Report of the Supervisory Board
In our role as the Supervisory Board, we were able to support the Management Board of Vonovia SE through another very positive fiscal year: The Management Board stuck uncompromisingly to its strategic course and continued to develop the company’s operating business as planned. In addition to the improvement in our performance data, considerable progress was also made in the services business, meaning that, all in all, Vonovia can look back on a very financially positive fiscal year. At the end of the year, the Management Board managed to make an attractive addition to the portfolio with the acquisition of conwert, a move that will further improve the quality of the company’s portfolio.
In the 2016 fiscal year, the Supervisory Board continuously monitored the Management Board’s management activities and provided the Management Board with regular advice concerning the running of the company. We were able at all times to establish that their actions were lawful, expedient and regular. The Management Board fulfilled its information obligations to an appropriate extent at all times, notifying us regularly, promptly and comprehensively, both in writing and verbally, of all circumstances and measures that were relevant to the company. This also included notifying us of any discrepancies between the planning and the actual course of business events.
In both committees and plenary meetings, we always had ample opportunity to critically appraise the reports and proposals submitted by the Management Board and to contribute their own suggestions. We discussed and tested the plausibility of all business occurrences of significance to the company, as communicated to us by the Management Board in written and verbal reports, in detail. Where required by law or the Articles of Association, we granted our consent to individual business transactions.
Cooperation between the Management Board and the Supervisory Board
The Supervisory Board of Vonovia comprises twelve members. Our body provides the Management Board with advisory support in relation to key decisions. The Management Board regularly informs us about key events and the company’s strategic direction as part of a collaboration based on trust.
In my role as Supervisory Board Chairman, I remained in close contact with the Management Board even between Supervisory Board meetings, regularly exchanging information and ideas. Other members of the body were promptly notified of any important findings or judgments, and at the latest by the next board meeting.
Focal Points of our Work
In line with the duties assigned to the Supervisory Board by law, the Articles of Association and the rules of procedure, we once again closely scrutinized the Group’s operational, economic and strategic progress last year within the context of our supervisory and advisory activities. Last year, our advisory sessions and resolutions focused, in particular, on Vonovia’s strategic and operational further development and on opportunities to further expand the portfolio. These opportunities included the planned acquisition of Deutsche Wohnen, which was not realized, and the successful takeover of conwert Immobilien Invest SE, Vienna/Austria.
In the 2016 fiscal year, the Supervisory Board met a total of thirteen times to pass resolutions: five times at meetings, five times using conference calls and three times via written circular. In preparation for the meetings, the Management Board submitted written reports and resolution proposals to us. Two members were excused from face-to-face meetings held on March 2, 2016 and November 2, 2016 and one member was excused from the meetings held on May 11, 2016 and August 1, 2016 in each case. All members attended the Supervisory Board meeting held on September 21, 2016.
During a conference call held on January 24, 2016, the Supervisory Board passed a resolution on the modification of the company’s takeover offer made to the shareholders of Deutsche Wohnen AG by reducing the minimum acceptance threshold to 50 % plus one share.
On January 27, 2016, the Supervisory Board passed a resolution, via written circular, on the rescission of the Management Board employment contract with Mr. Thomas Zinnöcker with effect from January 31, 2016 and the new allocation of duties for the Management Board with effect from February 1, 2016.
During the conference call held on February 10, 2016, we looked at the counting results of the takeover offer made to the shareholders of Deutsche Wohnen. After the minimum acceptance threshold was not reached, the opportunity to further consolidate the market, which the Management Board and the Supervisory Board believed would add value, failed to materialize.
On February 29, 2016, the Supervisory Board reached an agreement, via written circular, on the length of membership on the Supervisory Board and set the standard limit at a period of no more than 15 years. The Supervisory Board also approved the submission of the ‘Declaration of Conformity by the Management Board and the Supervisory Board of Vonovia SE to the Recommendations of the German Corporate Governance Code Pursuant to Section 161 of the German Stock Corporation Act (AktG)’ which had been presented to it.
