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 [email protected]. 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

28 2.8% 12.0% 5.0% Figure 13: Portfolio composition by core region based on book value 80.2% Randstad Mid East Brabantstad Non-core regions Den Bosch and Tilburg) and the eastern region (Arnhem, Apeldoorn, Nijmegen and Zwolle). These regions are expected to see the greatest population growth and increase in the number of households, while certain parts of the northern and southern regions of the Netherlands are expected to see a fall in population. As the ageing of the population is a nationwide trend, it will also affect these regions. This will result, for example, in an increasing demand for new homes suitable for seniors. One example of this is the Deo Neo Rosorum complex in Haarlem, which includes a wide range of assisted-living facilities, such as medical assistance, meals and housekeeping. Occupancy and leasing activities We strongly believe that the approach to tenants should be driven by demand and customer value. We have therefore divided our tenant population into six customer segments. These segments differ significantly and are based on lifestyle, housing ambition and the reasons for renting. We also develop and market our rented apartments and houses with these segments in mind. This focus on customer needs and demands is a key part of the Fund s strategy. One of the key focal points of any new acquisition is the optimisation of the properties to meet the demands of its main target groups. A good example of how a new asset can be branded is The Heelmeesters in Amsterdam. Bouwinvest s marketing approach was to create a feeling that living in De Heelmeesters is more than just living in a building at a certain location. The positioning chosen was fresh, open and contemporary, as the target group is attracted to a dynamic and surprising approach and prefers the use of vibrant visuals. The aim was to create a top of mind reaction that prompts a request for more information on the project. The tone of voice was clear and positive, a combination of English and Dutch, transparent, no nonsense and energetic. This resulted in a successful first rental campaign (see page 35 for more details). Going green Sustainability will play an increasingly important role in the Fund s acquisitions and in the renewal and refurbishment of its portfolio. More details on the ambitions, targets and KPIs for the Residential Fund are outlined on pages 52 to 55 and in Bouwinvest s CSR report, which can be obtained from Bouwinvest s corporate website. Financial summary Direct return The Fund booked a direct result of 3.4%, unchanged from the 3.4% reported in In 2012, higher rental income was offset by higher maintenance costs. Thanks to the tendering of maintenance activities, total maintenance costs came in under budget. The direct property result of 4.0% was the same as the result in 2011, and almost level with the Investment Property Databank (IPD/ROZ) index income result for 2012 of 4.2%. It was a clear continuation of the Fund s good performance in its first two years. Indirect return/ valuations The Fund s indirect property result of 2.8% was substantially lower than the 2011 performance of 0.1%, due to the difficult conditions in the owneroccupier residential real estate market, but was a significant outperformance compared to the IPD/ ROZ index for capital growth for 2012, which ended at 3.7%. The vacant value of the total portfolio fell by 4.6%, reflecting the difficult market circumstances in the owner-occupier residential real estate market. On the other hand, the weighted average vacant value 27

29 28 ratio of the properties rose in 2012, to 76.7% from 75.4% at year-end Together with the declining weighted average discount rate, which fell to 7.3% from 7.6%, this reflects the growing market value of rented property. Values fell significantly in Although the real estate assets owned by the Fund preserved their intrinsic quality, it was not possible to avoid the downward direction in the market. However, the quality of the portfolio offers substantial chances of a return to value growth in 2013 and beyond. Total property return The Fund s total property return for 2012 came in at 1.3%, which was 2.8%-point lower than in 2011, but more than double the IPD/ROZ index return for the year of 0.3%. Total Fund return The total Fund return was 0.6%, 3.0%-point lower than the 3.5% reported in Rent The rent increase (like-for-like) came in at 3.2%, well above the 2012 inflation of 2.5%. In 2012, the average occupancy rate in unit terms across the portfolio levelled out to stand at 97.6% at year end 2012, compared with 97.9% at the end of Financial occupancy rose to 96.9% from 96.5% at year-end Gross rental income was 3.2% higher (like-for-like) than in Rent in arrears was unchanged from the year-earlier period at 1.5%. Acquisitions The Fund acquired 57 family houses in Stadshagen (Zwolle), 60 family houses in Brandevoort (Helmond), 56 apartments in Forum (Rotterdam), 25 family houses in De Vlondertuinen (Rosmalen), 37 apartments in Sterrenbeke (Arnhem) and 48 family houses in Nijmegen/Lent for a total of 63 million. Disposals The Fund sold 249 apartments for a total of 29.5 million. Financing Treasury management The cash freely available stood at 26.1 million at year-end 2012, as a result of the proceeds from disposals in previous years. Cash surpluses were placed in depository accounts with a time constraint of three months. The Fund has no interest rate or currency exposure. Dividend and dividend policy The Management Board proposes to pay a dividend of per share for 2012 (2011: 94.70), which corresponds to a payout ratio of 100%. It is proposed that the dividend be paid in cash, within the constraints imposed by the company s fiscal investment institution (FII) status. Of this total dividend, 68.9% was paid out in 2012, with the final quarterly instalment paid out in March The remainder of the distribution over 2012 will be paid out in a final instalment on 1 May 2013, following approval by the Annual General Meeting to be held on 25 April Tax The Fund is structured as a fiscal investment institution (FII) under Dutch law and is therefore not subject to corporate tax. Being an FII, the Fund is obliged by law to maintain a pay-out ratio of 100% of the Fund s distributable profit. As stated above, the Fund proposes to pay out 100% of said distributable profit. The Fund met its obligations related to value added tax, transfer tax and other applicable taxes in their entirety in Law Management and Supervision Effective as per 1 January 2013, the Management and Supervision Act (i.e. Wet Bestuur en Toezicht ) came into force. Bouwinvest has evaluated this new legislation and will amend the articles of

