Compensation policy

Preliminary remark

The remuneration system established by the management applies to all employees of d.i.i. Investment GmbH (hereinafter referred to as the company) and the managers.

The remuneration system is in line with the company's business strategy and remuneration practice in accordance with Section 37 KAGB and the ESMA guidelines for a solid remuneration policy.

Society is aware of its ecological, entrepreneurial, social and societal responsibilities, which is why we integrate sustainability issues into corporate decision-making at all management levels and thus also in our compensation system.

The remuneration system is intended to promote management of the funds in the interests of investors while maintaining the integrity of the market and avoiding conflicts of interest. In particular, the remuneration system is based on a solid and effective risk management system that takes into account our sustainability issues and promotes this by excluding incentives to take risks that are not compatible with the risk profile, our ESG strategy, the investment conditions and the articles of association of the managed AIF become. This guideline applies to all organizational units of d.i.i. Investment GmbH .

This guideline is subject to resolution by the management of d.i.i. Investment GmbH. Changes and additions require the express written consent of the management.

The new version of the remuneration guidelines in version 4.0 comes into force with effect from June 15, 2021.

It is the responsibility of management to set the remuneration principles and ensure compliance. As a corporate management tool, the compensation system is aimed at achieving the goals set out in the business strategy.

Management wants to establish a solid and prudent remuneration policy and avoid abusive circumvention. The compensation system is designed to avoid incentives for managers and employees to take disproportionate risks.

An integral part of our compensation system is performance-based remuneration. Therefore, the total remuneration usually includes fixed and, if necessary, variable remuneration elements as well as any additional benefits for some of the employees.

Fixed and variable remuneration are proportionate to one another.

The fixed remuneration is sufficiently high to reward the professional services provided fairly and in accordance with the function performed, market conditions and the requirements for the qualifications and skills of the employees. This is intended to ensure that employees do not concentrate on earning variable remuneration when working for the company.

The remuneration system is checked at least once a year for its appropriateness and compliance with all legal requirements and adjusted if necessary.

In its function as a supervisory body, the Supervisory Board is involved by the management in the event of changes to the remuneration policy. The Supervisory Board oversees the implementation of the remuneration policy and receives regular reports, but at least once a year, as well as on an ad-hoc basis, as soon as a change to the remuneration policy is to be implemented.

As part of its supervisory function, the Supervisory Board ensures that the objectives of the remuneration policy are consistent with the regulatory requirements and a solid business strategy of the company in compliance with general corporate governance principles, management of the funds in the interests of investors and while maintaining the integrity of the market and conflicts of interest are avoided through the remuneration policy. Furthermore, the Supervisory Board will ensure that the control functions (risk management, compliance, internal auditing) are adequately integrated.

The remuneration of the managing directors is regularly reviewed by the Supervisory Board.

According to the ESMA Remuneration Guidelines, the Guidelines apply to the AIFM and their identified employees. The company must therefore determine which of the company's employees are to be viewed as so-called identified employees. In addition to the managers, this includes employees whose activities have a significant influence on the risk profile of the company or the investment funds managed (risk takers) and employees with control functions.

In addition, the identified employees also include those who receive total compensation that puts them in the same income bracket as managers and risk takers.
When identifying the relevant employees, in addition to the hierarchical position, the activity in an area relevant to the risk carrier or in a control unit and the employees' ability to influence the company's risk profile are particularly important. It was important to take into account that within the company final decisions regarding the purchase and sale of assets for the investment funds as well as their management are made solely by the management.

The other employees independently have no significant influence on the risk profile of the company and the investment funds managed. Rather, these employees only prepare relevant management decisions.

The identified employees included those who, although they do not make decisions independently, can nevertheless have a significant influence on decision-making.
Employees of the control units who could have a significant influence due to their control function also had to be identified.

Taking these criteria into account, the company can identify the key employees as follows:

• Managing Director
• Head of product conception
• Head of real estate purchasing, fund management and real estate portfolio management
• Head of Risk Management
• Head of Sales

Taking these criteria into account, the company can identify the key employees as follows:

• Risk management
• Compliance
• Internal revision

d.i.i. Investment GmbH also obtains services for asset management, construction project management, human resources and IT/IT security from d.i.i. Deutsche Invest Immobilien AG and has outsourced accounting/fund accounting to d.i.i. Deutsche Invest Immobilien AG. Internal auditing is outsourced to an external auditing firm and the whistleblower system is outsourced to an external law firm. When purchasing services or outsourcing, the employees and managers of d.i.i. Deutsche Invest Immobilien AG have no independent, significant influence on the risk profile of d.i.i. Investment GmbH or on the AIFs it manages, since d.i.i. Investment GmbH makes the decisions that influence the risk profile might have.

