Bouwinvest Dutch Institutional Residential Fund NV. Annual Report 2012

Transcription

1 Dutch Institutional Residential Fund NV Annual Report 2012

2 Bouwinvest Dutch Institutional Residential Fund NV Annual Report 2012

3 2

4 Table of contents Key financial information 4 Introduction to the management company 6 Message from the CEO Profile and strategy Report of the Management Board Portfolio highlights Report of the Supervisory Board Corporate governance Corporate Social Responsibility Risk management Financial statements Other information INREV Financial overviews Shareholders information & Investor Relations 104 Contact information 106 Glossary 107 Properties overview 110 Key information over three years 113 Colophon 116 3

5 Key financial information All amounts in thousands unless otherwise stated Performance per share page 98 Dividend (in ) Net earnings (in ) Net asset value IFRS 2, , (in, at year-end) Balance sheet page 61 Total assets 2,686,859 2,819,839 Total shareholders equity 2,675,679 2,810,652 Net asset value INREV 2, , (in, at year-end) 4 Property performance 2012 Residential IPD/ROZ Fund index page 113 Direct return investment property Indirect return investment property (2.5) (5.0) Total return investment property 1.3% 0.3% Portfolio highlights 2012 Outperformance IPD/ROZ index for third consecutive year (1.0%-point) Dividend return of 3.4% Acquisitions and investments under construction of 58 million (2.2%), versus 53 million (1.9%) in 2011 Property performance 2011 Residential IPD/ROZ Fund index page 113 Direct return investment property Indirect return investment property (2.5) (5.0) Total return investment property 4.1% 1.9% More than 90% of new properties fully rented within 12 months after completion Rent increase (like-for-like) of 3.2% Continued low rent in arrears of 1.5%

6 Division by type of property based on book value 53.6% 0.5% 45.9% Single-family houses Apartments Other Portfolio movements in 2012 (in mln) 2,800 2,100 1, , (29) 0 (71) 2,598 0 Investment Investments Divestments Profit on Valuation Investment properties disposal of movements properties as per properties as per Portfolio figures page 113 Investment property 2,597,675 2,666,196 Investment property under construction 60,146 35,600 Gross initial yield 5.6% 5.4% Total number of residential units 14,580 14,686 Average monthly rent per unit (in ) Financial occupancy rate (average) 97.6% 96.6% Reletting and renewals 14.1% 14.8% Sustainability (A, B or C label) 91.0% 82.3% Result page 60 Net profit 18,790 98,893 Total Expense Ratio (TER) 0.55% 0.53% Real Estate Expense Ratio (REER) 2.05% 1.88% Market trends and opportunities Demand for rental housing stimulated by weak owner-occupier market Strengthened competitive position of liberalised rental sector resulting in rising rents per m 2 Increasing demand in particular in Bouwinvest s core regions will lead to further value growth in the long run Result (% ROE) Income return Capital growth (2.5) (5.0) Total return 0.6% 3.5% Persistent high demand for housing with rental levels between 681 and 1,200 per month An opportune moment to use the momentum to acquire even more quality housing products Sustainability expected to play an increasingly important role 5

7 1 Introduction to the management company Bouwinvest REIM is an investment manager specialised in real estate for institutional investors. Bouwinvest has total assets under management of 5.6 billion, managed by 130 professionals, all based in Amsterdam, the Netherlands. The company has a solid track record as a high-performing fund manager with in-depth knowledge of the Dutch and international real estate markets, supported by best in class valuation and risk management policies. Bouwinvest is recognised as one of the leading real estate investment managers in the Netherlands. 6 Bouwinvest s real estate portfolio Bouwinvest manages four Dutch sector funds: a Residential Fund of 2.7 billion, a Retail Fund of 0.6 billion, an Office Fund of 0.5 billion and a Hotel Fund of 0.1 billion. All four Dutch funds are core funds without leverage, focused on highquality properties at prime locations in what Bouwinvest has identified as its core regions. Bouwinvest also has separate mandates for the management of international real estate investments. Our background in construction, asset management and pensions Bouwinvest s unique combination of a background in construction and pensions and expertise in real estate investment management puts the company in a perfect position to anticipate and respond to market developments and investors real estate investment needs. This ability is proven by the extensive portfolio of high-quality real estate it manages. Bouwinvest has a long and distinguished track record of successful projects in various real estate sectors, both in the Netherlands and internationally. Managing residential real estate investments Bouwinvest s key goal is to provide investors with a long-term stable return on real estate investments. The company manages all of the key elements of the entire real estate chain, from acquisition and project development through asset management and disposal. We bring together many years of experience in all of these disciplines to achieve an optimal balance between risk and return. An effectively sized organisation and employees who are passionate about real estate enable Bouwinvest to understand the needs of its investors and translate them into customised asset allocation proposals. The Residential Fund s acquisitions and active asset management ensure that the portfolio is continuously revitalised and optimised.

