Report of the Supervisory Board

2020 presented major challenges not only for the corporate sector but for society as a whole. In the wake of the pandemic, “home” once again took on a new meaning. Homes became a central place of retreat and protection, and for many of us, also became our mobile offices overnight.

Vonovia’s Management Board and employees were aware of their responsibility for the company’s tenants from the very start of the pandemic. They maintained the infrastructure in our residential developments throughout the crisis and ensured that our customers did not have to go without key services. The company also ensured that residents facing difficult situations received support.

The Management Board lived up to its responsibility for the health of Vonovia’s employees at all times. Health protection for high-risk groups and for those employees working on-site in customers’ homes or in the corporate headquarters and offices was always a top priority. The company implemented all of the protective measures that could be taken to allow employees to work safely under the conditions created by the pandemic. In order to reduce the risk of infection, Vonovia allowed employees to work from home from the very start of the pandemic.

Following the outbreak of the pandemic, two special conference calls were organized by the Management Board on March 20, 2020, and April 2, 2020, followed by further video conferences, to provide the Supervisory Board with information on the current situation, the task force that had been established, the measures taken and the impact of the spread of the coronavirus as well as the implications for the company’s operating business.

The Supervisory Board supported the Management Board in its decisions on the individual measures and also provided support in their further implementation. The Supervisory Board and the Management Board were aware of the particularly sensitive nature of the situation. The restrictions and lockdowns were, and indeed remain, necessary. At the same time, they are creating considerable financial difficulties for parts of the population. As a result, the Supervisory Board supported the Management Board in its decision to find solutions for tenants who had run into financial difficulties or hardship as a result of the pandemic, and to rule out terminating their tenancies.

Even when faced with these special overall conditions, the company continued successfully with its business development in 2020. Our operational projects were continued successfully and our key figures reached the forecast values.

In the 2020 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 notified us regularly, promptly and comprehensively, both in writing and verbally, of all circumstances and measures that were relevant to the company. The Management Board fulfilled its information obligations to an appropriate extent at all times.

At our plenary meetings and in our committees, we always had ample opportunity to critically appraise the reports and proposals submitted by the Management Board and to contribute our 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

In the last fiscal year, our Supervisory Board consisted of twelve members. We were on hand to support the Management Board in the various meetings held and also in its key decisions. We also kept a close eye on the company’s business development outside of meetings. The Management Board regularly informed us about key events and the company’s strategic direction as part of a collaboration based on trust.

As Chairman of the Supervisory Board, I maintained regular and close dialogue with the Chairman of the Management Board in particular, but also with the other Management Board members, even outside of the Supervisory Board meetings. The employee representative bodies were involved in communications on key company matters via the Management Board. The Chairman of the Management Board informed me on company-related topics emerging from the Management Board’s discussions with representatives of the Group works council, going into an appropriate level of detail. Within this context, the Chairman of the Management Board also reported on the very good and constructive cooperation between the works council and the Management Board in dealing with the challenges created by the coronavirus pandemic. Other members of the Supervisory Board were notified of any important findings promptly, or at the latest by the next board meeting. In the fiscal year, there were no conflicts of interest of Management Board or Supervisory Board members, which are to be reported immediately to the Supervisory Board.

Main Remit

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 in the 2020 fiscal year. The key focal points were the realignment of investments due to the modified statutory regulations affecting the modernization of our residential real estate, neighborhood development and the undertaking of investments in new homes, the exploitation of opportunities resulting from digitalization, the portfolio strategy, internationalization and the evaluation and provision of support with regard to opportunities for further portfolio expansion.

In addition, we looked at the new remuneration and governance requirements resulting from the entry into force of the “Act Implementing the second shareholders’ rights directive” (ARUG II) and the new version of the German Corporate Governance Code (GCGC 2020). We discussed these requirements in depth and implemented them in a revamped remuneration system for the Management Board and the Supervisory Board.

In addition, we took an in-depth look at the future management structure and the succession plan for the Management Board of the company.

Meetings

The necessary coronavirus protection measures and the contact restrictions imposed to reduce the risk of COVID-19 infection meant that only one face-to-face meeting of the Supervisory Board was held in the 2020 fiscal year. All other meetings were held via conference call and video conference.

