Report of the Supervisory Committee

Chairman's Statement

Despite continuous market headwinds throughout 2023, Vesteda continued to invest in affordable, sustainable and climate-proof rental homes for a broad and diverse group of tenants. This is illustrated by, among other things, the installation of more than 11,000 solar panels in 2023, and the continuous effort to renovate buildings in a sustainable manner, with the aim of further reducing the energy demand per home and outperform the Paris Agreement, using a previously approved budget of €200 million to fund sustainability efforts over a period of ten years.

The Supervisory Committee is very pleased to see that Vesteda is recognised for its dedication, leadership and commitment to ESG principles and sustainability and was declared Global Sector Leader Residential in the 2023 Global Real Estate Sustainability Benchmark (GRESB). In addition to outperforming the Dutch and European benchmark, this was the first time Vesteda had achieved this global GRESB top position.

Preserving stable cash returns in the face of rapidly changing real estate valuations was a top priority in 2023. The Supervisory Committee has overseen management navigating challenging market conditions, as referred to in more detail in the Limited investments section. The occupancy rate remained high at 99%, while net rental income increased by 5%, and loss of rent remained below 2%. Vesteda outperformed the MSCI residential benchmark on the three-year average return.  

Changing market conditions, including the rise in interest rates, prompted discussion about the required rate of return for new projects. The Supervisory Committee and the management discussed the adaptation of Vesteda’s investment strategy. New investments were limited, as the uncertain market requires a highly selective approach. An increased required rate of return reflecting market risks was discussed and approved by the Fund’s participants.

Vesteda’s steady focus on offering a solid value proposition for all its stakeholders continues to pay off. Stakeholders are seen to be involved and satisfied with the company’s achievements. The tenant satisfaction score of 7.2 (out of 10) in 2023 outperformed both the benchmark and its own strong precedent of 7.1 in 2022. The participant satisfaction score remained at the same level as in 2022 (4.2 out of 5). In addition, Vesteda’s employees continuously strive for business improvements and proudly recommend this High Performance Organisation. This is shown by the very high employee Net Promotor Score of 67.

Some of Vesteda’s participants needed to re-balance their investment portfolios last year, resulting in several redemptions of participation rights in the Fund. And for the second consecutive year the Fund distributed the entire Redemption Available Cash. On the other hand, two investors increased their stake in the Fund and Stichting Algemeen Pensioenfonds STAP joined the Fund. The Supervisory Committee believes this is proof that Vesteda continues to offer a solid long-term investment for institutional investors due to its overall solid value proposition.

Given the Fund’s conservative investment approach, the Supervisory Committee approved only one substantial acquisition last year, the Zuiderhof project in Rotterdam. By increasing its stake, Stichting Pensioenfonds ABP made it possible for Vesteda to purchase this project. The homes in this complex will be rented on a priority basis to candidates in key professions, including teachers, police officers and healthcare workers.

The tight rental housing market and further increase in the total cost of living prompted continued discussions of the housing affordability in 2023. The Supervisory Committee monitored Vesteda's active participation in the social debate on the Dutch housing market, for example via its collaboration with the Association of Institutional Property Investors in the Netherlands (IVBN).

Apart from announced governmental regulations adding to the uncertainties in the housing market, several courts across the Netherlands have ruled that certain rent increase clauses are deemed unreasonable and therefor null and void. These verdicts, when held up on appeal, could have a material financial impact, not just for Vesteda but many other real estate investors and therefore the Dutch real estate market. The Supervisory Committee is monitoring these developments closely.

In June, Vesteda was shocked by a large fire in its De Enter complex which rendered all 95 homes uninhabitable for a prolonged period of time. While no tenants or their beloved pets were harmed, the fire had a major impact on the residents. The Supervisory Committee was impressed to see that management and Vesteda’s employees went above and beyond to arrange the quickest possible rehoming for all tenants, while managing financial damages and public relations.