8 Meeting the demand for long-term continuity Bouwinvest s organisational structure Bouwinvest meets the growing demand for defensive, long-term investment categories. While maintaining a long-term focus, Bouwinvest has demonstrated time and again just how well it is able to anticipate and quickly respond to the latest market developments. The company has proven itself to be a solid, committed and trustworthy partner, providing continuity through its ability to adapt to changing market conditions and investors expectations. Two-tier board structure Bouwinvest is the manager and statutory director of the Residential Fund and has a two-tier board structure. The Management Board is responsible for Bouwinvest s long-term strategy, as well as the day-to-day management and administration of the organisation itself and assets under management. Bouwinvest s Supervisory Board monitors, supervises and advises the Management Board. Mission statement We provide a solid return on real estate investments, in a responsible way, for institutional investors and their beneficiaries. Our dedicated real estate professionals achieve this by managing Dutch core sector funds and global real estate investments. 7

9 8 In 2012, Bouwinvest revised the composition of its Management Board due to the merger of two business units to form a single business unit, Dutch Investments. All Dutch activities now report to the Director Dutch Investments. The Management Board consequently consists of four members as of 1 January This new business structure enables us to operate with much greater efficiency and makes us more responsive to developments in the Dutch real estate sectors. Business units and staff departments Bouwinvest believes teamwork is the key to its success. To stand out in the real estate investment business, a company needs a wide range of skills and the right corporate culture to make the best use of all its in-house knowledge. Dutch investments Bouwinvest s Dutch Investments business unit is responsible for all real estate investments in the Netherlands. It focuses on optimising the direct and indirect returns of the real estate portfolios and manages the portfolios at both strategic and tactical levels. This business unit has experts in acquisition and divestment, property development and asset management and dedicated teams specialised in the residential, retail and office real estate sectors. Property management is outsourced Further information For more information about Bouwinvest and the investments we manage, please visit our corporate website at You are also welcome to contact the Bouwinvest Investor Relations department via ir@bouwinvest.nl. to local property managers and service providers, ensuring a flexible and dedicated relationship with tenants. Bouwinvest monitors these activities very closely. International Investments The International Investments business unit has regional teams covering the three regions for Bouwinvest s international investments: Europe, North America and the Asia Pacific region. The International Investment business unit manages tailor-made separate mandates for international real estate investments. These include investments in joint ventures, club deals or listed and unlisted real estate funds with local managers. Teamwork and collaboration The performance of the real estate investments is the result of teamwork and collaboration right across the business and at every stage of the investment process. Research, Compliance, Risk Management and other departments therefore all play key roles in the overall investment process. It is this combination of real estate expertise from the business units combined with the system of checks and balances built into the Bouwinvest organisation that ensures the right balance of risk and return. This is what enables Bouwinvest to achieve its goal of stable long-term returns for its investors.

10 Java-eiland, Amsterdam.

11 Message from the CEO 10 Dear stakeholders, Last year was another difficult year, both for the Netherlands in general and for the Dutch real estate market in particular. The economy stuttered throughout the year, and consumer and business confidence were low. Thanks to these developments and falling property prices, there was a lot of negative sentiment on real estate investments. This situation was not helped by a continuous flow of negative reports in the media, especially about the Dutch office real estate market and the persistent drop in house prices. So on the whole, conditions were not particularly favourable. However, there were some bright spots. The Netherlands retained its triple-a status, making it one of the very few European countries with a triple-a credit rating. And in 2012 we finally saw the government taking measures to reform the Dutch residential market. In office and retail, our two other main markets, we saw the gap between prime and secondary markets continue to widen, with an even greater focus on prime real estate. But while the conditions and the sentiment were very poor, we saw real opportunities to accelerate our investments. Once again we managed to maintain high occupancy rates in the Residential Fund. We booked solid direct returns and made dividend payments of approximately 3.3% over the past three years. Turnaround in the residential market The Dutch residential market has had a difficult couple of years and the pre-crisis boom years are well and truly over. However, the government reforms announced last year could result in a turnaround in the country s largest real estate investment sector. The tax breaks for owneroccupiers have been limited and there will be a much clearer distinction between the social and liberalised housing sectors. The liberalised sector has always been quite a small sector in the Netherlands, but it is set to grow quickly. People who earn above a certain amount are being stimulated to move out of social housing and into the liberalised sector. The uncertainty in the owner-occupier market, with falling values and lower tax breaks on mortgage interest payments, also means that owner-occupiers and potential buyers are choosing the liberalised rental sector. This influx is leading to much greater demand for rental properties in the liberalised sector. The cuts in subsidies for the social housing and owner-occupied segments is something of a revolution in the residential market and will create a much more level playing field. We are therefore optimistic about the occupancy rates for the Residential Fund in the future. Not least because our portfolio is concentrated in the demographically and economically strong regions in the Netherlands, such as the Randstad urban conurbation and the Brabantstad conurbation. House prices in general are set to decline another 5 to 7% in 2013, which will affect the value of the properties in our portfolio. However, as we have no plans to sell these properties, they will be valued more and more on a hold basis, which is based on discounted rental income, occupancy rates and yields. Last year, for instance, the value of our residential portfolio fell by 2.8%, compared to a 7% decline in the owner-occupier market. Also, rental income still went up by more than 3%. We are cautiously optimistic about this year. Thanks to our core region focus and active asset management approach, we will continue to add value to our residential portfolio, partly through very selective acquisitions. This constant refreshment will also enable us to future-proof our portfolio and continue to meet the growing market demand for high-quality rental properties in the fast-growing mid-rental segment, and at the same time increase the sustainability of our portfolio.

