Governance Clear Guidelines for Dynamic Action

Governance

Corporate Governance

The term corporate governance signifies the legal and factual framework for managing and monitoring a company. This includes current laws, guidelines and codes as well as the senior management’s declarations of intent and business practices along with their supervision.

DIC Asset AG attaches great importance to corporate governance. The Management Board and Supervisory Board are committed to ensuring the continued existence of the company and sustainable value creation through responsible corporate management with a long-term horizon. The responsible handling of risks is also part of good corporate governance in the eyes of DIC Asset AG. The Management Board therefore installs appropriate risk management and risk controlling mechanisms in the company and ensures compliance with applicable laws and regulations. The recommendations of the German Corporate Governance Code (Deutscher Corporate Governance Kodex, DCGK) are observed, as stated in the company’s annual declaration of conformity. The Management Board regularly briefs the Supervisory Board about existing risks and their development. Internal control, reporting and compliance structures within the company are periodically reviewed, upgraded and adapted to changed parameters as needed.

The full-length Corporate Governance Report is an integral part of our 2019 Annual Report, starting on p. 186.

German Corporate Governance Code (DCGK)

The German Corporate Governance Code seeks to make the rules that are applicable to corporate management and supervision in Germany transparent for national and international investors in order to boost their faith in the corporate management of German companies. During the 2019 financial year, as in previous years, the Management Board and Supervisory Board reviewed the company’s compliance with the DCGK recommendations.

The deliberations resulted in the adoption of an updated annual declaration of conformity dated 10 December 2019 that is permanently available to the public on the company’s website at:

https://www.dic-asset.de/en/ir/corporate-governance/.

Organisational Structure

Strategic Group Structure

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As its central management holding company, DIC Asset AG handles the group’s combined corporate management tasks: the alignment of the corporate strategy (in particular the investment, portfolio management and sales strategies), the corporate and real estate financing, the risk management, the compliance management, and the control of the property management. The central level is also responsible for capital market communication and corporate communication. Certain important operative core tasks are taken care of by two subsidiaries. One, GEG German Estate Group AG, is responsible for the Institutional Business unit which handles the fund and asset management of the structured investment products on behalf of third parties, as well as the further development of the investment strategies and the management of the institutional investor accounts. The other is the in-house property management company DIC Onsite GmbH, which takes care of the entire real estate portfolio – both the directly held Commercial Portfolio of DIC Asset AG and the properties held in the Institutional Business unit – by maintaining a nationwide presence on the ground. Aside the from DIC Asset AG, the group includes 172 subsidiaries. The majority of these represent asset-holding companies that are part of the operating activities. All of the group’s equity investments are listed in Annexes 1 and 2 of the Notes to the Consolidated Financial Statements.

Dual Management Structure

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The dual management structure of DIC Asset AG as listed stock corporation consists of Management Board and Supervisory Board.

The two bodies are strictly separated in persons and functions, and fulfil their differing tasks independently of each other. The Management Board is responsible for managing the company on its own authority, while the Supervisory Board’s task is monitoring.

Composition of Management Board and Supervisory Board

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Composition of the Management Board in 2019:

  • Sonja Wärntges (chair), CEO, certified economist, Frankfurt am Main
  • Johannes von Mutius, CIO, certified business administrator, Königstein im Taunus
  • Dirk Hasselbring, Head of Fund Business, certified business economist, Kronberg im Taunus (until 31 August 2019)

Composition of the Supervisory Board in 2019:

  • Prof. Dr. Gerhard Schmidt (chair), lawyer, Glattbach
  • Klaus-Jürgen Sontowski (deputy chair), entrepreneur, Nuremberg
  • Ulrich Höller (until 15 May 2019), certified business economist, real estate economist (ebs), chartered surveyor FRICS, Frankfurt am Main
  • Prof. Dr. Ulrich Reuter, district councillor of Aschaffenburg District, Kleinostheim
  • Eberhard Vetter, Head of Capital Investments at RAG Foundation, Nauheim
  • Dr. Anton Wiegers, former CFO of Provinzial Rheinland Holding, Provinzial Rheinland Versicherung AG and Provinzial Rheinland Lebensversicherung AG, Winterbach
  • René Zahnd (since 21 May 2019), CEO of Swiss Prime Site AG

For more details on memberships of the Management Board and Supervisory Board members in other corporate bodies and supervisory bodies, see the 2019 Annual Report, pp. 176–179.

Selection Process for the Controlling Body

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In accordance with its declaration of conformity, which reflects the recommendations of the German Corporate Governance Code as amended on 7 February 2017, the Supervisory Board defined objectives for its own composition. These objectives also include the competence profile for the entire body and the diversity concept the Supervisory Board pursues in regard to its composition. The Supervisory Board should generally have the knowledge, skills and professional experience necessary to perform its tasks. The members of the Supervisory Board should collectively be familiar with the industry in which the company is active.