On March 2, 2016, the Supervisory Board met to adopt the balance sheet: We approved the company’s annual and consolidated financial statements as of December 31, 2015 and prepared the agenda and the resolution proposals for the Annual General Meeting. We also addressed the report by the Finance Committee. With regard to the obligation to publish financial reports during the year, the Supervisory Board passed a resolution stating that the company would not, in respect of quarterly reporting, dispense with the audit of the condensed consolidated interim financial statements, an option that is now possible following a change in legislation, until the first quarter of 2017 (inclusive). Regarding the Deutsche Wohnen AG takeover project, the reasons as to why the project did not materialize were once again analyzed in detail. The Supervisory Board also approved the construction of the new Group headquarters in Bochum. The agenda items also included the company’s financial performance and the report on operating business developments. Within this context, plans to use densification and new construction to create additional homes were also discussed. Under the “HR-related matters” agenda item, the Supervisory Board discussed various remuneration issues, as well as the proposal to be made to the Annual General Meeting to elect Dr. Ariane Reinhart to replace Mr. Gerhard Zeiler on the Supervisory Board. Vonovia’s status on the capital market was also discussed: In addition to the company’s share price performance and the bonds issued as part of the EMTN program, the Supervisory Board discussed the investor reactions to the failure of the Deutsche Wohnen takeover and also looked at the guidance for 2016.
At a meeting held on May 11, 2016, the Supervisory Board elected Dr. Ariane Reinhart to the Executive and Nomination Committee, subject to her election as member of the Supervisory Board by the Annual General Meeting the next day. As part of the report on operating business developments, the Supervisory Board discussed the implementation of the modernization program. It also focused on the development of the company’s own craftsmen’s organization. Other issues included financial performance and capital market developments, including the feedback received from investors and analysts. The Management Board reported on an immediate and long-term concept for fire protection measures in several high-rise buildings in Dresden. The Supervisory Board also issued its consent to financing measures, such as the early repayment of an asset-backed GAGFAH loan (GRF-1) in August 2016 and the creation of the funds required in this regard using equity and debt capital measures. A media response report looked at Vonovia’s reputation in the media.
At its ordinary meeting held on August 1, 2016, the Supervisory Board looked at various reports submitted by the committees: These included a report by the Audit Committee on the figures for the first half of the year and a report by the Finance Committee on the issue of two bonds. A report on operating business developments looked at the establishment of a state-of-the-art customer service platform, the ongoing and planned investment programs, the craftsmen’s organization TGS and multimedia and metering services. The agenda item relating to HR matters involved a discussion on the report by the Executive and Nomination Committee, as well as on HR and remuneration issues and the introduction of new HR development tools. The strategy to promote women in leadership positions was also discussed.
During a conference call held on September 2, 2016, the Supervisory Board held a detailed discussion on the planned acquisition of the Austrian company conwert Immobilien Invest SE and discussed the strategy and risks associated with such a transaction. The Supervisory Board then approved the finalization of preparatory measures for the takeover offer.
On September 4, 2016, the Supervisory Board held another conference call to continue its discussion on a possible public takeover offer to be made to the shareholders of conwert and passed a resolution stating that a final decision on the further measures to be taken in this regard would be made by the Finance Committee.
The Supervisory Board meeting held on September 21, 2016 was dedicated to the corporate strategy. This meeting was also used to discuss the company’s current reputation and customer satisfaction. The Supervisory Board drew preliminary conclusions on portfolio adjustments, energy-efficient modernization and external growth. It also passed a resolution, to take effect as of 2017, stating that it would hold two meetings per calendar half-year.
On October 26, 2016, the Supervisory Board passed a resolution, via written circular, on the maximum number of Vonovia shares to be granted, in the event of the successful implementation of the public takeover offer made to the shareholders of conwert Immobilien Invest SE, as consideration for the offer using the 2015 Authorized Capital.