Vesteda also saw several organisational changes in the past year, as the CIO stepped down and the CEO announced his departure as per April 2024. Since joining Vesteda as CEO in 2014, Mr Van der Baan has strengthened Vesteda’s market leadership position and accomplished a cultural change, the bolstering of its financial position and a significant improvement in sustainability. As Chairman of the IVBN, he has also reinforced the role of institutional real estate investors in the market. The Supervisory Committee concluded that Vesteda’s current COO Astrid Schlüter ultimately had the best credentials to be nominated for appointment as Vesteda’s new CEO.

In addition, the Supervisory Committee followed an extensive selection process to fill two vacancies due to the expiration of the tenures of Ms Van den Herik (as per December 2023) and Mr Copier (as per February 2024). New Committee members Ms Zandstra and Mr Meulenberg were appointed unanimously by the participants.

The members of the Supervisory Committee were at all times able to operate independently and critically, towards each other, as well as towards the Management Board and the Management Team. I would like to thank my fellow Supervisory Committee members for their dedication. On behalf of all of us, I conclude by thanking the company’s Management Board, Management Team and all other Vesteda employees.

Jaap Blokhuis, Chairman of the Supervisory Committee

Supervisory Committee

Focal points

The main task of the Supervisory Committee is to supervise the management carried out by the Manager and the general course of the Fund's business, as described in more detail in the Governance section of this report. Last year, the Supervisory Committee and its separate committees discussed a range of topics. The separate committees regularly convened and reported back on their activities to the full Supervisory Committee. The following topics will be set out in more detail below:

• Organisational matters;

• Limited investments;

• Financial reporting.

Meetings and attendance record

Until 9 December 2023, the Supervisory Committee comprised Mr Jaap Blokhuis (Chairman), Mr Hans Copier, Ms Seada van den Herik, Mr Theo Eysink and Ms Eva Klein Schiphorst, all of whom are deemed independent in the sense described in the Supervisory Committee's by-laws. As per 9 December 2023, the position of Ms Van den Herik was taken over by Ms Zandstra (see the Organisational matters section of this report).

In 2023, the Supervisory Committee met eight times, either in person or via Microsoft Teams meetings. The Management Board, (members of) the Management Team and the Company Secretary attended most of these meetings. Four of these meetings were dedicated to specific topics, these being the approval of two investment proposals (including the Zuiderhof project), the approval of a bridge financing facility and the Business plan. The Supervisory Committee always met in the absence of the Management Board ahead of regular scheduled meetings. Additionally, the Committee attended Vesteda’s permanent education day.

Below you will find an overview of the attendance record per member of the Supervisory Committee.

Overview of attendance record Supervisory Committee

Attendance is expressed as the number of meetings (including Microsoft Teams meetings) attended out of the number of meetings the members were eligible to attend. In the event of absence, the members discussed the topics in advance and provided powers of attorney.

The activities of the Supervisory Committee and its separate committees in 2023 are summarised in the following schedule:

Supervisory Committee activities in 2023 (including separate committees)

See additional information on the role and functioning of the Supervisory Committee and its committees in the Governance section of this report.

Organisational matters

In May 2023, the Fund’s participants were informed of the expiration of the second tenure of two members of the Supervisory Committee, Ms Van den Herik and Mr Copier, as per 9 December 2023 and 12 February 2024 respectively, opening up two vacancies. None of the participants made use of their nomination right in respect of the vacancies.

The Supervisory Committee engaged Partners at Work/ Escalier (PaW) based on their knowledge of the Dutch real estate market and the use of the Talent Motivation Analysis tool. This tool was used to map the remaining Supervisory Committee members and the gaps left by the departing members. The candidate profiles were drafted on the basis of this analysis. The longlist of candidates, including those with real-estate and non-real estate backgrounds, showed a balanced representation of male and female candidates and was discussed with all members of the Supervisory Committee. Several candidates were shortlisted and subsequently interviewed by PaW. The Supervisory Committee resolved to unanimously nominate Ms Zandstra and Mr Meulenberg to the participants for appointment as member of the Supervisory Committee due to their experience, professional background and personal fit with the other members of the Committee. The participants unanimously approved their respective appointments for a period of four years.

