Conceptual Framework may also help preparers of financial statements with developing accounting policies and matters for which IFRSs do not yet exist.

There were no significant effects on the net assets, financial position and results of operations of the Group.

2.4.2. Standards, interpretations and amendments to published standards that were not yet required to be applied in 2020 and were not applied early

The following standards and interpretations had been introduced or amended by 14 January 2021 but were not yet required to be applied for the financial year 2020. Earlier application is not planned.

Standards and interpretations that have already been adopted by the EU but were not applied early

Interest Rate Benchmark Reform (IBOR Reform) – Phase 2: Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16

The amendments from phase 2 of the interest rate benchmark reform relate to the actual changeover of interest rate benchmarks.

Accounting for changes in the calculation of contractual cash flows as a result of the IBOR reform

For financial instruments measured at amortised cost, there is a practical expedient under which a change in the calculation of contractual cash flows as a result of the IBOR reform is to be accounted for by updating the effective interest rate in accordance with the regulations of IFRS 9.B5.4.5. As a result, a gain or loss is not recognised directly. This expedient applies only to the above change and only to the extent that the change is required as a direct consequence of the IBOR reform and the new calculation of the contractual cash flows is economically equivalent to the previous one.

End date for exemptions from phase 1 for non-contractually specified risk components in hedges

In accordance with the phase 2 amendments, there is no prospective earlier application of the exemptions from phase 1 in relation to a non-contractually specified risk component in which either changes have been made or the hedge has been terminated.

Additional temporary exemptions from the application of specific hedge accounting requirements

For hedges that are directly affected by the IBOR reform, the amendments in phase 2 provide for additional temporary exemptions relating to the application of specific hedge accounting requirements from IAS 39 and IFRS 9:

Changes relating to designation and hedge documentation: Necessary changes to the designation and documentation of a hedge do not lead to its termination. After the discontinuation of the phase 1 exemptions, the hedge documentation must be adapted to the changes required as a result of the IBOR reform, and this must be done by the end of the reporting period in which the changes were made.

Amounts accumulated in the cash flow hedge reserve: Following a change in the contractual cash flows, there is no recycling of the cash flow hedge reserve. If the description of a hedged item in the hedge documentation is changed, it is assumed that the amounts accumulated in the cash flow hedge reserve are based on the new interest rate benchmark on the basis of which the hedged future cash flows are determined.

Retrospective effectiveness test (only IAS 39): For the purposes of assessing the retroactive effectiveness of a hedge on a cumulative basis, an entity may reset the cumulative changes in the fair value of the hedged item and the hedging instrument to zero at the level of individual hedges if it no longer applies the exemptions in relation to the retrospective effectiveness test that are provided for in the phase 1 amendments.

Groups of hedged items: When the hedging relationships for groups of hedged items are changed, the hedged items are allocated to sub-groups based on the interest rate benchmark to be hedged. The interest rate benchmark for each sub-group is determined as the hedged risk.

Risk components – separate identifiability requirement: The “separately identifiable” criterion is considered to be met for the new interest rate benchmark if this is expected to be separately identifiable within 24 months of the date of first designation. This 24-month period applies separately to each new interest rate benchmark. However, it must be possible to measure the risk component reliably.

Additional IFRS 7 disclosures in connection with the IBOR reform

The amendments stipulate disclosures on:

(i) how the transition to new interest rate benchmarks is managed, the progress made and the risks arising from the transition,

(i) quantitative information about derivatives and non-derivatives for which the transition has not yet taken place, broken down by the significant interest rate benchmark, and

(iii) a description of all changes in the risk management strategy as a result of the IBOR reform.

No significant effects on the Group’s assets, liabilities, financial position or profit or loss are currently expected.

IFRS 4 “Temporary exemption from IFRS 9”

The amendments to IFRS 4 are intended to regulate the accounting issues that arise temporarily due to the different application date of IFRS 9 Financial Instruments and the future IFRS 17 Insurance Contracts. In order to bring the application date of IFRS 9 in line with that of the new IFRS 17, in particular the temporary exemption from IFRS 9 has been extended until 2023.

Insurers may therefore apply IAS 39 Financial Instruments: Recognition and Measurement instead of IFRS 9 to financial years beginning before 01 January 2023.

No significant effects on the Group’s assets, liabilities, financial position or profit or loss are expected.