The Supervisory Board met a total of eight times to consult and pass resolutions: once in a face-to-face meeting in March, once in a conference call held in May, and six times at meetings organized as video conferences (June, September, October, November, and December). The Supervisory Board made decisions using the written procedure in two cases (March and June). Any individual members absent from the eight meetings had always been excused.

No member of the Supervisory Board took part in less than half of the meetings during their term of office. Participation in the eight Supervisory Board meetings averaged around 95% in the past fiscal year. The same applies to the committees. In preparation for the meetings, the Management Board submitted timely, comprehensive and valid written reports and resolution proposals to us.

Information on the individual meetings and their content

On March 4, 2020, the Supervisory Board met to adopt the statement of financial position. It approved the company’s annual and consolidated financial statements as of December 31, 2019. The agenda and the resolution proposals for the Annual General Meeting were discussed and adopted. The Supervisory Board approved the proposal for the appropriation of profit to be made to the Annual General Meeting as well as the proposal that the dividend be paid either in cash or in the form of shares. Furthermore, the Supervisory Board approved the Non-financial Declaration and decided to engage KPMG to review the CSR Report and the Non-financial Declaration for the 2020 fiscal year. In its reporting on business performance in the individual segments, the Management Board also presented the newly launched Vonovia customer app, among other things. Digitalization within the company and in customer services was the subject of discussion within this context.

Under the “HR-related matters” agenda item, the Supervisory Board discussed remuneration issues relating to the Management Board (including target agreements, short-term and long-term incentive plans, the target achievement level under the 2019 short-term incentive plan, payment of the 2019 long-term incentive plan tranche) and passed corresponding resolutions. The Supervisory Board continued to discuss the issue of succession planning for Management Board positions in general.

On March 30, 2020, the Supervisory Board used the written procedure to approve the Management Board’s decision to hold the Annual General Meeting on June 30, 2020, and to organize it as a virtual event if necessary.

In the video conference held on May 12, 2020, the Supervisory Board addressed the current situation and the impact of the coronavirus pandemic at Vonovia. Within this context, the Supervisory Board confirmed the Management Board’s resolution to hold a virtual Annual General Meeting based on the statutory provisions on the coronavirus pandemic and the requirements defined by the Management Board. Other topics included financial performance, operational performance in the Rental, Development and Value-add segments, and developments at the Swedish Group companies.

In its discussions on HR-related matters, the Supervisory Board once again looked at the succession arrangements for the Management Board. With Daniel Riedl’s Management Board appointment set to expire in May 2021, the Supervisory Board passed a resolution on its intention to reappoint Mr. Riedl as a member of the Management Board for the period leading up to May 31, 2026, which was implemented by a reappointment resolution passed at the meeting held on November 27, 2020.

On June 22, 2020, we approved a resolution passed by the Management Board on the issue of a bond worth up to € 1.5 billion under the EMTN program using the written procedure.

In a video conference held on June 29, 2020, the Supervisory Board approved the Management Board’s fundamental resolution on the partial use of the 2018 authorized capital in connection with the 2020 scrip dividend in the amount of up to € 18 million.

In the video conference held on September 3, 2020, we addressed a resolution passed by the Management Board on a cash capital increase, excluding subscription rights, using accelerated bookbuilding (ABB), and delegated the required decisions on approval to the Finance Committee.

We discussed the reports on the decisions made by the Finance Committee and the Executive and Nomination Committee, the results of the Audit Committee on the financial statements for the first half of 2020, the focal points of the audit and fee for the auditor of the annual financial statements for the 2020 fiscal year. We also approved a procedure proposed by the Management Board for monitoring related party transactions. In addition to the reports on operating business development in the individual segments, discussions also focused on the presentation of the company’s strategy.

In a video conference held on October 23, 2020, and based on the requirements set out in the ARUG II legislation and the new recommendations made in the GCGC 2020, we passed a fundamental resolution on adjustments to the remuneration system for the Management Board and the Supervisory Board, and to the Management Board employment contracts, to take effect on January 1, 2021. We made the decisions on the amendments and supplements after consulting legal experts on the drafting of contracts for members of executive bodies and an independent and experienced remuneration consultant.