12 Residential real estate will continue to offer more stable returns than other asset classes, especially for long-term investors with an inflation hedge profile, and certainly in the prime segments of the market. We therefore fully expect to expand our portfolio in 2013, as it is now possible to buy prime properties at good prices. We are optimistic about the occupancy rates for the Fund We believe we will maintain occupancy rates at high levels and that yields will be stable. We therefore expect solid direct returns. Indirect returns will depend on developments in Europe, consumer and business confidence and world trade rates. But if we can steer a middle course, we will deliver another good risk-adjusted performance in I would like to thank all Bouwinvest employees for their efforts and their dedication during these challenging times. Dick van Hal CEO 11

13 Java-eiland, Amsterdam.

14 Profile and strategy 1 The Bouwinvest Dutch Institutional Residential Fund is the largest unleveraged residential fund in the Netherlands with assets under management of 2.7 billion. The Fund is focused on providing shareholders with a stable rate of return through investments in core residential real estate in the Netherlands. The Fund has a core investment style and aims to have a well-diversified portfolio, focusing on regions with a healthy economic and demographic outlook and assets in prime locations. Active asset management, effective hold/sell analyses and regular maintenance of the Fund s assets ensure a continuous optimisation of the Fund s risk return profile. The Fund constantly anticipates and responds to market trends, as well as evolving demographic developments and tenant demands. This has helped the Fund to maintain continuously high occupancy levels, even during recent economic downturns. Portfolio characteristics As at year-end 2012, the Residential Fund s portfolio comprised 226 properties. The portfolio is well diversified across property type, risk profile and region, which is the result of the set diversification guidelines (see page 14). Consequently, the portfolio focuses on high-quality properties, economically strong regions and a healthy balance of apartments and single-family homes. Furthermore, the Fund has a strong focus on the mid-price rental segment, as demand for this segment continues to increase and annual rental indexation is not limited by governmental regulations. Our active asset management policy has resulted in a continuous refreshment of the portfolio, which currently has a weighted average age of 17.7 years. This active approach to the portfolio has also helped maintain high financial occupancy levels (97.6%), and enabled the Fund to make substantial rent increases by using the market opportunities available (like-for-like rent increase of 3.2%). More details about the Fund s portfolio can be found in the Report of the Management Board on pages 16 to 29. Strategy The Fund s objective is focused on providing investors with a targeted long-term average annual Fund return of 6% by acquiring, managing, adding value to and disposing of residential investment properties in the Netherlands. The Fund has a core investment profile and has no leverage. In order to achieve this, we focus on sourcing investment properties in high-quality locations with the potential for a long-term inflation-hedged cash flow pattern. The Fund has a growth strategy, as we believe the residential sector continues to offer good longterm investment opportunities, especially for investors with a liability or hedge profile. The shareholder, bpfbouw, has allocated 150 million for residential investments in The Fund s dynamic and high quality core portfolio benefits from a secured pipeline for turnkey acquisitions from third parties as well as from Bouwinvest 13

15 14 Development BV. The Fund aims at a constant refreshment of the portfolio and has a targeted portfolio turnover of 5% per annum, which helps the Fund to avoid high maintenance costs. Bouwinvest maintains and observes a defined set of investment restrictions and diversification guidelines in the execution of its strategy for the Fund. Bouwinvest s asset management, research and marketing teams also help the company to anticipate and respond to market trends and demographic developments, such as the rising demand for sustainable housing. Bouwinvest also monitors and responds to demographic developments, such as increasing urbanisation, smaller households and the ageing population, which are resulting in high levels of demand for flexible, sustainable housing located in urban areas. Key strategic objectives Stable, inflation-hedged cash flow Long-term average annual Fund return of 6.0% Focus on low-risk assets in the Fund s core regions Targeted portfolio turnover/refreshment of 5% per annum Core investment profile, no leverage Creating value by active asset management Effective response to market developments, such as acquisitions of sustainable assets Improving sustainability Investment restrictions Adhering to the following investment restrictions ensures that the Fund maintains a strong focus on its core activity and limits exposure to risk: No more than 5% of the Fund s total investments may be made in a single investment property. This limits the risk of exposure to single investment properties that could substantially influence performance. No more than 10% of the Fund s total investments may be made in non-core properties (i.e. nonresidential properties) and then only if these properties are related to Dutch residential investment properties. No investments may be made that have a material adverse effect on the Fund s diversification guidelines. The value of investments to pre-finance acquisitions to the fullest extent permitted under the legislation applicable to the Fund as a fiscal investment institution (FII) must never exceed 10% of the total value of the Fund s investment portfolio. Diversification guidelines The diversification guidelines have been set up to optimise the Fund s regional and risk profile, as we are convinced that diversification reduces risk at portfolio level. Bouwinvest aims to achieve a balanced regional diversification within the Netherlands, with a focus on core regions with a positive economic and demographic outlook. This contributes to the achievement of the targeted stable cash flow. These regions are reassessed on a regular basis. The target is for at least 80% of the total portfolio value to be related to investment properties in these core regions. Core region policy The Residential Fund has a core region policy. The regions Bouwinvest has identified as core are closely correlated to demographic and economic