Standards and interpretations that have not yet been adopted by the EU

IFRS 17 “Insurance Contracts”

IFRS 17 was published in May 2017 as a replacement for IFRS 4 “Insurance Contracts”.

As the new regulations only affect the financial statements and key figures of entities that issue insurance contracts or investment contracts with discretionary participation features, no effects on the Group’s assets, liabilities, financial position or profit or loss are expected.

Amendments to IAS 1: Classification of Liabilities as Current or Non-current

The narrow-scope amendment to IAS 1 clarifies that the classification of liabilities as current or non-current is based on the existing rights at the end of the reporting period. The classification is independent of the management’s expectations and of any events after the balance sheet date (e.g. receipt of a waiver or breach of contract after the balance sheet date). The amendment also clarifies what is meant by “settlement” of a liability in IAS 1.

If entities have previously taken the management’s intentions into account when determining the classification of liabilities, there may be an impact. This also applies to some liabilities that can be converted into equity.

The amendment is to be applied retroactively in accordance with IAS 8.

In July 2020, the IASB published a postponement of the mandatory application date for the amendment by one year until 01 January 2023.

No significant effects on the Group’s assets, liabilities, financial position or profit or loss are currently expected.

Amendments to IAS 16: Property, Plant and Equipment – Proceeds before Intended Use

The amendment to IAS 16 prohibits an entity from deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced while bringing that asset to the location and/or condition necessary for its operation (such as proceeds from the sale of samples produced in a testing facility). The amendment also clarifies how “costs of testing” is to be interpreted. These are costs for determining whether the asset is technically and physically capable of performing its intended purpose. By contrast, the achievement of a certain financial performance (e.g. an operating profit margin targeted by the management) is irrelevant for the assessment.

The amendment requires entities to report separately proceeds and costs in connection with produced items that do not come from the entity’s ordinary business and to disclose the item of the statement of comprehensive income in which these proceeds are recognised.

No significant effects on the Group’s assets, liabilities, financial position or profit or loss are currently expected.

Amendments to IFRS 3: Reference to the Conceptual Framework for IFRSs

Minor amendments were made to IFRS 3 in order to update references to the revised Conceptual Framework for IFRSs and supplement IFRS 3 with the provision that an acquirer must apply the regulations of IAS 37 or IFRIC 21 instead of the Conceptual Framework when identifying acquired obligations that come under the scope of IAS 37 or IFRIC 21. Without this new regulation, in a business combination an entity would have recognised some liabilities that are not permitted to be recognised in accordance with IAS 37 or IFRIC 21 and would therefore have to be derecognised through profit or loss immediately after the acquisition. In addition, IFRS 3 is supplemented by an explicit ban on recognising acquired contingent receivables.

No significant effects on the Group’s assets, liabilities, financial position or profit or loss are currently expected.

Amendments to IAS 37: Onerous Contracts – Cost of Fulfilling a Contract

The amendment to IAS 37 clarifies that the cost of fulfilling a contract includes all costs that are directly attributable to the contract. These include the incremental costs of fulfilling the contract (such as direct labour and material costs) and an allocation of other costs that relate directly to fulfilling the contract.

In addition, there is a clarification that any overriding impairment covers the assets used in fulfilling the contract (previously: associated with the contract).

No significant effects on the Group’s assets, liabilities, financial position or profit or loss are currently expected.

Annual Improvements to IFRSs (2018–2020 Cycle)

The following improvements to standards were published in May:

IFRS 9 – Clarification of which fees are to be included in the 10% test for derecognition of financial liabilities.

IFRS 16 – Amendment to Illustrative Example 13 accompanying IFRS 16, which contained statements on payments by the lessor to the lessee for the reimbursement of leasehold improvements, which often led to misunderstandings.

IFRS 1 – The provision specifying that subsidiaries that become a first-time adopter of IFRSs later than their parent company have the option to measure assets and liabilities at the carrying amounts previously recognised for them in the consolidated financial statements of the parent company (not including consolidation adjustments and adjustments due to effects of the business combination) (exception: investment companies) is extended to the cumulative translation differences of the subsidiary. The amendment also applies to associates and joint ventures that make use of the corresponding IFRS 1 regulation.