After reviewing the remuneration paid to the Management Board in the context of recent evaluations of market data, we decided to make adjustments to the remuneration paid to the ordinary Management Board members.

In line with the adjustments made to the Management Board remuneration system, agreements amending the Management Board employment contracts were reached with the Management Board members. Among other things, all Management Board members agreed to the establishment of malus and clawback provisions.

The rules of procedure for the Supervisory Board and the Management Board were revised and the amended versions adopted.

In the video conference held on November 27, 2020, the Supervisory Board discussed, and passed a resolution on, the necessary amendment agreements to implement the revised Management Board remuneration system with effect from January 1, 2021, in the Management Board employment contracts. It also defined the maximum remuneration taking into account the remuneration structure and the company pension obligations.

The Supervisory Board also discussed a change in the company pension scheme and offered the ordinary members of the Management Board the option of receiving pension remuneration, to be put towards their own personal provision for retirement, instead of using the current deferred compensation scheme.

The Supervisory Board adopted the Declaration of Conformity to the GCGC in the version published on March 20 and, in this Declaration, declared a deviation from the recommendation made in G.13 sentence 2 and, as a precaution, also a deviation from the recommendation made in G.13 sentence 1 GCGC 2020 for reasons relating to vested rights and in order to be able to take account of the particular circumstances of the individual case.

In a video conference held on December 4, 2020, we addressed topics including financial issues. We held a digital session on December 15, 2020, and adopted the budget for 2021 submitted by the Management Board. We approved the budget and discussed the medium-term planning for the next five years. For the STIP (short-term incentive plan) Management Board remuneration component, we adopted the corporate targets for the 2021 fiscal year and also adopted the target values for the Management Board members in the 2021 performance period for the purposes of the 2021–2024 LTIP (long-term incentive plan).

We passed a resolution finalizing the remuneration system for the Management Board and the Supervisory Board developed in accordance with Section 87a of the German Stock Corporation Act (AktG).

Other topics included the reports on operating business performance in the individual segments, financial performance and capital market performance.

The Management Board also provided information on the introduction of the Sustainability Performance Index (SPI) as part of Vonovia’s management system, which is also a target parameter used in the revised Management Board remuneration system.

Duties of the Committees

The Supervisory Board made use of the existing committees (Audit Committee, Finance Committee and Executive and Nomination Committee) to effectively perform its work. The committees prepare subjects which are to be discussed and/or resolved by the Supervisory Board. In addition, the committees passed further resolutions that we had delegated to them instead of passing them on the Supervisory Board as a whole.

In addition to regular dialogue between the Audit Committee and the auditors at the quarterly meeting, there is also regular communication between the Chairman of the Audit Committee and the auditors, particularly before the quarterly meetings of the Audit Committee.

Audit Committee

The Audit Committee had four members in the reporting year. The Chairman was Prof. Dr. Edgar Ernst. The other members were Burkhard Drescher, Vitus Eckert and Dr. Florian Funck. In 2020, the Audit Committee met four times (March, May, August, November).

At the meeting held on March 4, 2020, the Committee reviewed the annual and consolidated financial statements as of December 31, 2019, as well as the combined management report for the 2019 fiscal year. Its review took account of both the company’s reports and the reports prepared by the auditor KPMG. The auditor considered the main points of the audit of the consolidated financial statements to be the valuation of investment properties located in Germany and Austria, the value of the goodwill as well as the identification and measurement of assets acquired in the context of the acquisition of Hembla. The Committee drew up a proposal for the appropriation of profit and developed a recommendation for a resolution to be submitted to the Supervisory Board regarding the adoption of the annual financial statements. The Committee developed a proposal for the selection of an auditor for the 2020 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. Further topics included the company’s CSR reporting and the outcome of the audit of the Non-financial Declaration conducted by Internal Audit. The Committee recommended that the Supervisory Board approve the Non-financial Declaration. Within this context, the Audit Committee decided that the audit of the Non-financial Declaration as part of the company’s CSR reporting and of the sustainability report would be conducted by the auditor of the annual financial statements in the future.

Other topics of discussion included the compliance report and the Internal Audit status report, which confirmed the effectiveness of the internal control system (ICS), among other things.