It should be ensured that at least some of the members of the Supervisory Board bring the following types of know-how and experience to the job: (i) familiarity with the commercial real estate industry, (ii) expertise in the fund/asset and property management business, (iii) expertise in the area of capital market and financing, (iv) expertise in the areas of accounting or auditing in the case of at least one member of the Supervisory Board, (v) experience in the management of a mid-market company. To achieve this requirement, the individual qualifications of the each member may mutually complement each other.

Independence and the avoidance of conflicts of interest are also important objectives: The Supervisory Board should include an adequate number of independent members. At least half of the members of the Supervisory Board should be independent within the meaning of Section 5.4.2 of the German Corporate Governance Code (DCGK). In regard to conflicts of interest, the Supervisory Board complies with the recommendations of the German Corporate Governance Code. The Supervisory Board should include no member who exercises a senior executive or advisory function for major third-party competitors of the company or of the group. No more than two former members of the Management Board should sit on the Supervisory Board.

As a listed company without co-determination, DIC Asset AG is also legally obliged to set targets for the number of female appointees to the Supervisory Board, the Management Board and, where applicable, to the two executive levels below the Management Board.

For more details on this subject, see chapter “Social” as well as on pages 190–192 of the 2019 Annual Report of DIC Asset AG.

The Supervisory Board believes that its own composition – with the exception of the targeted percentage of women on the Supervisory Board – met the set targets in 2019. The members of the Supervisory Board are collectively familiar with the real estate sector that is relevant to the company’s activities, with at least one member of the Supervisory Board having expertise in the areas of accounting or auditing. Overall, the body includes an adequate number of independent members. In the opinion of the Supervisory Board, at least four of its members are independent within the meaning of Section 5.4.2 of the German Corporate Governance Code as amended on 7 February 2017: Prof. Dr. Ulrich Reuter as chairman of the audit committee, Dr. Anton Wiegers, Eberhard Vetter and René Zahnd.

Avoidance of Conflicts of Interest

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In compliance with the German Corporate Governance Code, each member of the Management Board and of the Supervisory Board will disclose any conflict of interest that might arise. No conflicts of interest emerged on the Management Board during the 2019 financial year. In the context of the planned acquisition of the GEG Group by DIC Asset AG, Supervisory Board members Prof. Dr. Gerhard Schmidt, Klaus-Jürgen Sontowski and Eberhard Vetter disclosed to the Supervisory Board during the 2019 financial year that they were serving double mandates on the supervisory board of the GEG Group and that Prof. Schmidt held an indirect majority interest in the GEG Group. To avoid conflicts of interest, none of the three members of the Supervisory Board mentioned above took part in the adoption of the resolution about the consent to the acquisition of the GEG Group in June 2019. Between the company and law firm of Weil, Gotshal & Manges LLP, of which Supervisory Board Chairman Prof. Dr. Gerhard Schmidt is a partner, advisory mandates existed during the 2019 financial year with the approval of the Supervisory Board. Prof. Schmidt did not attend the Supervisory Board’s corresponding discussion and adoption of the resolution. No other conflicts of interest emerged during the 2019 financial year.

Risks and opportunities

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One of the basic tasks of a company is to identify and exploit emerging opportunities in a dynamic environment. At the same time, companies are exposed to all kinds of risks that can put not only short and medium-term goals in jeopardy but also the implementation of the long-term strategy. It therefore counts among the key aspects of good corporate governance to keep an eye on global phenomena such as climate change and its ramifications for the real estate industry.

Our risk management procedures regarding the opportunities and risks of climate change are integrated into the company-wide multidisciplinary risk management processes. The risk management system (RMS) covers all corporate divisions, including the group subsidiaries, and is binding for all employees. Risks are understood to be strategic and operational factors, events and actions that could have grave implications for the continued existence of the company and its business situation. The external aspects also analysed include the competitive environment, demographics and other factors that could put the achievement of the company’s objectives at risk. The RMS comes into play both in strategic decisions of the Management Board and in day-to-day business.

Accordingly, the internal control and monitoring system forms an integral part of the RMS. It helps to minimize operational and financial risks, as well as to monitor processes while also ensuring compliance with laws and regulations, including financial reporting requirements. During the year 2019, no material changes were made to the company’s organisation and processes. For a comprehensive representation of the risk management process followed by DIC Asset AG, see the 2019 Annual Report, starting on p. 93.

The following table shows you which measures DIC Asset AG takes to manage selected opportunities and risks that are of relevance in the sustainability context.

Changed Consumer Behaviour

Risk/opportunity

The tenant-side energy and water consumption could increase.

In future, tenants could attach greater importance to accommodation that is energy-efficient or certified for sustainability.

Possible impact

An increase in tenant-side consumption data for energy or water is likely to increase the operating costs as well.

While the energy refurbishment of existing buildings involves major expenditures, it will also lower the operating costs in the long run.

Management approach

Working together with the tenants, we look for the most efficient approach to meeting their energy needs, especially whenever we reposition portfolio assets.

Within the framework of our overall energy strategy, the electricity needs of the common areas of our properties have been covered by renewable energies since 2010.

The implementation of smart metering systems for managed properties is expected to improve the analytic and management options for consumption data.

Changes in the business cycle

Risk/opportunity

Shifts in the global business cycle, particularly as a consequence of protectionism, geopolitical tensions and ramifications of the COVID-19 pandemic

Changed availability of debt capital

Possible impact

A negative impact of trade barriers for German foreign trade could also have an impact on Germany’s domestic economy.

The development, refurbishment and acquisition of real estate is capital-intensive, and presupposes access to debt capital as often as not. Stricter financing criteria could impair the regular business activities of DIC Asset AG.

Management approach

To minimise risks, we rely on long-term tenancies with solvent tenants from a variety of sectors. The portfolio is highly diversified, in particular through a relevant proportion of leases with tenants from the public sector.

Today’s level of interest rates, which remains on an all-time low, presents opportunities for favourable financing and long-term improvements of our financing structure. With this in mind, we regularly engage in negotiations with lenders. Whenever we manage to secure unscheduled, premature rollovers or attractive agreements, we benefit from a decrease in primary costs and a reduction in funding risks.

Regulatory and legislative aspects

Risk/opportunity

Restrictive legislation on energy efficiency and emission limits

– Periodic energy audits pursuant to the German Energy Saving Ordinance (EnEV)

– The Renewable Energy Sources Act (EEG) prescribes a renewable energy share of over >40% by 2025.

Possible impact

DIC Asset AG could be affected by a legal tightening of emission limits or of the energy efficiency targets for real estate. Future re-enactments of relevant laws by German lawmakers could necessitate material changes in the construction or conversion of real estate and could also raise energy efficiency requirements in the areas of asset and property management.

Management approach

DIC Asset AG brings in-house expertise to the field of energy management and has a team of property managers on hand who are experienced in handling tenant needs. We regularly invest in our buildings. We promptly take note of legal and regulatory changes to ensure compliance with all relevant regulations. Given the high degree of regulatory, social and political stability, we believe the risk of rash regulatory interventions is low.

In the long term, it is planned to deepen the in-house expertise in the ESG area because its parameters are subject to constant change, and because DIC Asset AG seeks to manage specifically its opportunities in a more systematic way.

Compliance Management System

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A compliance policy for the DIC Asset Group has been in effect since 2013. A compliance officer monitors the observance of material compliance requirements. In addition, a whistleblower system for reporting misconduct and breaches is linked on the Compliance sub-page of the company homepage. The Compliance Policy stipulates that employees of DIC Asset AG and its subsidiaries are obliged to act responsibly and lawfully. This includes adherence to the principles of ethical conduct and integrity within the company, in particular compliance with legal provisions, internal company guidelines and self-imposed values.

Key Aspects of the Compliance Guideline of DIC Asset A
01

Discrimination protection

  • No discrimination or undesirable behaviour for reasons of ethnic origin, gender, religion/belief, disability, age or sexual identity
02

Avoidance of conflicts of interest and corruption risks

  • Rejection of corrupt conduct in any form and of the misuse of entrusted decision-making powers
  • Binding regulations for the acceptance and granting of gifts/invitations or other benefits
  • When dealing with officials, even the appearance of granting benefits to public officials should be avoided
  • No influence on employment contract activities through private secondary activities or corporate investments
03

Data protection

  • Obligation to observe trade and business secrets
  • Compliance with data protection laws
  • Central placement of information that personal data is handled in accordance with the European General Data Protection Regulation (GDPR) on the company website
04

Capital market requirements/prohibition of insider trading

  • Prohibition of insider transactions and of the recommendation or inducement of third parties to engage in insider transactions
  • Prohibition of unauthorised disclosure of insider information
05

No money laundering

  • No tolerance of money laundering, and reporting suspicious behaviour of business partners and advisers
  • Commitment to comply with all relevant regulations and requirements
06

Prohibited agreements

  • Strict rejection of any distortion of competition or corrupt practices contrary to antitrust law
  • Encouragement to employees to promptly identify violations of competition rules, expressly distance themselves from any such agreement and to notify the compliance officer immediately
07

Indications of misconduct and breaches

  • Request to report misconduct and violations of legal provisions or regulations and internal company guidelines either to the Compliance Officer, the relevant supervisor, the Management Board, the Human Resources department or via an anonymous whistleblower system
08

Consequences

  • Sanctions under labour law for breaches of legal provisions and internal company guidelines
  • Criminal charge / criminal complaint in the event of a criminally relevant violation