IAS 41 – Removal of the requirement to exclude taxation cash flows when measuring biological assets at fair value in accordance with IAS 41. This aligns the requirements of IAS 41 with the regulations of IFRS 13 and reconciles them with an amendment to IAS 41 from 2008, according to which a pre-tax interest rate does not necessarily have to be used for discounting when determining the fair value.

No significant effects on the Group’s assets, liabilities, financial position or profit or loss are currently expected.

2.5. Changes in accounting and valuation policies

Apart from the new standards described in Note 2.4.1. and the first-time application of the hedge accounting rules of IFRS 9, there were no changes in valuation policies or in the presentation of the financial statements in the financial year 2020.

2.6. Accounting and valuation policies

2.6.1. Properties held as financial investments

It is industry practice to measure investment properties using the fair value model, under the option available in IAS 40. The Group classifies properties leased or rented out for the purpose of generating income or held for capital appreciation, together with undeveloped land as investment properties. Properties acquired for disposal, used by the Group or sold after development are not supposed to fall under the scope of IAS 40 and fall under the scope of IAS 2.

The application of the fair value model means that rental properties and undeveloped land are measured at fair value at the balance sheet date. The resulting changes in book values before revaluation are recognised as profit or loss under the result from property valuation.

The diversity of the properties to which the fair value model is applied necessitates a careful choice of appropriate valuation models and different parameters for each individual property, so that factors such as location of the property, type of use, market environment and building quality are taken into account.

Costs of regular maintenance are recognised in profit or loss immediately. Costs are capitalised when the expenditure results in increased future benefits and the costs can be reliably measured. The capitalised costs are not subject to depreciation and amortisation because no depreciation and amortisation is applied in general pursuant to the fair value model selected according to IAS 40.

Where construction finance can be directly associated with these properties, borrowing costs of qualifying properties during the period of construction are capitalised as part of acquisition and construction cost.

2.6.2. Inventories

Properties held for sale in the ordinary course of business are not subject to IAS 40, but are to be treated as inventories under IAS 2. Properties held for sale are recognised at cost of acquisition or construction and subsequently measured at the lower of cost of acquisition and construction or net realisable value. The net realisable value is the estimated proceeds of sale less the estimated costs of completion and the estimated selling costs. The net realisable value is recalculated in every subsequent period. The costs of acquisition or construction include not only the direct costs of acquisition but also incidental and other costs.

2.6.3. Owner-operated properties, other plant and equipment

Owner-operated properties consist of hotels operated by S IMMO Group. The business of these hotels includes the rental of rooms and catering activities. These hotels are operated under management agreements for the most part, and consequently the risks associated with occupancy rates are borne by S IMMO Group. Hotels of this kind are outside the scope of IAS 40 (investment properties) and are therefore to be treated as property, plant and equipment under IAS 16.

Under IAS 16, owner-operated properties (including owner-managed hotels) and other property, plant and equipment are valued using the cost model. The properties are recognised on initial capitalisation at cost of acquisition or construction and written down in subsequent years to reflect depreciation and amortisation and any impairment losses (please refer to section 2.6.6.1. of the notes).

Retroactive acquisition or construction costs are only recognised as part of the acquisition or construction costs of an asset or, if applicable, as a separate asset when it is probable that the Group will receive an economic benefit from the asset in the future and the costs can be reliably measured. The book value of the parts that were replaced is derecognised. Repair and maintenance expenses that do not represent a material replacement investment (day-to-day servicing) are recognised as expenses in the income statement in the financial year in which they are incurred.

Gains and losses on disposals of property, plant and equipment are measured as the difference between the disposal proceeds and the book values and in the case of properties are reported under gains on property disposals.

Where construction finance can be directly associated with these properties, the borrowing costs of qualifying properties during the period of construction are capitalised as part of acquisition and construction cost.

Depreciation and amortisation is calculated on a straight-line basis over the expected useful lives of the assets as follows:

2.6.4. Intangible assets

Intangible assets for the purpose of IAS 38 are identifiable non-monetary assets without physical substance. To qualify for recognition, an intangible asset must be identifiable and under the control of the entity. It must be probable that the entity will receive future economic benefits from the asset and its cost of acquisition and construction must be capable of being measured reliably.

Intangible assets with a limited useful life are subject to amortisation. This primarily deals with software, calculated on the basis of the following useful lives:

As required under IAS 36, the assets are also reviewed for impairment.