16 trends such as urbanisation, population growth, sustainability and the demand for lifecycle-proof housing. To identify the most attractive municipalities for residential investments within the core regions, the Fund considered the following indicators: Population growth Employment opportunities Development in stock Vacancy rates Volatility of value development The new bandwidths for the risk diversification for 2013 are: 50 75% lower risk investment properties 25 50% medium risk investment properties 0 10% higher risk investment properties Risk-return model Bouwinvest has developed a proprietary risk-return model based on property level risk indicators. To ensure that the portfolio always has an overall low and medium-risk profile, Bouwinvest s diversification guidelines prescribe how the Fund s portfolio must be spread across three risk categories. Under this system, Bouwinvest employs a top layer of risk indicators, such as rental level, accessibility and sustainability, plus several sub-risks. Each of the risks and sub-risks is weighted based on their relative importance. The total weighted risk score determines the risk category of the property. In terms of risk diversification, at least 90% of the investments must be low or medium risk. On the portfolio level, we have identified bandwidths (see figure 1) to budget the risk. In the current market the amount of real estate on offer is enormous. Many of these assets are located in the core regions and all have a low risk profile. In 2012, Bouwinvest adjusted the bandwidths slightly, specifically to enable the Fund to take advantage of these low risk opportunities. The new bandwidths increase the minimum allocation to assets with a low risk profile, which are expected to offer the best perspectives for higher direct and indirect returns in the longer term. % % 25 50% 0 10% Figure 1: Portfolio bandwidths based on book value lower risk medium risk higher risk 15

17 2 Report of the Management Board The Management Board* is jointly responsible for the strategy and the management of the investment funds and the separate mandates for international investments. This is in line with Bouwinvest s philosophy of cooperation, collaboration and shared responsibility. 16 D.J. (Dick) van Hal (1958, Dutch) Chairman, CEO and Statutory Director Dick van Hal has been the Chairman of the Management Board and CEO of Bouwinvest since his appointment on 1 March From 1999 until that time, he held several senior positions at Syntrus Achmea Vastgoed, including Managing Director and CEO. Dick started his career with Centraal Beheer Beleggingen and Staal Bankiers. He studied Investment Analysis (VBA) at the University of Amsterdam. * Following a change in the organisational structure, R.G. (Roel) de Weerd (1970, Dutch) CFO and Statutory Director Roel de Weerd was appointed Financial Director and CFO on 1 June He started his career with PricewaterhouseCoopers and held various other (international) finance positions at telecom firm KPN and Arthur Anderson, before joining the real estate industry in Prior to joining Bouwinvest, Roel was the CFO at Annexum, one of the largest providers of real estate funds in the Netherlands. Before this, he was CFO and member of the Board of Directors of Acteeum Group, of which he was one of the founders and shareholders. Between 2003 and 2006, Roel was CFO at Ahold Real Estate. Roel studied Business Economics and accountancy at Groningen University. He is a chartered accountant and member of the Dutch Institute of Chartered Accountants (NBA). Eelco Siersema, Director Property Development, stepped down from the Management Board as per 31 December 2012.

18 The Board members all have extensive experience in both the financial sector and the real estate investment business. Combining knowledge and expertise puts Bouwinvest in an excellent position to make the best investment decisions. A. (Allard) van Spaandonk (1961, Dutch) Director Dutch Investments Allard van Spaandonk joined Bouwinvest on 1 November 2008, as director Asset Management and is responsible for investments in Dutch real estate. He was previously the director of the retail and residential portfolios at Syntrus Achmea Vastgoed, as well as head of residential mortgages at Achmea Vastgoed. He began his real estate career at ABP Hypotheken in S.A. (Stephen) Tross (1967, Dutch) Director International Investments Stephen Tross was appointed to Bouwinvest s Management Board as director International Investments on 1 September He joined Bouwinvest in 2009 as COO International Investments (a.i.). From 2004 until then, he was director of the Dutch real estate audit practice at KPMG Accountants NV. Stephen previously worked for 14 years in the real estate audit practice of PricewaterhouseCoopers in the Netherlands, New York and London. He studied Business Economics at the Hogeschool Utrecht and accountancy at NIvRA-Nyenrode. Stephen is a professional member of the British Institution of Chartered Surveyors. 17