Moreover, Mr Van der Baan announced in October 2023 that he would step down as CEO and member of the Vesteda Management Board as per April 2024, after being in office for ten years. In the Supervisory Committee’s view, the arrival of Mr Van der Baan marked the start of a cultural change within Vesteda. Under his leadership, Vesteda strengthened its position as a market leader, bolstered its financial position and expanded its portfolio and made it more sustainable, resulting in a leading position in the GRESB benchmark. On top of this, Vesteda’s strategy has enjoyed unanimous support from the Fund’s participants for the past ten years. In his role as the Chairman of IVBN, Mr van der Baan also helped institutional investors gain recognition for their role in the housing market. Mr van der Baan demonstrated his social commitment from the perspective of both investors and tenants. The Supervisory Committee was responsible for selecting a suitable successor (m/f). After a thorough selection process, including multiple external candidates, the Supervisory Committee nominated Astrid Schlüter for appointment as Vesteda’s new CEO. Vesteda has started the recruitment and selection process to find a new COO to succeed Astrid Schlüter. 

Prior to that, Vesteda’s long-time CIO and member of the Management Team Mr Knauff, stepped down from his position as per August 2023. Since 2015, Mr Knauff played an important role in the growth and sustainability of Vesteda's portfolio and in the further professionalisation of the organisation. The Supervisory Committee has found the cooperation with both Mr van der Baan and Mr Knauff to be transparent, pleasant and professional. Both are considered good leavers under Vesteda’s variable remuneration scheme.

One of the Supervisory Committee’s recurring tasks is determining the bonuses of the Management Board and setting targets for the year ahead. The Committee determined the individual variable bonus of the Management Board for 2022, which was not paid out due to the negative overall 2022 result. In early 2023, the Committee approved Vesteda's updated policy on ESG and management remuneration consistent with the integration of sustainability risks and factors. The Supervisory Committee subsequently reviewed and discussed adjustments to the variable remuneration of the Management Board, aligning with (peers in) the market and the overall company remuneration. This resulted in approval of several minor adjustments to the key variable management remuneration principles and KPIs at the end of the year. See the NR Committee section of this report for more information on the (subsequent) steps that were taken regarding management remuneration.

Vesteda is committed to being a High Performance Organisation (HPO) and increasing its bi-annual HPO score over time. The latest outcome of the survey that took place in December 2023 was 7.8. The Supervisory Committee will continue to monitor management's actions aimed at becoming a High Performance Organisation.

In light of its permanent education, the Supervisory Committee members individually attended events on topics such as ESG, AI, the energy transition and leadership. Jointly, the Supervisory Committee members attended Vesteda’s permanent education day. Subjects included corporate governance and valuation and the upgrading of real estate assets.

Limited investments

All market players faced further increases in interest rates, housing shortages, costs of energy, maintenance and construction, as well as uncertainty regarding government regulations and court cases on rental increases. The Supervisory Committee discussed the market dynamics regularly with management, as well as the (potential) impact on Vesteda's funding, rating and projects.

In the course of the year, Vesteda adapted its investment strategy to the uncertain market, reassessing the required rate of return and limiting new investments. The Supervisory Committee approved Vesteda’s main acquisition proposal, as this was in line with its highly selective acquisition strategy: the Zuiderhof project in Rotterdam. In collaboration with Vesteda participant Stichting Pensioenfonds ABP, 160 high quality apartments in the mid-rental segment will be built, facilitating key workers in social professions, and a broader and diverse target group.

Vesteda continues to strive for a greener portfolio every day and made significant investments in sustainable renovations in 2023. After receiving the BREEAM certification for almost all its portfolio in 2022, giving Vesteda the largest BREEAM-certified real estate portfolio in the world, the GRESB global sector leader position is further evidence that Vesteda’s focus on investing in sustainability is paying off.

The Supervisory Committee fully supports management’s focus on the continuous improvement of the sustainability of the portfolio, while significantly reducing the soft pipeline, accelerating disposals, and additional block sales in the year to come.

Financial reporting

In early 2023, the Supervisory Committee discussed the preliminary results for 2022 and audit matters with the external auditor (Deloitte). The committee discussed the 2022 financial statements and the 2022 annual report in the presence of Deloitte's lead partner. The Committee also discussed the audit process for the valuation of Vesteda's portfolio extensively with Deloitte. The Supervisory Committee discussed the Fund’s performance versus budget on a quarterly basis.