30 association and internal regulations to align with the aforementioned legislation, insofar applicable and necessary. The Management and Supervision Act encompasses a guideline for a balanced gender ratio within the Management and Supervisory Board. At least 30% of these positions should be filled by women and at least 30% by men. Currently the positions within the Management and Supervisory Board are not yet filled in in the above-mentioned balanced manner at Bouwinvest. Based on the profile of the members of the Management Board and of the Supervisory Board in future resignations, an evaluation will be carried out to determine the desired profile of the new members to appoint. Diversity criteria, including a balance between men and women, will be taken into account. Outlook The near-term economic outlook for the Netherlands is rather bleak, as the country is most probably about to be hit by the third recession in four years. Dutch GDP fell by 0.9% in 2012 and both the Dutch Central Bank and the Central Bureau of Statistics are predicting a further drop in GDP of around 0.6% in 2013, due to the struggling international economy and low spending and investments by consumers and companies. With wages under downward pressure, as well as higher pension premiums and impending tax reforms, household purchasing power is expected to fall further in This could result in a further deterioration of consumer confidence and spending. In recent years, residential real estate has enjoyed increasing investor appetite compared to other real estate sectors. Investors are looking for diversification opportunities and value the stable inflation hedge that residential investments provide. Steady investment volumes are therefore expected for The Dutch residential market continues to face a quantitative and qualitative housing shortage and consumer appetite for buying is set to remain low due to falling house prices, financial constraints and low consumer confidence. With the current uncertainty in the owner-occupier market set to continue for the foreseeable future, occupancy in the rental market is expected to be on a high level in The outlook for the mid-rental segment (between 681 and 1,200 rent per month) looks especially positive due to continuing demand. Although significant regional differences will remain, the Residential Fund s portfolio is prepared for these developments. It is largely focused on the mid-rental segment and increasingly focused on regions with a positive economic and demographic outlook. We believe this is also an opportune moment to use the momentum we have to acquire even more quality housing products, which will further optimise the Residential Fund s portfolio. Bouwinvest Real Estate Investment Management BV Dick van Hal CEO and statutory director Roel de Weerd CFO and statutory director 29

31 3 Portfolio highlights 2012

32

33 32

34 De Heelmeesters, Amsterdam Property information Theoretical rent: 2.6 million No. of residences: 179 (90% liberalised sector; 10% social rent) Year of construction: delivery 2013 Rental segment: mid-rental, average of approx 1,000/month Energy label: A 33

35 De Heelmeesters is part of the Eenhoorn (unicorn) district, located behind Wibautstraat, in the attractive and popular Amsterdam East area. The development is part of plans to revitalise the area around Amstel station to create an urban sub-centre with a mixture of living, working and other facilities. This new water-front development will comprise 162 private sector units, with 161 apartments and one single family studio house. It comprises two U-shaped blocks, with design elements of the New Amsterdam School. The development also includes 17 social housing units, 2,600 m² of commercial space and two underground parking garages with 180 parking spaces. Rents start from 657 per month and run to 1,750 per month, excluding parking and service costs. The complex is very close to Amsterdam Amstel railway station and offers easy access by public transport and by car. Amsterdam s thriving city centre is a stone s throw away and 15 minutes on a train takes you to Schiphol airport. Strategic alignment De Heelmeesters is a perfect example of the Location De Heelmeesters Amsterdam Amstel Wibautstraat Amsterdam Amstel Railway station De Heelmeesters Prins Bernardplein A10 Residential Fund s strategy of investing in inner city areas of the major cities of the Randstad urban conurbation. The Eenhoorn district is an up and coming area, which will see a great deal of (re)development in the near future, as the city council and developers strive to meet the evergrowing demand for housing within the capital s city limits. Bouwinvest is making a strong contribution to the revitalisation of this area, through its residential developments, but also through the recent Casa 400 hotel redevelopment project. With an average monthly rent of 1,000, the Heelmeesters is clearly in line with the Residential Fund s focus on the mid-rental segment. There is high demand for luxury apartments in the midrental segment within Amsterdam city limits. 34