Intangible assets acquired for consideration are recognised at acquisition cost less straight-line amortisation and provision for any impairment losses. S IMMO Group has not capitalised any internally generated intangible assets.

2.6.5. Financial instruments

2.6.5.1. Primary financial instruments

In accordance with IFRS 9, S IMMO Group classifies its financial instruments as follows:

Financial assets at fair value through other comprehensive income (FVOCI)

This category consists of equity instruments that are not held for trading and which S IMMO has elected to recognise in other comprehensive income. The accounting treatment can be elected on initial recognition only and is irrevocable, but applies to each asset separately. S IMMO recognises its interests in the listed companies CA Immobilien Anlagen AG and IMMOFINANZ AG, as well as one additional interest, at fair value through other comprehensive income.

Financial assets at fair value through profit and loss (FVTPL)

This category includes equity instruments that are not held for trading and not designated at FVOCI. This involves shares in non-consolidated companies. This category also includes assets that are not equity instruments and which have contractual cash flows that do not exclusively consist of interest and repayments (SPPI criteria).

Financial assets at amortised cost

Assets that are not equity instruments and that meet the SPPI criterion are measured at amortised cost if the objective of the business model consists of holding the financial asset and collecting the contractual cash flows. Interest income, impairments and foreign currency effects and gains or losses on disposal must be recognised in profit and loss in this category. Loans to companies measured at equity are measured at amortised cost if the project is expected to be successful. As of 31 December 2020, there were no loans to companies measured at equity.

Financial liabilities

Financial liabilities are generally measured at amortised cost. There are certain exceptions: financial liabilities designated at FVTPL, financial liabilities arising when the transfer of a financial asset does not meet the criteria for derecognition or is recognised based on a continuing involvement, financial guarantees, commitments to provide a loan at a below-market interest rate and conditional consideration recognised by the acquiring entity in a business combination according to IFRS 3. The option to designate financial liabilities exists to eliminate mismatching or when financial liabilities are managed and monitored using a documented risk or investment strategy based on fair values.

Most of S IMMO’s financial liabilities are measured at amortised cost. Derivatives are still measured at fair value, adjusted for CVAs/DVAs. The option to designate financial liabilities as at fair value through profit or loss was not exercised.

S IMMO Group classifies financial instruments into the following categories:

Group interests

Trade receivables

Loans to companies measured at equity

Other financial assets

Cash and cash equivalents

Issued bonds

Other financial liabilities (non-current)

Current financial liabilities

Trade payables

The fair value of listed financial instruments is their market price at the balance sheet date. For financial assets for which there is no active market, the fair value is calculated with the aid of valuation models. This can involve the derivation of fair value from current transactions in similar financial instruments or from fair values of future payment streams (discounted cash flow models), or the use of mathematical models.

2.6.5.2. Derivatives for interest rate hedging

S IMMO Group currently uses derivative financial instruments – interest rate caps and swaps – to reduce the risks attendant on interest rate increases. The derivative financial instruments are measured at fair value. To a limited extent, corresponding adjustments on CVAs (credit value adjustments) and DVAs (debit value adjustments) have been taken into account in the valuation of derivatives. The fair value measurement of derivatives is based on estimates made by external experts.

S IMMO Group’s business purpose includes the acquisition and development of properties for rental or subsequent sale with the aim of generating positive net cash flows. Business activities are financed through equity, and also through long-term borrowings in the form of mortgage loans and other financial liabilities. The bulk of the external financing consists of variable-rate borrowings, with interest rates linked to the usual 3-month EURIBOR as the base rate.

S IMMO Group’s risk management strategy is to hedge the interest rate risk (i.e. the variability of the base rate) using offsetting hedges, in order to ensure fixed payment streams and to make property project forecasts more reliable. The purpose of cash flow hedging at S IMMO Group is to reduce the risk on existing variable-rate loans, future reinvested funds and transactions expected to be very probable in the future (forecast transactions) by using offsetting derivatives. Cash flow hedging arrangements are used for this purpose.

Hedged risk

The hedged interest rate risk is a market interest rate, the EURIBOR, which is an identifiable component of the interest rate risk on interest-bearing financial liabilities that can be separately assessed.