The ordinary meeting held on November 2, 2016 also looked at the status of the acquisition of conwert, in addition to reports from the committees. In addition, the Management Board used a report on operating business developments to present the latest innovations within the technical service and to report on residential construction pilot projects. The Supervisory Board also discussed the company’s financial performance, the development of Vonovia’s share price, the 4.99% interest in Deutsche Wohnen, the analyst assessments and the guidance for 2017. The Supervisory Board looked at interest rate developments and discussed a report on the integration of GAGFAH, which was nearing completion.
On November 29, 2016, the Supervisory Board used a conference call to discuss, and pass resolutions on, the 2017 budget, the company’s five-year plan and the early repayment of the GAGFAH “Taurus” loan, and also discussed the status quo of the conwert acquisition.
Work of the Committees
In order to perform our duties effectively, we formed the following committees: the Audit Committee, the Finance Committee and the Executive and Nomination Committee. The committees prepare subjects which are to be discussed and/or resolved by the Supervisory Board. In addition, they pass resolutions on behalf of the entire Supervisory Board.
The Audit Committee once again comprised the five members in the reporting year: Prof. Dr. Edgar Ernst (Chairman), Dr. Wulf H. Bernotat, Burkhard Ulrich Drescher, Dr. Florian Funck and Hendrik Jellema.
At a total of four meetings, the Committee assessed the annual and consolidated financial statements for 2015, as well as the condensed consolidated interim financial statements as of March 31, June 30 and September 30, 2016.
At the meeting held on March 2, 2016, the Committee reviewed the annual and consolidated financial statements as of December 31, 2015, and drew up a proposal for the appropriation of profit. The Committee developed a proposal for the selection of an auditor for the 2016 fiscal year and for this auditor’s appointment as the auditor responsible for the audit of the condensed consolidated interim financial statements and interim Group management reports. Other topics included a report on the audit of the annual and consolidated financial statements as of December 31, 2014 by the German Financial Reporting Enforcement Panel (DPR), a report prepared by the Internal Audit department on the status of the audits and a compliance status report.
At its meeting held on May 11, 2016, the Committee addressed the condensed consolidated interim financial statements for the first quarter, the company’s report on the impact of the acquisitions and divestments on the annual and consolidated financial statements and on the consolidated interim financial statements for the first quarter of 2016. It also discussed future changes to the Auditor’s Report on the consolidated financial statements in accordance with the International Standards of Auditing (ISA). Further topics included risk management, the status of the audits conducted by the Internal Audit department, the company’s fiscal situation and corporate compliance.
At the meeting held on August 1, 2016, the Committee approved the condensed consolidated interim financial statements as of June 30, 2016, looked a report prepared by the company on the reporting period and passed a resolution on the commissioning of KPMG AG Wirtschaftsprüfungsgesellschaft to audit the annual and consolidated financial statements as of December 31, 2016. The Committee also discussed the assignment issued to the auditor to assess the new tax compliance management system to be implemented. In addition, the Committee addressed the internal control system (ICS), protection against cyber attacks, a status report prepared by the Internal Audit department, a compliance report and a fire protection concept for the Dresden properties.
At the meeting held on November 2, 2016, the Committee discussed the nine-monthly financial statements, the future nature of quarterly reporting, risk management, the annual audit plan of the Internal Audit department for 2017 and the first preliminary results of the property valuation process.
The members of the Finance Committee remained unchanged in the reporting year. It comprised five members: Clara-Christina Streit (Chair), Dr. Wulf H. Bernotat, Dr. Ute Geipel-Faber, Daniel Just and Christian Ulbrich.
The Finance Committee met three times in the reporting year (March, May, November) and held four conference calls (January, June and twice in September). It passed two further resolutions in writing. During a conference call held on January 25, 2016, the Committee discussed and passed a resolution on the modification of the company’s takeover offer made to the shareholders of Deutsche Wohnen AG by reducing the minimum acceptance threshold to 50% plus one share. At the meeting held on March 2, 2016, the Committee discussed the unsuccessful takeover of Deutsche Wohnen with regard to the financial implications. It looked, in particular, at the use of the proceeds from the issue of the EMTN bonds in December 2015, which were now primarily to be used to repay the GAGFAH financing. On April 27, 2016, the Committee issued its written consent to the sale of 981 units in and around Hagen. The meeting held on May 11, 2016 focused on an overview of the main company insurance policies taken out by the Vonovia Group and a discussion on the financial strategy. This also included discussing the steps to be taken to extend the loan agreement with Landesbank Berlin/Berlin Hyp AG. On June 3, 2016, the Committee discussed and passed a resolution on the issue of bonds as part of the EMTN program to refinance a CMBS loan.
