Challenges, Opportunities and Risks

2018 was another year of growth for the German economy. This growth did slow toward the end of the year, however, and thus did not quite meet expectations. Home prices continued to rise during the year, but the increase in rent was somewhat more restrained than in the previous year. Despite the constant rise in demand for homes in metropolitan areas, the housing market is not strained everywhere – rural regions in particular are experiencing a decline in population. Nevertheless, demand for homes will continue to outstrip supply in future, which will keep rents at a high level and see them increase. These economic and social developments have a decisive impact on our business and our success – and bring about both risks and opportunities for Vonovia.

One example of an opportunity these developments present for Vonovia is that households in Germany are becoming smaller in general, while one and two-person households are on the increase. In light of this, demand and market opportunities for small and medium-sized apartments, which represent Vonovia’s core product, should rise in future, improving rental yields further.

The current social trends and our 4+2 strategy (see chapter Corporate Strategy) also present us with the opportunity to grow throughout Europe with targeted acquisitions and by tapping into new business areas. This in turn gives us the opportunity to increase the share of services provided by our technical service.

Risk Management 102-15

Vonovia has a comprehensive risk management system in place that enables it to identify, measure and manage opportunities and risks relevant to the company. This:

• reduces potential threats,
• secures the future viability of the company,
• promotes strategic development, and
• supports sustainable conduct.

For transparency purposes, we explain Vonovia’s risk situation in detail in our annual reporting and publish a qualified list of the “Top 10 Risks” on behalf of the Management Board (see AR 2018, chapter Opportunities and Risks).

The Management Board bears full responsibility for risk management. A risk manager, who reports to the Chief Financial Officer (CFO), coordinates the risk management process and creates a ranking of the company’s material risks twice a year as part of a risk analysis. He is supported by risk owners – managers at the level directly below the Management Board. The management is based on an integrated, five-pillar management approach:

Five Pillars of Risk Management at Vonovia

In order to safeguard stability and long-term growth, Vonovia responds to individual risks with a comprehensive package of measures.

Vonovia monitors and evaluates any risks that may be caused by climate change. Our properties are not located in areas that are exposed to particular risks arising from the potential impact of climate change. We therefore believe there are currently no direct risks worth mentioning that could result from extreme weather conditions due to climate change such as strong rains and flooding. Vonovia nevertheless performs regular proactive checks to ensure building safety, taking into consideration all building regulations, and safeguards against any possible damage with extensive building insurance cover. 201-2

You can find detailed information on this in our annual report (see AR 2018, chapter Opportunities and Risks).