Hedging instruments

S IMMO Group uses as hedging instruments only those derivatives that, because they move in the opposite direction of the underlying transactions, convert the potential changes in cash flows, in particular from increases in interest rates, into fixed payment streams. The hedging instruments used at the moment are interest rate swaps. As of 31 December 2020, hedge accounting was applied for interest rate swaps with a nominal value of kEUR 397,440 (31 December 2019: kEUR 405,599). The effective portion of the change in fair value of these derivatives is recognised not through profit or loss but under other comprehensive income, the ineffective portion is recognised through profit or loss as part of the financing results. In the financial year 2020, no ineffective portions were realised through profit or loss.

The changes in the valuation of cash flow hedges recognised under equity are transferred to the income statement in the period in which the hedged underlying transaction affects profit or loss or when the requirements for recognition as a cash flow hedge are no longer met. In the financial year 2020, derivative valuation effects of kEUR 1,835 (2019: kEUR 568) were reclassified from equity to the income statement.

In order to meet the requirements for hedge accounting, at the time of the derivative transaction S IMMO Group documents the hedging relationship between the hedging instrument and the underlying transaction, the goals of its risk management and the underlying hedging strategy. The effectiveness of the hedge was assessed using a posteriori and a priori tests. A mathematical a priori effectiveness test can be waived if there is a critical terms match. The dollar-offset method with sensitivity analyses is used for the mathematical effectiveness test, in which the hedged item is represented by a hypothetical derivative whose volume and variable-rate exposure match those of the hedged item. The relative difference calculation method is also used. The Group has applied the hedge accounting regulations of IFRS 9 since the financial year 2020. This did not have any significant effects on S IMMO AG’s consolidated financial statements.

2.6.6. Impairment of assets

2.6.6.1. Non-financial assets

For properties used by the owner (at present these are hotels) and for other property, plant and equipment and intangible assets where there is evidence of impairment, the recoverable amount is ascertained in accordance with IAS 36. The recoverable amount is the higher of the fair value less costs to sell and the value in use.

The fair value is the amount that would be obtained by the sale of the asset in an arm’s-length transaction between knowledgeable, willing and independent parties.

The value in use is the present value of the estimated future payment flows that can be expected from the continued use of an asset and its disposal at the end of its useful life.

If the recoverable amount is less than the book value of the asset, an impairment write-down is applied to the recoverable amount through profit or loss.

The impairment test for hotels is a two-stage process and is in accordance with the provisions of IAS 36. The recoverable amount is the higher of its fair value less costs to sell and its value in use. The book value is first compared with the hotel’s fair value. If the book value exceeds the fair value, the question is then whether the value in use differs substantially from the fair value. If this is not the case, the book value is written down to correspond to the fair value. As of 31 December 2020 the fair values determined by external valuation reports of the hotels are significantly higher than their respective carrying amounts despite the negative impact of COVID-19.

If the impairment subsequently disappears, the impairment loss is reversed through profit or loss, up to the lower of the new recoverable amount or the depreciated original cost of acquisition or construction. The Group had no impairment losses and no reversals of impairment losses in 2020 or the previous year.

2.6.6.2. Financial instruments

S IMMO Group reviews all its financial assets, with the exception of those measured at fair value through profit or loss, at every balance sheet date for any objective indications that any asset or group of assets may have suffered impairment.

Fluctuations in value of equity instruments included in the category FVOCI (currently, mainly the shares held in listed property holding companies), are recognised in other comprehensive income with no impact on profit or loss.

The impairment model of IFRS 9 requires impairment to be recognised on the basis of expected credit losses (expected credit loss model). This rule applies to financial assets measured at amortised cost, contract assets within the scope of IFRS 15, lease receivables, loan commitments and certain financial guarantees.

The risk of default is the risk of financial loss from a customer or a party to a financial instrument failing to fulfil its contractual obligations. The book values of the financial assets and contract assets are equal to the maximum risk of default.

Trade receivables and contract assets

The Group uses the simplified model for trade receivables without significant financing components and calculates the loss allowance accordingly at an amount equal to lifetime expected losses. The COVID-19 pandemic meant that the determination of expected credit lost based on past experience in comparison to previous years was of little importance. To account for uncertainties relating to the impact of the pandemic, forward-looking estimates were made for single tenants or – in the case of very small receivables – valuation allowances required were calculated on the basis of the sector in which the tenants operate. Overall, this process resulted in far higher required valuation allowances than in previous years.

Taking into account the legal situation in question, defaults are recognised no later than at the time of insolvency.