The valuation of Vesteda's portfolio declined significantly in 2023 due to market circumstances. This had an impact on Vesteda's direct and indirect results. As a result, the total expense ratio (TER) increased, as well as the loan to value ratio (LTV), while net rental income was above budget and vacancy rates remained low. The Supervisory Committee discussed the need to increase insight into functional costs, and subsequently, the future impact of the functional cost trend. The Committee also took note of Vesteda's MSCI score over 2022, which outperformed the benchmark. The Supervisory Committee and management discussed the breakdown of the results and lessons learned with respect to outperforming and underperforming assets.

Management provided the Supervisory Committee with quarterly updates on liquidity provision. In May 2023, Standard & Poor's (S&P) affirmed Vesteda's credit rating at A- with a stable outlook. In July 2023, S&P reconfirmed the rating and adjusted its view on Vesteda's liquidity position. In September 2023, Vesteda closed a financing agreement for a committed standby facility of €250 million provided by two of Vesteda’s relationship banks. The standby facility provides extra liquidity headroom and gives the organisation more financial flexibility.

Miscellaneous

In the course of the year, the Supervisory Committee addressed various other topics, including the Corporate Sustainability Reporting Directive (CSRD) obligations, project management, the fire in the De Enter complex in Amsterdam and the impact of court cases on rent increase. The Committee also discussed the regular updates on the search for new investors to provide liquidity for redeeming participants.

Moreover, the Supervisory Committee was informed about Vesteda’s ongoing work in response to cyber security threats and disruptions, in addition to compliance with the Digital Operational Resilience Directive (DORA).

Vesteda updated the Committee on the new law (from 1 January 2025) prohibiting fiscal investment institutions (FBI; the Dutch equivalent of the REIT) from investing in directly held real estate in the Netherlands, and the fact that this had no direct impact on the Fund.

The members of the Supervisory Committee held meetings in the absence of management, including meetings with the Internal Audit Manager and the external auditor. On various occasions, individual members of the Supervisory Committee met with senior Vesteda officers to gain information on ongoing matters. The Management Board engaged the Supervisory Committee early on in setting out the strategy in the 2024-2028 Business Plan. Vesteda held a separate Business Plan meeting that involved the Management Board, the Supervisory Committee and others. Among other things, the Supervisory Committee focused on, Vesteda's long-term contribution to society, its sustainability programme and IRR targets. This resulted in the Supervisory Committee recommending the participants to approve the Business Plan.

Audit Committee

In the year under review, the Audit Committee consisted of Mr Eysink (Chairman) and Mr Copier. The Committee met six times in 2023. Generally, the CFO, the CEO, the Internal Audit Manager, the Company Secretary and the external auditor also attended these meetings.

In line with its tasks, the Audit Committee discussed in detail the periodic financial statements and the 2022 annual financial statements and annual report. The Audit Committee discussed the audit process, key audit matters, preliminary and key audit findings and principal assumptions, judgments and valuations, and the external auditor reported its preliminary and final audit findings. As part of the yearly audit process, the external auditor presented the Audit Committee with its findings related to ISAE 3402. The Audit Committee was pleased to learn that the external auditor had once again issued an unqualified opinion in respect of 2022.

The external auditor and the Audit Committee discussed the scope and materiality of the external audit plan. The Audit Committee reviewed and discussed the Fund’s financial reports on a quarterly basis. As part of its general duties, the Audit Committee approved the external auditor’s audit plan.

Each quarter, the Internal Audit Manager reported to the Audit Committee on their deliberations and findings regarding internal risk management and controls. In addition, the Internal Audit Manager presented various material internal audit investigations that took place in 2023, such as the review of supply chain management, asset strategy setting, upgrades and planning and execution of asset maintenance. Furthermore, the Audit Committee approved the Internal Audit year plan.

The Chairman of the Audit Committee met and spoke with the external auditor on several occasions in the absence of the Management Board, to remain directly informed. The Chairman also met and spoke with the Internal Audit Manager. The Chairman updated the Audit Committee on the outcome of all such meetings.