In the fourth quarter, the Committee looked primarily at the preparation of financial measures relating to the potential acquisition of conwert Immobilien Invest SE. Within this context, the Committee discussed the financing of the transaction during a conference call held on September 4, 2016 and proposed corresponding measures to the Management Board. The Committee continued to discuss the status and the main results of the negotiations on the acquisition of convert and decided, having been delegated the authority to do so by the Supervisory Board on the latter’s behalf on September 5, 2016, to make a voluntary public takeover offer to the shareholders of conwert. At a meeting held on November 2, 2016, the Committee discussed the current status of the takeover, in particular the share price performance. Another agenda item related to the company’s financial strategy, including the current key financial indicators and the planned financing measures. The Committee passed further resolutions on the repayment of loans and the fulfillment of the takeover offer made to conwert. The meeting also involved an extensive discussion on possible developments in the interest rate environment and their effect on the Vonovia Group, as well as a discussion on the improvements in the key performance indicators that the company would be aiming for in the 2017 fiscal year. The Committee used a written circular to grant its approval, on November 17, 2016, to the adjustment of its own resolution passed on November 2, 2016 on the issue of EMTN bonds.
Executive and Nomination Committee
Up until May 12, 2016, the Committee had consisted of Dr. Wulf H. Bernotat (Chairman), Hildegard Müller, Clara-Christina Streit, Prof. Dr. Klaus Rauscher and Gerhard Zeiler. Mr. Zeiler left the Committee on this date and was replaced by a new member, Dr. Ariane Reinhart, on May 13, 2016.
The Executive and Nomination Committee met three times in 2016 and passed one resolution in writing: On January 20, 2016, the Committee used the written procedure to pass the rescission of the Management Board employment contract with Mr. Thomas Zinnöcker with effect from January 31, 2016 and the new allocation of duties for the Management Board with effect from February 1, 2016. At the ordinary meeting held on March 4, 2016, the Committee discussed the review of the Management Board remuneration and developed recommendations regarding contracts with Management Board members. It also focused on the short-term incentive plan and the long-term incentive plan. With regard to the former, it reviewed the target achievement levels for 2015 and the target agreement for 2016. In respect of the latter, it assessed the parameters set, such as NAV, FFO and customer satisfaction. The Committee also discussed the newly negotiated D&O insurance policy for the Vonovia Group. At the meeting held on May 11, 2016, the Committee passed resolutions on the share-based remuneration component for Management Board members agreed in 2013 and set the target achievement level for the third payout period. At the meeting on August 1, 2016, the Committee looked at the succession plan for the Management Board and the first level of management, and submitted a resolution proposal to the Supervisory Board on the 2013 long-term incentive plan relating to the confirmation of the 2015 target achievement levels for parts of the Management Board.
The Management Board and Supervisory Board of Vonovia SE are committed to the principles of good corporate governance. As a result, the members of the Supervisory Board once again looked at the German Corporate Governance Code in the reporting year. On February 21, 2017, the Management Board and the Supervisory Board issued an updated declaration of conformity pursuant to Section 161 of the German Stock Corporation Act (AktG). The Management Board also reports, including on behalf of the Supervisory Board, on corporate governance at Vonovia in the declaration on corporate governance. Both declarations will be permanently published by the company on its website for perusal.