19 Economic and market developments Real estate as an asset class Real estate has over the years established itself as a stable and solidly performing asset class. Compared with other asset types, such as equities, bonds or alternatives such as hedge funds or commodities, real estate offers an attractive risk-return profile over the longer term. With an increasing focus on asset-liability management issues, aligning future liabilities to an asset class as secure as real estate can provide institutional investors with a number of significant benefits: Stable cash return offers a secure cash flow; Real estate provides a way to use asset diversification. Due to the different correlation patterns of real estate compared with other asset classes, investors can counteract fluctuations within the total portfolio; Due to the relatively low volatility of core residential real estate returns, real estate offers an attractive risk-return profile; Insofar as rents are inflation-linked, real estate provides a hedging function, especially in the case of long-term rental income. The Dutch economy Dutch economy remains challenging According to the most recent estimates, the Dutch economy contracted by 0.9% on an annual basis in This trend is expected to continue for the first half of 2013, due to the low level of consumer confidence, spending cuts and stringent credit conditions. A further decline is projected for the full year This is likely to lead to a further rise in unemployment, which had increased to 7% at the end of The Netherlands still has one of the lowest unemployment rates in Europe. Low domestic demand and slowing exports The main drag on Dutch economic growth is stagnating domestic demand. Household consumption is under strong downward pressure due to falling real wages and disposable income, falling house prices, increasing health insurance costs and deteriorating employment. Largely due to the increase in VAT to 21% from 19% and higher residential rents, the consumer price index increased by 2.5% in 2012 and is expected to increase by 2.75% in In addition, government spending and business investments declined in 2012 and are set to decline again in Recent patches of positive economic growth were largely the result of favourable export figures. However, with current global trading volumes stalling, Dutch export is also slowing. Nonetheless, the trade surplus made a positive contribution to the Dutch economy in 2012 and is expected to do so again in Structural strength of Dutch economy improving Although the Dutch economy has weakened considerably, government finances are set to improve as a result of sizeable spending cuts and tax hikes. The budget deficit is likely to fall to 3.3% in The multitude of reforms currently being put in place are set to increase the structural strength of the Dutch economy in the long run. However, the challenging environment is expected to continue for the foreseeable future and uncertainty will remain top of mind for both consumers and the business community. On a more positive note, the European financial markets seem to have entered calmer waters, as eurozone stock markets staged a modest recovery in 2012 and were stable in the first quarter of 2013, and government bonds interest rates are improving. 18

20 Key economic and market developments 2012 Dutch economy remains challenging Structural strength of Dutch economy improving Investors interest in residential real estate stimulated by good market fundamentals Polarisation increases further Randstad region expected to see above-average value growth Opportunities arise as rental market restructures The Dutch real estate investment market volume was dominated by core investment Stable and transparent investment dynamics transactions. The Dutch real estate investment market as a whole offers a number of advantages compared to Polarisation increases further other countries. The Dutch investment universe is Risk aversion amongst investors resulted in underpinned by a relatively stable and welldeveloped increased investment market polarisation, as economy, while its real estate market investors concentrated solely on prime real estate is characterised by a high degree of transparency in A-locations. The pricing gap between prime and and liquidity and a clear regulatory framework. secondary is likely to increase further in 2013, as As figure 3 on page 20 shows, the performance of investors target real estate for its income and Dutch real estate has been relatively stable. inflation-hedge qualities. Investors are expected to focus even more on prime assets, ignoring the Investors remained cautious in 2012 secondary market altogether. Nonetheless, the The investment volume in Dutch direct real estate ripple effect from the pool of capital targeting stagnated in 2012, as investors remained cautious. prime assets will still push some investors towards Initial estimates indicate an investment volume of alternatives on the more secondary market. This is approximately 4.0 billion in 2012, a 15% drop where the return on expertise and potential to add compared to the previous year. Lingering Eurozone value through active asset management and fears, tightened credit conditions and continued creative solutions. weak overall fundamentals in real estate occupier markets led to a continuation of negative Investment dynamics moderate in 2013, investment sentiment. The overall weak but with upside potential fundamentals were offset by the market s Overall investment dynamics in 2013 are expected continuing flight to quality, resulting in increasing to remain moderate and hover around 2012 levels. competition for prime assets. The overall 2012 Nonetheless, investment volumes could be heavily % Figure 2: 4 Economic growth and inflation ( ) 2 CPI-NL 0 (2) Growth GDP (Q-o-Q) Source: CBS 2012 (4)