2.6.7.Other assets

No impairments were recognised for other assets. This consisted mainly of prepaid expenses, tax receivables and prepayments.

2.6.8. Cash and cash equivalents

Cash and cash equivalents comprise cash and sight deposits together with bank deposits with a maturity of up to three months at the time of the original deposit. As of 31 December 2020, a provision of kEUR 1 (31 December 2019: kEUR 1) for bank balances was recorded based on the default probabilities observed in the market.

2.6.9. Properties held for sale

Property held for sale is not considered to be investment property within the scope of IAS 40 but is treated as held for sale if the corresponding book value will be realised by sale and not by continuing use. This means that the corresponding long-term assets and disposal groups in their present condition are available for immediate sale and that a sale is very likely. For property to be considered as held for sale, the sale must be concluded within a year of the property being classified as such.

In accordance with IFRS 5, property held for sale is as a general rule measured at the lower of book value and fair value less costs to sell. IFRS 5 provides for an exception with respect to the measurement of properties held as financial investments: They are measured at market value. However, the special disclosure requirements under IFRS 5 are applicable, meaning that properties held for sale must be shown under current assets.

The Group intended to dispose one property in Romania at the end of the reporting period 31 December 2020.

2.6.10. Taxes

The individual companies in the Group raise liabilities for current tax liabilities.

In accordance with IAS 12, deferred taxes are recognised on the temporary differences between the book value of an asset or liability in the consolidated financial statements and the relevant book value for tax purposes. Deferred tax liabilities on the property portfolio have been provided for in full, and even under appropriate conditions – for example, in the case of a share deal – it would be possible that disposals would be treated as not being subject to taxes on income. Deferred tax assets on loss carryforwards are recognised in contrast to this in consideration of the respective usability in the opinion of the management. Deferred tax assets on loss carryforwards are recognised when sufficient deferred tax liabilities exist and it can be assumed that both deferred property liabilities and deferred tax assets on loss carryforwards will decrease in the future. Deferred tax assets on loss carryforwards are as a general rule recognised up to the amounts of deferred tax liabilities. Beyond that limit, active deferred taxes are recognised on the basis of tax planning with a planning horizon of a maximum of five years. Deferred taxes are calculated using the applicable tax rates at the balance sheet date, or where changes in tax law have already been adopted, at the rates applicable in future.

Deferred tax assets and deferred tax liabilities within a taxable entity are only netted where this entity has a legally enforceable right to set tax assets and liabilities against each other, and where the deferred taxes relate to taxes on income assessable by the same tax authority on the same tax entity or where there is a right of set-off within a tax group, as in Austria.

2.6.11. Leasing

The Group primarily leases property for subletting (including land with construction rights). Rental contracts are typically concluded for fixed periods but may include renewal options. As of 31 December 2020, there were no material renewal or termination options in connection with leases in accordance with IFRS 16. The rental conditions are negotiated individually and contain a range of different terms. In the financial year, there were no material modifications to contracts in accordance with IFRS 16.

Since 01 January 2019, leases have been recognised as a right-of-use asset and a corresponding leasing liability from the date on which the leased asset is made available to the Group for use. Each lease payment is divided into repayment and financing costs. Financing costs are recognised in income over the term of the lease so as to achieve a periodic rate of interest on the remaining amount of the liability for each period. Rights of use that are not attributable to investment property are depreciated on a straight-line basis over the shorter of the useful life of the underlying asset and the term of the lease. If the lease contains a purchase option that is likely to be exercised or is a lease that transfers ownership of the underlying asset at the end of the term, the right-of-use asset is depreciated on a straight-line basis over the useful life of the underlying asset.

Construction rights are classified as investment property and measured at fair value in accordance with IFRS 16.34 in the same way as for property.

In addition, there are leases for buildings that are owner-operated. The resulting right-of-use assets are recognised in the statement of financial position under ‘owner-operated properties’ and are depreciated over the term of the lease.

Lease liabilities are recognised at the present value of the lease payments, composed as follows:

Fixed payments (including de facto fixed payments, less any lease incentives receivable)

Variable lease payments based on an index or (interest) rate

Expected residual payments under residual value guarantees of the lessee

The exercise of a purchase option if exercise by the lessee is reasonably certain

Lease payments are discounted using the Group’s incremental borrowing rate, i.e. the interest rate that the Group would be required to pay to raise the funds to acquire an asset with a comparable value and comparable conditions in a comparable economic environment.

