A partnership built on trust Annual Report 2018 Management Report S Finanzgruppe Content Management Report I Principles of the Bank 12 II Economic Report 16 III Opportunities, Forecast and Risk Report 32 IV Accounting-Related Internal Control System and Risk Management System 56 V Remuneration Report 58 VI Corporate Governance Declaration Pursuant to Section 289f German Commercial Code (HGB) 65 VII Non-Financial Declaration pursuant to Sections 289b and 289c German Commercial Code (HGB) 66 VIII Further information for investors 76 Board of Management and Supervisory Board Management Report Annual Financial Statements Service I Principles of the Bank Business Model Organisational Structure Gero Bergmann Berlin Hyp is a stock corporation within Landes- Staff (until 30 November 2018) bank Berlin Holding AG Group (Landesbank Portfolio Management Berlin Holding), Berlin, the majority of whose (from 01 January 2019) shares are held by Erwerbsgesellschaft der Treasury S-Finanzgruppe mbH & Co. KG. As a subsidiary Sales Real Estate Financing of Landesbank Berlin Holding, Berlin Hyp is included in the consolidated financial state- Roman Berninger ments of Erwerbsgesellschaft der S-Finanz- Financing and Banking Operations gruppe mbH & Co. KG (smallest and largest Information Technology consolidation group as defined in Section 285 Risk Controlling Nos. 14 and 14a of the German Commercial Code Company Organisation (HGB)). A profit and loss transfer agreement is in place between Berlin Hyp and Landesbank Berlin With a view to the future challenges facing Holding. The Group structure is as follows: Berlin Hyp – in particular digitisation, further 1 The names Landesbank Berlin AG and Berliner Sparkasse development of information technology and are used synonymously in the following. the requirements of banking supervision – adjustments were made to the organisational structure at the end of the year. The Portfolio Erwerbsgesellschaft der Beteiligungsgesellschaft der Management division was newly created and S-Finanzgruppe mbH & Co. KG S-Finanzgruppe mbH & Co. KG the Central Sales / International Business and S-Group / Domestic Business divisions were 89.37 % 10.63 % combined to form the Sales Real Estate Financ- ing division. Since then, Berlin Hyp has been Landesbank Berlin Holding AG organised in 14 divisions with 45 departments and eleven teams. 100 % 100 % The Supervisory Board of Berlin Hyp has three Landesbank Berlin AG / Berlin Hyp AG Berliner Sparkasse committees: the Loan Committee, the Staff and Strategy Committee and the Audit Committee. 100 % 100 % Business Activities Berlin Hyp Immobilien GmbH OnSite ImmoAgent GmbH Berlin Hyp is a banking institution that spe- cialises in commercial real estate finance and combines experience from 150 years in the real estate lending business with the foresight and effectiveness to address current market trends As at 31 December 2018, the Berlin Hyp Board in order to develop future-oriented products of Management comprised three members and services for professional customers. who had the following areas of responsibility: Under the umbrella of Landesbank Berlin Sascha Klaus (Chair) Holding, Berlin Hyp is the S-Group partner and Governance competence centre for the commercial real Communication and Marketing estate financing operations of the German sav- Lending (Real Estate and Capital Market) ings banks. In addition to its current offering Staff (from 01 December 2018) of syndicate financing and support in valuation Internal Audit and restructuring, above all products such as Company Strategy the secured ImmoSchuldschein, ImmoAval and Valuation ImmoKonsortial generate particular added value to savings banks. 12 As a real estate sector partner, Berlin Hyp is example, the products “ImmoSchuldschein”, Locations one of the first ports of call for investors and which enables savings banks to participate in Germany and throughout Europe housing societies looking for flexible financ- the return opportunities offered by commercial ing solutions as well as expert yet personal real estate financing, and “ImmoAval”, which support. Through its business model, today provides for liability sharing via a guarantee Berlin Hyp focuses on real estate financing with simple documentation. “ImmoAval” will in economic centres in Germany and select be offered in perspective via a digital portal Amsterdam foreign markets. solution. The product range for savings banks is supplemented by the classic syndicate Warsaw On the capital market, Berlin Hyp is valued as business, the “ImmoKonsortial”. Paris a recognised and reliable partner that reg- ularly issues covered and uncovered bonds. Furthermore, Berlin Hyp offers savings banks The mortgage Pfandbrief has consistently and the “ImmoRiskDialog” product as a compre- lastingly proven its value as the leading means hensive analysis of non-performing real estate of refinancing. financing. Berlin Dusseldorf Locations Since September 2018, the wholly-owned sub- Frankfurt am Main Berlin Hyp is headquartered in Berlin. It also sidiary “OnSite ImmoAgent” has been offering Hamburg has domestic sales offices in Dusseldorf, Frank- commercial real estate viewing services for Munich furt am Main, Hamburg, Munich and Stuttgart, both savings banks and the market in general. Stuttgart as well as abroad in Amsterdam, Paris and Warsaw. Sustainability is a central aspect of Berlin Hyp’s company strategy. Since 2015, Berlin Hyp’s Products and Services value chain has included an additional Berlin Hyp develops individual financing important element of sustainability – green solutions for its customers. A broad range of bonds for the refinancing of green assets. products is used to meet customers’ require- They thus offer investors added value beyond ments. Among other products, this includes the creditworthiness of the bank and its cover fixed-interest loans, reference interest rate funds. Green bonds are issued in the form of loans, cash loans and sureties, framework Green Pfandbriefe and Green Senior Unse- lines, interest hedge products, financing cured Bonds. The financing of green buildings, products for construction work (construction among other things, represents an element of enterprises and developers), business current the Bank’s sustainability activities that relates accounts, operating equipment loans and directly to its core business, commercial real overnight money/term money, as well as valua- estate financing. tions and payment transaction services. These products enable the Bank to offer a full range Medium and long-term refinancing is generally of customer care as a real estate financer. carried out by issuing mortgage Pfandbriefe, as well as through unsecured issues. To manage risks and optimise returns, many financing transactions are processed together with partners. For the most part, Berlin Hyp’s product range is therefore consequently suit- able for syndicates. The Agency Desk service unit provides special services relating to the syndicate business. In addition to its broad product range, Berlin Hyp also offers products specially developed for German savings banks. These include, for 13 Board of Management and Supervisory Board Management Report Annual Financial Statements Service Objectives and Strategies The Berlin Hyp Board of Management has In order to strengthen the S-Group concept, summarised the company strategy in a strategy the sales structure for savings banks is decen- document. It describes the business strategy tralised and geared to their needs. Regional that forms a binding strategic framework for the savings bank advisors and valuers advise the Bank’s business activities. The operating targets savings banks from their offices in Düsseldorf, and functional strategies are derived from this. Frankfurt, Hamburg, Munich and Stuttgart. A Savings Banks Advisory Council, made up Berlin Hyp pursues two strategic goals: of members of the Boards of Management of selected savings banks, advises Berlin Hyp 1. Berlin Hyp is the most modern commercial twice a year on all issues relating to the S-Group real estate financier in Germany; business. 2. Berlin Hyp is the S-Group Partner of the German savings banks. Berlin Hyp positions itself on the market as a sustainable company and thereby claims a lead- As a result of the 2018 Strategy Dialogue, Berlin ing position (sustainability rating). Berlin Hyp Hyp underpinned its new strategic orientation has set itself the goal that 20 % of its overall with four guiding principles: portfolio will be composed of green financing by the end of 2020. We are all innovation drivers. We advise holistically and form an ecosystem This goal is supported in particular by the Goals for 2020 with our customers and business partners. development of sustainable products (e.g. We promote excellence in old and new ways. green bonds), efforts to promote the financing #sharinginspiration of sustainable real estate, cooperation with innovative businesses/start-ups, the implemen- Berlin Hyp has launched a digitisation initiative tation of a comprehensive sustainability and with the objective of modernising its traditional environmental management system and the business model and increasing efficiency. promotion of employees’ social commitment. Among other things, the bank also examines 20% cooperation with suitable companies and start- ups and jointly develops future business models of the loan volume should be and new products. composed of so-called green building financing by 2020 For savings banks, Berlin Hyp wants