21 boosted by some large-scale single asset deals The residential market s key features are: (e.g. German Open-Ended Funds liquidating) and/or Stable and low-risk investment characteristics; portfolio deals (e.g. troubled CMBSs). Moreover, Value creation through active asset management; institutional investors are likely to increase their Structural shortage of Dutch housing stock allocation to real estate, as interest rates on minimises downside risk; government bonds are very low, shares have a Inflation-indexed rental growth underwrites relatively high-risk profile and continued low hedge function. interest rates mean there is still little incentive to hold cash in banks. Furthermore, the long-term Long-term value growth expectations character of real estate investments enables Investor interest in the residential market institutional investors to further align the duration continued in 2012, as the fundamentals of the terms of their assets and liabilities. This so-called market remain healthy. On the one hand, direct duration matching is an important objective of the income is stable and inflation-hedged. On the other EU s Solvency II directive, which is scheduled to hand, long-term value growth is expected, due to come into force in January However, there are the positive impact of the occupier market several institutions that claim the opposite (continuing demand for rental housing, positive regarding their allocation to real estate, because of supply/demand ratios) and growing investment the larger reserve capacity needed for real estate volumes. Institutional investors, in particular, under Solvency II. continue to look for inflation hedging, and residential investments are seen as an excellent The Dutch residential real estate hedging instrument. Given the newly strengthened Figure 3: Investment volumes & returns residential Returns (%) Investment volumes ( bln) investment market Largest Dutch real estate investment market The residential sector has always been the largest of the Dutch real estate investment markets. Not only does it deliver a stable income return, but it also offers interesting opportunities for value growth. The performance of residential real estate investments is driven mainly by demographic developments, affordability and income development. bln competitive position of the liberalised rental sector, vacant possession values and investment values are expected to converge in the medium term. This will also limit any downward valuation of liberalised sector rental properties compared with the owner-occupier market. % (Source: IPD, Jones Lang LaSalle 2012) (0.5) (4.0)

22 x mln % Figure 4: Growth Dutch population, households and shortage ( ) Number of households (mln) Housing stock (mln) Housing shortage (%) Source: ABF Research, CBS, 2012 Return boosted by robust rental income The total property return on residential investments came in at 0.3% in The income return amounted to 4.2% and was solid in the year under review. Consumers are becoming increasingly reliant on the rental market as they are choosing not to buy in a downward trending owner-occupier market. This strengthens direct returns. The capital return came in at 3.7%, largely due to continuing pressure on owner-occupier market values. However, devaluations due to the downward trending owner-occupier market are now largely incorporated in price levels. Furthermore, the fundamentals for the rental market remain solid. The Dutch residential occupier market Randstad region expected to see above-average value growth in the long term Recent decades have seen strong population growth in the Netherlands and this is expected to continue in the coming years, which will lead to even greater demand for residential real estate. Both the total population and the number of households are expected to continue to grow, with the number of households in the Netherlands expected to increase from 7.5 million in 2012 to about 8.5 million by On top of this, current market developments will lead to a further structural increase in the housing shortage in the Netherlands in the coming years. This is because the demand will continue to grow (both replacement demand and region-specific expansion x 1, demand), while the number of new homes being built is at an historic low. Due to demographic and socio-economic developments such as population decline, ageing, employment and income levels, the housing market will continue to show regional dissimilarities in the development of vacant possession values and investment values in the coming years. Bouwinvest s core regions are expected to show a value growth development, given the fundamentals of the local occupier markets. The Randstad, especially the Amsterdam and Utrecht regions, is expected to show value growth in the long term. Declining owner-occupied house prices despite strong increase in housing affordability The number of transactions in the current Dutch housing market is at an historic low, and there has been a huge increase in the number of homes for sale. This has led to a drop in house prices, largely due to the increased uncertainty about the economy and the fact that banks are less willing to provide financing. Moreover, new regulations on mortgage interest deductibility will increase net cost of living in the long run and will have a negative impact on the ability to borrow. The average transaction price of homes in the Netherlands declined by 16% from mid-2008 to Q However, the affordability of housing increased at a greater rate than house prices declined. The affordability of existing homes has number x 1, Figure 5: Number of transactions, supply and prices Number of transactions (CBS) Supply houses (Calcasa) Average transaction price ( ) (NVM) 21

23 Figure 6: Financial occupancy rate standing investments % Q Q Q Q Q Q Q Q improved by almost 30% on average since 2008, Restructuring rental market offers opportunities partly due to a slight increase in disposable income The government wants to stimulate the dynamics and a decline in interest rates. Still, a further price and flow in the rental sector by decreasing direct correction is expected in 2013, because of new and indirect subsidies, which is set to increase mortgage deductibility legislation and a decline in rental income for institutional investors. Firstly, real purchasing power. maximum rents in the social housing sector will be more directly linked to the value of properties. Rental sector stimulated by weak owner-occupier The main result of this move will be higher rents in market so called shortage areas, where demand is higher Since the housing market slump, the competitive than the current supply. Moreover, new legislation position of the rental sector has improved vis-à-vis will gently push households with higher income the owner-occupier sector. The demand for rental (> 33,000) out of social housing in the long run, housing is expected to gradually increase further in partly thanks to rent increases above the maximum the coming years. Many house-hunters are still annual inflation-linked increases. reluctant to buy, are unable to sell their current homes or are having trouble meeting the stricter financing conditions. This is making the private rental sector more attractive, which is expected to The Residential Fund portfolio and developments 2012 have a positive impact on occupancy rates and rental developments in the coming years. Above all, Portfolio and allocations there is a persistent high demand for housing in the For 2012, the Fund s aim was again to ensure a 22 Figure 7: Portfolio composition by risk category based on book value Target Actual 2012 larger cities with rental levels between 681 and 1,200 per month. The improved competitiveness of the rental market has also resulted in rising rents. Since early 2008, private sector rents per m² have shown an inflation-linked increase. % % % % 0 lower risk medium risk higher risk continual optimisation of the Fund s risk-return profile. This was achieved through active asset management of the current portfolio and through acquisitions and disposals. The prevailing economic conditions did affect the residential market. The above-mentioned strengthening of the rental market, combined with an active marketing strategy, had a positive impact on the occupancy rate of the portfolio. The result was a high average financial occupancy rate of 97.6%, with the remaining vacancies due solely to what is referred to as frictional vacancy. The Fund took advantage of the available market opportunities and increased rents substantially in the year under review. Over the full year 2012, gross rental income was up 3.2% (like-for-like) compared with 2011, which is substantially higher than the inflation rate of 2.5% seen in the same period. The target risk allocation and the actual risk allocation as at 31 December 2012 are shown in figure 7. The Residential Fund has a well-balanced risk profile, with the focus on low-risk assets in the