After being appointed at the Annual General Meeting on May 12, 2016, to audit financial statements for the 2016 fiscal year, KPMG AG Wirtschaftsprüfungsgesellschaft, Essen, has duly audited the annual financial statements and consolidated financial statements of Vonovia SE for the 2016 fiscal year as well as the corresponding management report and the accounting on which they were based and has expressed an unqualified opinion thereon. In accordance with Section 317 (4) of the German Commercial Code, KPMG also assessed the risk early warning system of Vonovia SE.
The auditor has affirmed its independence to the Chairman of the Audit Committee and duly declared that no circumstances exist that could give grounds for assuming a lack of impartiality on its part. The audit assignment was awarded to KPMG AG Wirtschaftsprüfungsgesellschaft by the Chairman of the Audit Committee in line with the Committee’s resolution and the choice of auditor made by the shareholders at the Annual General Meeting.
The annual financial statements were prepared by the Management Board in accordance with the German commercial law and stock corporation law provisions, including the generally accepted accounting practice. The consolidated financial statements were prepared by the Management Board in accordance with International Financial Reporting Standards (IFRS), as applied in the European Union, as well as the supplementary provisions applicable pursuant to Section 315a (1) HGB.
For the annual financial statements and the consolidated financial statements, Vonovia SE prepared a combined management report based on the requirements set out in Sections 315, 298 (2) HGB.
Every member of the Supervisory Board received copies of the annual financial statements, the consolidated financial statements and the combined management report and the auditor’s report in good time. On the basis of the preliminary examination and assessment by the Audit Committee, about which the Audit Committee Chairman reported to the Supervisory Board, the Supervisory Board has scrutinized in detail the annual financial statements, consolidated financial statements and combined management report of Vonovia SE for the 2016 fiscal year and also considered the Management Board’s proposal for the appropriation of profit.
At the joint meeting on March 6, 2017, with the Audit Committee, and at the subsequent Supervisory Board meeting held on the same day, the auditors reported both on their overall audit findings and on the audit’s individual focal points. Particularly important audit issues in the 2016 fiscal year were the valuation of the investment properties, the presentation and valuation of non-derivative and derivative financial instruments and the impairment testing of goodwill.
The provisions on the new Auditor’s Report, which provides specific information on particularly important audit issues, applied for the first time. The auditor had already presented the fundamental form of the new Auditor’s Report in the spring of 2016. The auditors gave detailed answers to our questions. After an in-depth review of all documentation, we found no grounds for objection. As a result, we concurred with the auditors’ findings. On March 6, 2017, we followed the Audit Committee’s recommendation and approved the annual financial statements and consolidated financial statements of Vonovia SE, as well as the combined management report. The annual financial statements are thus duly adopted.
The Supervisory Board considered the Management Board’s proposal for the appropriation of profit. It gave particular consideration to the liquidity of the company/the Group, tax-related aspects, financial and investment planning. Following this audit, the Supervisory Board agrees with the proposal set out by the Management Board to be made to the Annual General Meeting of shareholders, namely the proposal that, from the profit of Vonovia SE for the 2016 fiscal year, a dividend of € 1.12 per share or € 521,920,698.88 in total on the shares of the share capital as of December 31, 2016, be paid to the shareholders and the remaining amount be carried forward to the new account or be used for other dividends on shares carrying dividend rights at the time of the Annual General Meeting that go beyond those as of December 31, 2016.
The dividend is paid either in cash or in the form of shares in the company. The shareholders’ right to opt for a dividend paid out in shares is communicated separately in a timely manner together with other information, particularly on the number and type of shares.
There was one staff-related change on the Management Board during the reporting period: Following the successful integration of GAGFAH, for which he had overall responsibility, Thomas Zinnöcker resigned from the Management Board with effect from January 31, 2016.
Dr. Ariane Reinhart was appointed as a new member of the Supervisory Board with effect from May 13, 2016. She succeeded Mr. Gerhard Zeiler, who left the Supervisory Board at the end of May 12, 2016.
We would like to thank the Management Board, all employees and Vonovia’s employee representatives for what was, once again, excellent performance last year.
Düsseldorf, March 6, 2017
On behalf of the Supervisory Board
Dr. Wulf H. Bernotat, Chairman