In the conference call held on May 4, 2020, the Committee looked at the condensed consolidated interim financial statements as of March 31, 2020. It discussed the company’s report and the auditor’s report. No financial implications of the coronavirus pandemic were identified.

The Committee also took an in-depth look at the risk management and compliance reports, as well as the Internal Audit status report. In addition, the committee members looked at the report on the company’s tax situation and, within this context, the status of the ongoing company tax audits.

In the video conference held on August 4, 2020, the Committee approved the consolidated interim financial statements as of June 30, 2020 and passed a resolution on the commissioning of KPMG AG Wirtschaftsprüfungsgesellschaft to audit the annual and consolidated financial statements as of December 31, 2020. The Committee obtained information on the implementation of the General Data Protection Regulation (GDPR) within the Vonovia Group. Other topics included the Internal Audit and compliance management status reports.

The Committee met via video conference on November 3, 2020, and discussed the condensed consolidated interim financial statements as of September 30, 2020, along with the corresponding reports prepared by the company and the auditor. It looked at the preliminary results of the property valuation, risk management, the compliance report and the report on the major legal disputes. It also discussed the report prepared by the Internal Audit department on the status of its audits and set the audit plan and audit budget for the Internal Audit department for the 2021 fiscal year.

Finance Committee

In 2020, the Finance Committee consisted of five members. The Chairperson was Clara-Christina Streit.

The other members were Jürgen Fitschen, Dr. Ute Geipel-Faber, Daniel Just and Christian Ulbrich. The Finance Committee met seven times in the reporting year, once at a face-to-face meeting (March) and five times using conference calls (twice in June, three times in September) and one video conference (December). The Committee made decisions using the written procedure in two cases (July, August).

The Finance Committee had been previously authorized by the Supervisory Board to make all decisions on matters outside the scope of the topics for which it is generally responsible.

At a meeting held on March 4, 2020, the Finance Committee approved the issue of bonds worth up to € 1 billion under the EMTN program.

In a conference call held on June 21, 2020, the Committee discussed a bond issue of up to € 1.5 billion as part of the EMTN program planned by the Management Board, and recommended that the Supervisory Board approve the issue.

In a video conference held on June 30, 2020, the Finance Committee approved the Management Board’s fundamental resolution on the partial use of the 2018 authorized capital in connection with the 2020 scrip dividend and used a written circular on July 24, 2020, to approve the more detailed resolution passed by the Management Board on the implementation of the non-cash capital increase.

On August 12, 2020, the Committee approved the early extension of the existing RCF line of € 1.0 billion by one year using the written procedure.

In a video conference held on September 2, 2020, and a conference call held on September 3, 2020, the Finance Committee approved the passing of a resolution by the Management Board on a cash capital increase, excluding subscription rights, using accelerated bookbuilding. At a second conference call held on September 3, 2020, the Finance Committee approved the modified resolution submitted by the Management Board to increase the company’s share capital, using the authorized capital, by € 17 million in return for cash contributions by issuing the same number of no-par-value shares, and to undertake their placement. On December 4, 2020, we dealt with topics such as financial matters in the Committee.

Executive and Nomination Committee

In the fiscal year under review, the Executive and Nomination Committee consisted of five members. The Committee was headed up by Jürgen Fitschen as Chairman of the Supervisory Board. The other members were Hildegard Müller, Prof. Dr. Klaus Rauscher, Dr. Ariane Reinhart and Clara-Christina Streit. The Executive and Nomination Committee met seven times in 2020, twice using conference calls (January, February) and five times at meetings organized as video conferences (August, September, October, November, December). The Committee made one decision by written circular.

At a conference call held on January 31, 2020, the Committee discussed and approved the structure of the long-term incentive plan, tranche 2020–2023, for the 2020 performance period and the corporate objectives for the 2020 short-term incentive plan as a recommendation to be made to the Supervisory Board. At the meeting held on February 19, 2020, the Committee developed resolution proposals for the Supervisory Board on the 2019 short-term incentive plan (target achievement), the 2020 short-term incentive plan (target agreements) and the long-term incentive plan for the Management Board (2020 tranche), as well as the payout of the long-term incentive plan tranche from 2019. The Committee reviewed the appropriateness of the remuneration paid to the Management Board and recommended that a further discussion be held given the upcoming regulatory and statutory changes. The Committee also discussed staff planning within the Management Board and, among other things, used the written procedure to approve an advisory board mandate to be assumed by a Management Board member on May 27, 2020.