24 Portfolio highlights 2012 Outperformance IPD/ROZ index for third More than 90% of new properties fully consecutive year (0.7%-point) rented within 12 months after completion Dividend return of 3.4% Rent increase (like-for-like) of 3.2% Acquisitions and investments under Continued low rent in arrears of 1.5% construction of 58 million (2.2%), versus 53 million (1.9%) in 2011 Fund s core regions. Following acquisitions and of the properties in the portfolio stood at divestments, the proportion of medium-risk 2.7 billion. investments fell slightly to 38% from 39%, while low-risk investments increased to 60% from 59%. Figure 9 shows the portfolio composition by age. As a result, 98% of the investment properties were Due to a continuous refreshment of the portfolio, classified as low to medium-risk at year-end the weighted average age of the portfolio is 17.7 years. The slight shift in the composition of the real estate portfolio was due to the Fund s increased focus on low to medium-risk investments, as well as opportunities the Fund seized to acquire excellent lower risk projects in its core regions. These are all projects that are considered an excellent fit with Figure 8: the Fund s strategy, thanks to their location, the right product-market combination, the level of rents, and their sustainability. The bandwidths were adjusted slightly for 2013 onwards due to changing market circumstances. The new bandwidths have given the Fund the opportunity to increase the minimum allocation to assets with a low-risk profile, which are expected to offer the best perspectives in the longer term. At year-end, the Fund s total portfolio consisted of single-family houses (46%) and apartments (54%), with a total of 226 properties containing 14,580 residential units across the Netherlands. The portfolio is revalued on a quarterly basis. The Fund experienced a slight decline in the value of its portfolio, largely due to the nationwide drop in vacant possession values. Although the vacant possession value decreased by 3.95%, the devaluation of the portfolio was cushioned once again by substantial increases in rents in the year under review. As a result, the value of our portfolio decreased by 2.8%. At year-end 2012, the total value % years years 53.6% years 0.5% 45.9% years > 40 years Portfolio composition by type of property based on book value Single-family houses Apartments Other Figure 9: Portfolio composition by age based on book value

25 Acquisitions & divestments Acquisitions Property name City Divestments Property name City Boog/Parkwoningen Nijmegen/Lent Erasmusweg The Hague Hoogh Havezathe Zwolle/Stadshagen Herenhof Roermond De Veste Helmond/Brandevoort Het Vizier Zwolle Sterrenbeke Arnhem De Vlondertuinen Rosmalen Forum Rotterdam Movements in the portfolio Due to the stagnation of the owner-occupied housing market, the Residential Fund was offered a large number of housing products. Given the size of this supply, the Fund was able to adopt a very selective approach with a focus on the best products and locations. Acquisitions The Fund put in several bids on residential properties in the course of By the fourth quarter of the year under review, the Fund was seeing the fruits of the attention it had given to forging closer relationships with developers and its active acquisition efforts. The outcome has been more than ten new construction projects, some of which are already being built. By using the momentum to acquire quality housing products, the Fund was able to enter into commitments for a total of 190 single-family homes and 93 apartments. All these properties are located in our core regions. An overview of the acquisitions is given in the table above and will be illustrated below. Boogwoningen and Parkwoningen, Nijmegen/Lent 48 family houses The Residential Fund has entered the Nijmegen market through the acquisition of two lots of 22 and 26 family homes for the mid-rental segment in the new housing estate De Waalsprong, which is located within the Nijmegen city limits. The new projects are a stone s throw from schools, sport facilities, public transport and shops. This is an ideal and popular neighbourhood for young families, thanks to its communal parking and low traffic levels. The Boogwoningen project was completed and delivered in November The Parkwoningen will be completed in Hoogh Havezathe, Zwolle/Stadshagen 57 family houses Hoogh Havezathe is located in Breecamp-Oost, the first sustainable neighbourhood in Stadshagen. It is an attractive neighbourhood with spacious lots, plenty of facilities and a variety of homes. The 57 family homes the Fund has acquired are located on a slightly raised plateau and overlook the surrounding countryside. Thanks to their shared biomass energy supply, extra insulation and CO 2 -driven mechanical ventilation, the houses easily surpasss current sustainability requirements. De Veste, Helmond/Brandevoort 60 family houses De Veste is part of Brandevoort, an entirely new village built in a range of traditional Dutch styles each house with a different façade in a rural setting. The village has been built complete with all amenities, such as shops, schools and nurseries, all built to the specifications laid down by urban planner Rob Krier of Krier & Kohl architects. The homes in De Veste village are all within walking distance of the local railway station, with connections to all the main cities in the region and nationwide. Sterrenbeke, Arnhem 37 apartments Sterrenbeke is a development area within the existing Molenbeke residential area, on the north side of Arnhem. The neighbourhood consists primarily of 1930s houses, with an abundance of water and lots of greenery and mature trees. Sterrenbeke is also a mere stone s throw from the Veluwe national park and the lively city centre of Arnhem. The homes are divided across three apartment buildings, which helps give the new complex an accessible and small-scale character. 24