There are no other identified employees based on their functional position.

d.i.i. Investment GmbH is not bound by collective agreements. The remuneration of employees is generally freely negotiated and contractually agreed and consists of a fixed basic salary (monetary payments without taking performance criteria into account) and, in individual cases, a variable remuneration component (additional cash payments and benefits that are based on performance criteria or, in certain cases, other contractual ones). criteria can be granted).

In addition, the ESG risks identified at company and fund level are included in the annual employee performance reviews. As part of the discussion, an assessment is made of the extent to which the measures to implement the ESG strategy have been adhered to by employees and managers. The measures to be implemented are described and anchored in detail in the ESG guidelines.

The remuneration system established by the company is based on a solid and effective risk management system and promotes this by excluding incentives to take risks that are not compatible with the risk profile, the investment conditions, the articles of association or the articles of association of the managed AIF become. The aim of the remuneration policy is therefore to align with the business model, sustainable success and the company's risk structure.

The following applies to employee remuneration:

Annual fixed salary
The basic salary is paid in 12 monthly installments. The fixed remuneration is determined when the employee is hired, taking into account market practice and appropriateness. The annual fixed salary system depends on the value of the position or the function performed in accordance with market conditions. Relevant to remuneration are, among other things, the requirements for the qualifications and skills of the employees. The design of the remuneration regulations, in particular the amount of the annual fixed salary, ensures that employees are not dependent on variable remuneration. The company does not have any employment or service contracts that result in obligations to pay severance payments when employees leave.

Variable remuneration
In general, the company's remuneration system is designed to pay employees a fixed annual salary.
A variable portion of the remuneration as an annual bonus can, if necessary, be determined by management for some of the employees based on the risk-adjusted success of the company and the business areas as well as the individual performance of the employee.

The variable salary component is determined by management in a defined process in the first quarter of a calendar year and paid out with the payroll for the following months. Variable remuneration components are generally only distributed if the company's short and medium-term risk situation allows it and there are no gross breaches of duty or immoral behavior or violations of our compliance regulations. Any necessary adjustments to the fixed and variable remuneration are discussed once a year between the manager responsible for human resources and the employee and then decided on by management.

Variable remuneration in the form of instruments intended to facilitate circumvention of the requirements of the AIFMD Directive will not be paid.
Guaranteed variable remuneration can only be paid in exceptional cases in connection with the hiring of new employees and is limited to the first year.
There is no reward for failure in connection with the early termination of contracts.

For employees in control functions, the variable remuneration, if any is provided for these employees, will only make up a small amount of the total remuneration.
In addition, individual performance goals must be agreed for the respective employees in the control functions in order to avoid dependencies and conflicts of interest with the performance of the areas to be controlled. The managing directors' contracts provide for fixed and variable components, whereby the variable components depend on the success of the company and generally make up a maximum of 30% of the total compensation. The remuneration depends on the powers, tasks, expertise and responsibilities of the managing directors. The specific payout amounts are determined as part of the management assessment between management and the supervisory board.

In particular, the success of the company and the performance of the managing director in the current and past years, the current risk situation and the corporate planning for the next few years are taken into account. The performance is therefore viewed and assessed over several years.

Managing directors are prohibited from taking out personal hedging strategies or compensation and liability-related insurance policies that undermine the risk behavior orientation anchored in the compensation regulations.

Benefits
The company offers various incentives and benefits to its employees. These include, among other things, further training and fitness offers, participation in the company pension scheme, free job tickets and protection for employees through group accident insurance.

In addition, individual employees, in particular members of the management and individual employees in leading positions, receive company cars through the company. However, this offer is not available to all employees of the company.

For any necessary adjustment of the fixed salary and the specific amount of variable remuneration, management uses the performance of the individual employee and the risk-adjusted success of the company and the business areas as criteria, among other things.

The remuneration policy is consistent with sound and effective risk management and does not encourage risk-taking.