Right-of-use assets are carried at cost, composed as follows:

The amount of the lease liability upon first-time recognition

All lease payments on or prior to provision, less any lease incentives received

All initial direct costs incurred by the lessee

The estimated costs incurred by the lessee for dismantling or removing the underlying asset, restoring the site at which the asset is located or returning the underlying asset to the condition required under the terms of the lease

Payments for current leases and leases of low-value assets are recognised as expense in profit or loss. Current leases are leases with a term of twelve months or less. COVID-19-related rental concessions to tenants of S IMMO are accounted for in accordance with the general rules of IFRS 16.

2.6.12. Revenues

2.6.12.1. Rental income

Rental income is recognised on a straight-line basis over the term of the rental agreement. One-off payments and waivers of rent as well as any other kind of rental incentive are spread over the minimum rental period. With the first-time application of IFRS 16 in financial year 2019, the allocation of operating costs that are associated with the legal ownership of the property and are not offset by the performance of a service in the narrower sense to the tenant is no longer recognised under revenues from operating costs, but instead under rental income.

2.6.12.2. Revenues from operating costs

Revenues from operating costs accrue from invoicing operating costs to tenants of portfolio properties and comprise revenues for the invoicing of electricity, the cleaning of buildings and the like. Typically, the composition of operating costs incurred and that can be invoiced varies depending on the type of use and jurisdiction.

2.6.12.3. Revenues from hotel operations

Revenues from hotel operations consist largely of room rental income and catering income. Income is recognised in proportion to the services rendered until the balance sheet date.

2.6.12.4. Income and costs from financial instruments

Income from financial instruments includes interest, dividends and capital gains from the investment of funds and from investments in financial assets, reversals of impairment losses, and exchange rate gains on the valuation of monetary assets and liabilities at the individual company level. Dividends are recognised at the time the resolution authorising the dividend distribution is passed.

Financial expenses include interest and similar expenses on external borrowings, incidental costs, losses on the disposal of financial assets, impairment losses, current hedging results and exchange rate gains on the valuation of monetary assets and liabilities at the individual company level.

Interest is accrued using the effective interest rate method.

The valuation of derivatives reflects among others gains and losses on the disposal or revaluation of interest caps and swaps which have not been recognised in equity and are shown in the income statement as part of the financial results.

Where applicable, short-term exchange gains or losses on the valuation of financial instruments are disclosed here.

2.7. Hierarchy of fair value measurement

The following analysis classifies financial instruments measured at fair value on the basis of the method of valuation. A hierarchy consisting of three levels has been defined for this purpose:

2.8. Estimation and assumption uncertainties

The preparation of consolidated financial statements in accordance with IFRS requires estimates and assumptions by the management about future developments. These can have a material influence on the recognition and measurement of assets and liabilities, on information about other obligations at the balance sheet date and on disclosure of income and expenses during the financial year.

IFRS 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Estimates and underlying assumptions are subject to ongoing review. Actual outcomes may differ from the assumptions and estimates made if developments in the business environment turn out differently than expected. Changes are reflected in profit or loss as soon as the altered circumstances become known, and the assumptions are adjusted accordingly.

The following assumptions entail a not insignificant risk that they may result in a material adjustment of assets and liabilities in the next financial year:

2.8.1. Investment property

The calculation of the fair value of investment property is mainly based on expert valuations by internationally recognised valuers (CBRE, Colliers International, EHL and Dr Heinz Muhr). The valuations were prepared in compliance with International Valuation Standards and the rules of IFRS 13. The values of these properties depend to a significant extent on present estimates of future rental trends and vacancy levels, and on the interest rates used for discounting purposes.

Investment property had a book value of kEUR 2,354,922 (31 December 2019: kEUR 2,210,163). One property held as investment property with a book value of kEUR 4,345 (31 December 2019: kEUR 36,500) is shown under the assets held for sale because the company plans to sell it in 2021.

2.8.1.1. Valuation methods in connection with investment property

The following measurement methods were used in calculating hierarchy Level 3 fair values: capitalised earnings method, discounted cash flow method (DCF method), residual value method and sales comparison approach.

The capitalised earnings method uses the following input factors for the measurement: adjusted sustainable rent, total operating costs, remaining useful life, capitalisation rate and land value.