26 De Vlondertuinen, Rosmalen 25 family houses De Vlondertuinen is an attractive project in a green residential environment called De Groote Wielen near the city of Den Bosch. The family homes acquired by the Fund blend into their environment perfectly. They are situated on an artificial island and look out on a lake which is ideal for water sports. On the basis of the floor-plan, rental level and finishing, the homes are in the mid-rental segment category. 6.2% 10.8% 19.5% 16.3% 47.2% Figure 10: Price level diversification per type of property Rent < 665 Rent Rent 750 1,000 Rent 1,000 1,200 Rent > 1,200 Forum, Rotterdam 56 apartments Forum Rotterdam is a major mixed-use project located in the heart of the centre of Rotterdam. Figure 11: It is situated between Coolsingel, de Lijnbaan, de Portfolio composition by Beurstraverse/Koopgoot and the Binnenwegplein. Forum consists of retail, offices, a hotel and 56 apartments. The distinctive cube shape of the 25.4% 74.6% type of rent based on rental income building, with a striking and transparent design by Liberalised rent top architect Rem Koolhaas/OMA will dominate the Social rent skyscape in the centre of Rotterdam and has incorporated the adjacent historic bank building. This creates an exciting contrast between the classic building and the modern cube. The complex will include six types of apartments, varying in size from 85 to 143 m 2, with an unusually high ceiling height of 3.6 metres. The project will be assigned a BREEAM Very Good certificate. Divestments Although there was a great deal of interest in the part of the Fund s portfolio that was put up for sale, prices were still under pressure, in part due to the difficulty of obtaining funding. However, the parts of the portfolio put up for sale were of such high quality that there is no urgency to sell immediately. For that reason, Bouwinvest lowered its disposal targets in A total of 249 apartments were sold, generating proceeds of 29.5 million. 25

27 Randstad including Amsterdam, The Hague, Haarlem, Leiden, Rotterdam, Utrecht 80.2% 2.1 billion 26 Brabantstad including Breda, Den Bosch, Eindhoven, Tilburg 2.8% 73.0 million Non-core: 12.0% million Figure 12: The Residential Fund s core regions Mid East including Apeldoorn, Arnhem, Nijmegen, Zwolle 5.0% million Focus on mid-rental segment With an average monthly rent of 838, the focus of the Fund continues to be on the mid-rental segment. Approximately 75% of the portfolio has a monthly rent between 665 and 1,200. Due to the current economic climate, there is high demand for rental properties in this segment. Individuals, couples and families who do not qualify for social rent housing are finding it difficult to buy due to the scarcity of financing. In addition, the rental market gives customers greater flexibility and provides a safe haven in the current uncertain economic climate. The Residential Fund s Top 5 properties based on theoretical rent continuing focus on the mid-rental segment has given it a solid portfolio of prime properties perfect for this target group. Core regions The Fund aims to achieve balanced diversification, with a strong focus on core regions with a positive economic and demographic outlook. The target is to have at least 80% of the total value of the portfolio concentrated in real estate in these core regions. Due to revaluation, together with acquisitions and divestments in 2012, 87.4% of the portfolio value was located in these core regions, with by far the greatest part (80.2%) located in the core region of the Randstad. The Residential Fund is constantly refining its long-term regional focus. This involves anticipating and responding to long-term trends that may affect the value of the portfolio. Important trends and developments affecting the housing market are the growth of households, the demographic shrinkage and the ageing population. The Fund specifically takes these trends into account by a strong focus on our core regions. In these regions growth in the number of households is expected, as more and more people move to these regions to take advantage of greater employment opportunities. The Fund s core regions include the Randstad urban conglomeration (Amsterdam, Rotterdam, The Hague and Utrecht), the Brabantstad conurbation (Breda, Eindhoven, Helmond, Property name City Java Eiland Amsterdam 8.4 million 8.0 million Borneo Eiland Amsterdam 4.7 million 4.4 million Koploper Amsterdam 4.4 million 4.3 million Kop van Zuid Rotterdam 4.0 million 3.9 million Buitenveldert Amsterdam 3.5 million 3.3 million