At video conferences held on August 17, 2020, September 15, 2020, October 15, 2020 and November 24, 2020, the Executive Committee discussed necessary adjustments to the remuneration system for the Management Board and the Supervisory Board. It also discussed adjustments to the Management Board employment contracts to reflect the provisions set out in the ARUG II legislation and in the GCGC 2020. The Committee adopted corresponding recommendations on decisions to be made by the Supervisory Board.

In its discussions, the Committee addressed topics including malus and clawback provisions in the remuneration system and in the Management Board employment contracts. The Executive Committee also reviewed the appropriateness of the Management Board remuneration and recommended adjustments to the remuneration paid to ordinary Management Board members. The recommendations also related to the agreements amending the Management Board employment contracts and the maximum compensation to be defined.

The Committee discussed the current and future structure of the company pension scheme for Management Board members.

In its discussions, the Executive Committee drew on the expertise of an experienced law firm and an independent remuneration consultant. In the context of the adjustments to the remuneration, the remuneration consultant supplied comparative market data.

The Executive Committee also looked at the issue of staff planning within the Management Board. Among other things, the Committee recommended that Mr. Riedl be reappointed as a Management Board member until 2026.

On December 15, 2020, the Committee discussed the final version of the remuneration system for the Management Board and the Supervisory Board. The Executive Committee recommended the corporate targets for the Management Board’s short-term incentive plan (STIP) for 2021 and the target values for the 2021- 2024 performance period for the purposes of the long-term incentive plan (LTIP).

The Executive Committee also approved the Management Board’s decision to introduce a new deferred compensation scheme for company pension provision for employees of the Vonovia Group.

Corporate Governance

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 November 27, 2020, 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.

Audit

After being appointed at the Annual General Meeting on June 30, 2020, to audit financial statements for the 2020 fiscal year, KPMG AG Wirtschaftsprüfungsgesellschaft, Berlin, has duly audited the annual financial statements and consolidated financial statements of Vonovia SE as of December 31, 2020, and the combined management report for the 2020 fiscal year and has expressed an unqualified opinion thereon. In accordance with German legal regulations, the content of the Non-financial Declaration, which is included in a separate section of the combined management report, was not reviewed by the auditor. In accordance with Section 317 (4) of the German Commercial Code (HGB), 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 the International Financial Reporting Standards (IFRS), as applied in the European Union as well as the supplementary provisions applicable pursuant to Section 315e (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, 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 2020 fiscal year and also considered the Management Board’s proposal for the appropriation of profit. With regard to the Non-financial Declaration to be published pursuant to the CSR Directive Implementation Act, the Supervisory Board complied with its review obligation.

At the joint meeting on March 3, 2021, with the Audit Committee, and at the subsequent Supervisory Board meeting held on the same day, the auditors reported both on their findings including the strategic audit objectives and key audit matters. The strategic audit objectives and the key audit matters set out in the auditor’s report had been defined by the auditor within the context of his independent mandate in the second half of 2020, and had already been discussed and agreed upon with the Audit Committee in advance.

In the 2020 fiscal year, with regard to the consolidated financial statements, particularly key audit matters included the value of goodwill and the valuation of investment properties.

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 3, 2021, 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.

Dividend

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 its audit, the Supervisory Board agrees with the proposal set out by the Management Board to be made to the Annual General Meeting, namely the proposal that, from the profit for the 2020 fiscal year, a dividend of € 1.69 per share or € 956,349,535.31 in total on the shares of the share capital as of December 31, 2020, 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, 2020.

The dividend will be 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.

Personnel

There were no staff changes within the company’s management team during the reporting period.

Concluding Remarks

We would like to thank the Management Board for its successful management of the company in the challenging pandemic year of 2020. We also want to thank the company’s employees for the particular commitment shown by them in difficult conditions as a result of the coronovirus pandemic. We would like to thank the employee representative bodies for another year of constructive collaboration.

Bochum, March 3, 2021

For the Supervisory Board

Jürgen Fitschen