The discounted cash flow method works among others with the following input factors: net rental income, discount rate and capitalisation rate.

The residual value method is based on investment considerations and calculates the residual value based on an earnings value or net capital value derived from discounted cash flow analysis on the assumption that the property is already completed, which remains when the property is sold at the current measurement date, taking account of any outstanding construction, development costs, market financing costs for completion and marketing costs, allowing for an appropriate profit for the developer. Future rental income and capitalisation rates are input parameters here.

In the sales comparison approach, purchase prices that are actually achieved or achievable for comparable properties are included as comparative values. Differing characteristics of the properties to be compared are taken into account in the form of premiums or discounts on the value.

Measurement of fair value on the basis of unobservable inputs (hierarchy Level 3)

Different valuation methods were used in the various asset classes.

The following table includes all properties measured at fair value by external appraisers, excluding those for which, for example, purchase agreements exist and which were measured on the basis of these purchase agreements. Real estate and right-of-use assets totalling kEUR 10,967 are therefore not shown.

1 Across all types of use

A reduction in the expected annual rents leads to a reduction in the fair value, as does an increase in discount and capitalisation rates. There are interdependencies between the rates because these are partly based on market values.

The expert valuations are carried out at least once a year by independent professional experts for the purpose of preparing the annual financial statements. The professional experts are provided with the necessary information, such as current rents, by the company’s Asset Management department. The market assumptions and valuation methods used in preparing the expert valuations are agreed with the appointed professional experts.

2.8.1.2. Information on non-observable input factors underlying valuation (Level 3)

The following tables show the sensitivity of the fair value of rented investment property changes in sustainable rental yields and interest rates.The table does not include land that was valued based on the reference figure, properties valued at residual value and properties valued on purchase agreements totalling kEUR 72,575.

2.8.2. Intangible assets and property, plant and equipment

Estimates of the long-term value property, plant and equipment and intangible assets are based on assumptions about the future. The calculation of recoverable amounts for the purpose of impairment tests is based on several assumptions, for example, about future net cash flows and discount rates. The book value of intangible assets amounted to kEUR 251 (31 December 2019: kEUR 242), that of other non-current assets to kEUR 6,346 (31 December 2019: kEUR 5,123). Owner-operated properties had a book value of kEUR 117,617 (31 December 2019: kEUR 124,377).

2.8.3. Financial instruments

In estimating the value of financial instruments (in particular, derivatives) for which no active market exists, alternative valuation methods based on investment mathematics are employed. The parameters on which estimates of fair value are based depend in part on assumptions about the future. The book values of financial instruments are detailed in note 5.1.

The estimates will be made by external experts.

2.8.3.1. Valuation of derivatives

S IMMO Group’s derivative financial instruments are measured at fair value. The fair values of the swaps or caps are determined using a discounted cash flow method according to IFRS 13. The future payment flows are determined by means of interest modelling using the Hull White one-factor model, specifically using a Monte Carlo simulation. The material input parameters are determined for the reporting date. They mainly consist of the euro interest yield curve and historical EURIBOR fixings. Market data are obtained from Thomson Reuters and Bloomberg.

For the determination of credit value adjustments/debit value adjustments (CVA/DVA) credit spreads were first defined to estimate the probability of default. Then, the share of the default risk was estimated on the basis of theoretical considerations and extrapolated for multiple maturities using an approximate formula to generate a CDS spread curve.

2.8.3.2. Derivatives – sensitivity analysis

The fair values of the interest rate derivatives change as follows when the interest rates shift by +100 BPS or -50 BPS:

2.8.4. Deferred taxes

The recognition of deferred tax assets for tax loss carryforwards is based on the assumption that sufficient taxable income will be available in the future to enable existing loss carryforwards to be utilised. Deferred tax assets for tax loss carryforwards of kEUR 13,933 (31 December 2019: kEUR 13,451) have been recognised. Further information on deferred taxes can be found in note 3.1.16.

Assuming that the fair values of the properties were to change uniformly by +/-10% across the portfolio, the deferred property taxes would change as follows given identical book values for tax purposes:

2.8.5. Post-employment benefit obligations

The actuarial computation of entitlements to pension and severance benefits and long-service bonuses requires assumptions about various parameters. The following tables show the sensitivity of the significant assumptions: