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Report of Executive Board of Directors

Monitoring and reporting

Monitoring risks is embedded in the daily activities of the responsible line manager and is an integral part of the planning and control cycle. Bouwinvest monitors all the defined risks via key risk indicators, supported by the performance reporting and business incidents reporting processes. Each quarter, the Executive Board of Directors is provided with a risk report, including the risk indicators indicated above and actions necessary to limit or mitigate risk, if there is a deviation between the outcome and the pre-determined norm.

Risks in the portfolio are monitored closely and the following events and risks were noteworthy in 2019.

Market concentration risk

The Fund’s concentrations in its core regions (largest cities, notably Amsterdam) is based on its investment strategy with a focus on areas with good economic prospects and a healthy demand for rental homes underpinning long-term rental and valuation growth. In 2019, the Fund has reduced its concentration in the G4, with most of last year's acquisitions in other cities, such as Delft, Zwolle or Eindhoven.

Occupancy risk

The Fund devotes a great deal of attention to the kind of homes it acquires, the services it provides and the tenants journey, from rental process to dealing with queries and complaints. Combined with its focus on core regions and affordable (mid-rental homes), and despite some initial vacancy for properties with higher rental rates, the vacancy levels have remained very low.

Counterparty risk

The Oostduinlaan project was successfully delivered at year-end 2019, following a prolonged delay by the builder. Thanks to tight contracts, the delay has not resulted in financial damage, as the builder fully compensated the Fund for missed rental income. The issues around nitrogen emissions and PFAS levels has not resulted in financial difficulties for builders of other projects in the Fund's pipeline.

Liquidity risk

The Fund was exposed to an expected liquidity squeeze when its bank accounts were temporarily frozen (as a result a commercial dispute with one of the projects undertaken by the Fund). Thanks to its good banking relations and committed funding, this situation was resolved quickly and after a week the freeze was lifted, without any lasting impact on the Fund.

Funding risk

The overshooting of the acquisition target (part of the Fund’s growth ambition) has resulted in a potential funding gap situation, despite commitments from new or existing shareholders. The Fund has monitored its funding and liquidity situation carefully and has ample projected liquidity up to 2021. In light of the still high levels of uncalled commitments and its planned divestment strategy, the Fund has continued its strategy of selectively prioritising future new-build assets over currently available commitments, anticipating continuing investor demand and or sufficient market liquidity for divestments.

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