During the year, the Audit Committee also monitored and discussed Vesteda’s debt funding strategy, as well as the sustainability KPIs for relevant green financing agreements. In addition, the Audit Committee discussed and provided the Supervisory Committee with a positive recommendation on the bridge facility as discussed in the financial reporting section of this report. Moreover, the possibilities of issuing digital green bonds by means of public blockchain technology were presented to and discussed with the Audit Committee. Subsequently, the Supervisory Committee approved the issuance of a tokenised debt. Vesteda became the first real estate investor to use this technology in financing solutions and gain knowledge of its benefits.

The Audit Committee was updated on the new law prohibiting fiscal investment institutions (FBI) from investing in directly held real estate in the Netherlands, and the potential impact on some of the Fund’s participants. It also discussed the announced amendment of tax qualification rules for mutual funds.

Also, the Committee discussed cyber security measures that were taken as part of Vesteda’s cyber roadmap and follow-up actions. The Audit Committee also discussed other topics within its purview, including risk management and the report of the Fund's depositary Intertrust.

Nomination and Remuneration Committee

The Nomination and Remuneration Committee (NR Committee) consisted of Chairwoman Ms Van den Herik (until 9 December 2023) and Ms Klein Schiphorst. The NR Committee met four times in the year under review. Generally, the CEO, the CFO, the HR Director and the Company Secretary also attended these meetings.

On behalf of the Supervisory Committee and the NR Committee, Ms Klein Schiphorst took the lead in the search for the two new Supervisory Committee members, collaborating with PaW, as described in the Organisational matters section of this report. Also, the NR Committee started the process of finding a suitable successor for the CEO.

The NR Committee discussed an Internal Audit assessment of the 2022 variable employee remuneration against the legal framework. Recommendations regarding Vesteda’s identified and non-identified staff were followed up.

The HR director informed the NR Committee of a revised employee renumeration system, approved by the Works’ Council (OR).

The NR Committee discussed the outcome of the management targets for 2022. The management’s progress towards meeting variable renumeration targets for 2023 was monitored throughout the year on a quarterly basis, based on the existing target structure. The year under review was considered a bridge year regarding the Management Board target and remuneration system, while a new system was discussed with management throughout the year. Existing key principles, such as long-term orientation and stakeholder interest were to meet those of the (new) renumeration system set for (other) Vesteda employees. Participants’ satisfaction, tenant satisfaction and MSCI-score remain important KPIs, together with ESG targets. The NR Committee issued positive advise on the Supervisory Committee's proposed approval of future variable management renumeration.

The NR Committee also discussed the outcome of the overall annual review of all employees. In addition, it discussed Vesteda’s talent pool and succession planning. The NR Committee continued to discuss attention points, further actions and projects following the outcome of the last bi-annual internal survey on HPO. Moreover, the HR director presented the organisation's progress on internal employer branding research to the NR Committee.

Each quarter, the NR Committee received reports on compliance, focusing on integrity incidents, their potential impact on Vesteda's business and follow-up, compliance with regulatory requirements and other activities such as internal training and awareness. The NR Committee strongly supports an open company culture in which people discuss and learn from incidents.

In September, the Nomination and Remuneration Committee Charter 2023 was adopted. This sets out, the tasks, function, responsibilities, powers, composition and working method of the Committee. There were no substantial changes to the current way of working. 

Meeting of Participants

Vesteda convened three formal Participants’ Meetings in the year under review. These included the annual meeting in April, in which the financial statements and the annual report were discussed and adopted, and the execution of the Business Plan was evaluated.

In September, the standby facility as discussed in the financial reporting section of this report, was unanimously approved in an Extraordinary Meeting of Participants. Participants and Supervisory Committee members also attended the annual informal Participants’ Day in September, during which they visited projects in the Utrecht area and were updated on the annulment of rent increases and Dutch residential real estate returns.

In the annual meeting in December, participants discussed and unanimously approved the 2024-2028 Business Plan and the appointment of two new members to the Supervisory Committee.

Amsterdam, 15 March 2024

Supervisory Committee

Jaap Blokhuis, Chairman
Theo Eysink
Paul Meulenberg
Eva Klein Schiphorst
Ditri Zandstra