According to point VII.I point 26 of the ESMA guidelines, the principle of proportionality can be used to justify the non-application of individual, selected requirements. This justifies why these are not applied to all identified employees.

Only non-application of the following requirements is possible:

▪ Variable remuneration in the form of instruments
▪ Blocking period
▪ Deferral
▪ Ex-post consideration of the risk in variable remuneration

The different risk profiles and characteristics of AIFMs justify a proportionate implementation of the remuneration principles.
Certain criteria relevant to the application of proportionality must be taken into account: the size of the AIFM and the AIFs managed by it, the internal organization and the nature, scope and complexity of the transactions. With regard to d.i.i. Investment GmbH, certain criteria have been identified which lead to the application of the principle of proportionality and are explained below:

a) Size

d.i.i. Investment GmbH, with currently 17 FTEs (including management), is a small company whose structures are manageable, transparent and not comparable to listed companies. d.i.i. Investment GmbH also has no systemic relevance for the financial market.

Only business is carried out in accordance with a business permit. d.i.i. Investment GmbH makes investments in the German residential real estate market for its managed AIFs. There are currently no cross-border AIFs being managed or marketed. This leads to a significant reduction in risk. Until 2019, sales were exclusively to professional and semi-professional investors. From 2020, the newly launched closed public AIF will also be sold to private investors.

b) Internal organization

d.i.i. Investment GmbH handles real estate portfolio management, risk management, sales and compliance within the company itself and uses the services of the parent company d.i.i. Deutsche Invest Immbobilien AG as part of an optimized value chain.

Given the many years of experience of both companies in the area of ​​real estate asset management, the standardized and optimized processes also contribute to a functioning and reliable process organization.

c) Type, scope and complexity of the transactions

The funds managed are invested primarily in German residential properties. Investments are not made in risky types of use such as commercial real estate. The invested market – Germany – has a high level of regulation and a transparent real estate market.

The AIFs pursue a balanced debt financing strategy and do not make any complex investments in securities.
d.i.i. manages a small to medium-sized volume of assets and, due to the number of employees, the complexity of the business and the risk nature of the individual AIFs and in relation to purely German residential properties, is predominantly the manager of a low-risk and manageable portfolio.

Employees:
With regard to the internal organization and complexity of the business, it is clear that introducing a complex compensation system at d.i.i. Investment GmbH would be disproportionate. The same applies to human resources and process organization. Without the involvement of management, individual employees do not have the opportunity to exert a significant influence on the risk profile of the AIFM or the AIFs managed.

Internal competence and approval regulations (from a minimum of 4 to 8 eyes principle) help ensure that employees can only collectively process and approve essential business processes.
Due to the above-mentioned characteristics, individual requirements based on proportionality are not applied to the identified employees.

The requirements regarding payment of variable remuneration in the form of instruments, the introduction of a vesting period, deferral and ex-post consideration of the risk in variable remuneration are therefore not applied to the identified employees.

According to the ESMA remuneration guidelines, the establishment of a remuneration committee is not required for companies where the value of the portfolio of AIFs they manage is less than 1.25 billion euros and the company employs fewer than 50 people.

Since the company employs significantly fewer than 50 people and the value of the portfolio of AIFs (NAV), whose management was taken over, amounted to around 260 million euros according to the annual financial statements at the end of 2019 and is therefore well below 1.25 billion euros, apart from the establishment of a compensation committee.

The management will deal with the remuneration system regularly, but at least once a year, and on an ad-hoc basis. The Supervisory Board will be involved in the review as soon as a change to the remuneration policy is to be implemented.

The focus of the review is on the appropriateness of the remuneration system in light of the size, internal organization and the nature, scope and complexity of its business. In particular, the establishment of a compensation committee is being examined.

Furthermore, other aspects are also taken into account as appropriate, such as the effects of the remuneration policy (e.g. annual fixed salary) on employee fluctuation and motivation as well as signs of circumvention.

To the extent that an adjustment to the remuneration principles is necessary from the perspective of management and the Supervisory Board, the risk management function, the compliance function and the internal audit function will also be included in this revision. While for the risk management function, for example, the influence on the AIFM's risk profile and for the compliance function, for example, the influence on compliance with legal and internal requirements plays a role, the internal audit department brings experience with regard to implementation and implementation from its regular, independent audit Effect of the remuneration policy.