36 Freedom 3 BEDROOMS INCLUDED Key value drivers Standing out in the city Meets high demand for fully-equipped and attractive luxury apartments in the mid-rental segment in an increasingly popular part of Amsterdam; Rental contracts signed for more than 84% of the apartments in the first block three months before completion; Target group overrepresented in the catchment area; Housing shortage in Amsterdam; Meets Bouwinvest s stringent environmental requirements. Sustainability Thanks to Bouwinvest s involvement in the Heelmeesters project at a very early stage, a great deal of attention has been devoted to the sustainability of this state-of-the-art residential development. All the apartments are heated and cooled via a dedicated cogeneration (combined heat and power) station and are fitted with energy-efficient floor heating and cooling. All apartments are double-glazed, to retain heat in the winter and cool air in the summer. This not only reduces the environmental impact of related carbon emissions, it also reduces energy bills (and service costs) for the tenants. De Heelmeesters offers the urban short stay target group a unique combination of ultra-modern apartments and superb location near Amsterdam city centre. Bouwinvest quickly saw this as a great opportunity to come up with a similarly unique marketing campaign for its apartments. We opted for a fashionable lifestyle positioning, and the striking pay-off line Feel free to rent. We also used images of potential tenants, rather than pictures of bare apartments. That and the pay-off makes people feel really positive about renting, and De Heelmeesters. It s all about their choice. These are people who want to live in the city and choose to rent, says Michiel de Bruine, Head of Asset Management Residential. The campaign has gone down remarkably well, he adds. We d already signed rental agreements for 84% of the first block three months before the building was completed, and there s already a huge amount of interest in the second block. The campaign is also seen as remarkably refreshing amidst the standard fare of most residential property advertising. The proof is that the various sub-groups we depicted in the campaign young couples, divorced single parent families and gay couples are the very people who ve signed contracts. This campaign hit the nail right on the head. It did real justice to the apartments, the great location and all the local amenities. 35

37 36 Impression Brandevoort, Helmond.

38 Brandevoort De Veste, Helmond Property information Theoretical rent: 0.7 million No. of residences: 60 Year of construction: delivery 2013 Rental segment: mid-rental, around 950/month Energy label: A Impression Brandevoort, Helmond. 37

39 De Veste is part of Brandevoort, a completely new village built in a range of traditional Dutch styles each house with a different façade in a rural setting. Brandevoort itself is an internationallyrecognized Vinex (suburb) development, southwest of the centre of the thriving city of Helmond. It is close to the Brainport region of Eindhoven, which is a top technology breeding ground for innovation and home to world-class businesses, knowledge institutes and research institutions. In 2011, this area was dubbed the smartest region in the world, thanks in part to Eindhoven s Tech Campus, originally set up by electronics giant Philips and now home to a wide range of hi-tech companies. The homes in De Veste village are all within walking distance of a newly-built railway station, with connections to all the main cities in the region and nationwide. The village has been built complete with all public amenities, such as shops, schools and nurseries, all built to the specifications laid down by urban planner Rob Krier of Krier & Kohl architects. Location Brandevoort De Veste Helmond De Veste Brand Schutsenboom Strategic alignment The Residential Fund has acquired 60 homes in a wide variety of sizes and styles, with a clear focus on the luxury end of the mid-rental segment, virtually guaranteeing a rapid take-up in properties. Brandevoort is part of an area in the province of Brabant designated by the government as a growth area (a so-called Vinex location). It is located in what Bouwinvest has identified as one of its core regions, due to its healthy economic and demographic outlook. Brandevoort currently has a population of around 10,000 people living in 3,000 homes, but will eventually be home to around 18,000 people living in 6,000 apartments and family homes. 38 Stepekolk

40 Impression Brandevoort, Helmond. Key value drivers Broad target group; Positive economic and demographic outlook; Positive development of property prices; Complete departure from standard style of most suburban developments; lot of interest from media and potential tenants; Village self-contained and self-sufficient, with a wide range of public amenities. Sustainability Making the right choices The De Veste development has been assigned Energy Label A, indicating the highest levels of energy efficiency and home insulation. The home in this new development may look classic, but they and the village have been built using modern and sustainable materials and are equipped with state-of-the-art heating and cooling systems, to reduce energy use and energy bills to the minimum. But sustainability is about more than energy use; it s also about creating an environment that people will want to live in long into the future. Brandevoort is a remarkably green development, with an innovative water management system that combines drinking water supply with ecological and recreational use. All the rental homes in De Veste come with a garden and of course everyone has access to the plentiful green public areas. De Veste Brandevoort meets a wide range of the Residential Fund s criteria for new investments. It offers charming and attractive homes in a perfect location at the heart of one of the Fund s core regions. It is also built to the highest sustainability requirements, which will safeguard and even increase its value in the future. This development is also an excellent example of how the Fund is able to optimise its rental assets by getting involved in project development at a very early stage. At the start of the Brandevoort De Veste development, Bouwinvest was faced with a number of choices related to the lay-out of the various homes. For instance, on the basis of in-depth market research, it was decided early on not to include a pantry in the living room. The research revealed that potential tenants would much rather have a spacious and comfortable living area and keep kitchen amenities separate. Conclusion: a valuable asset to our portfolio to strengthen our position in the Eindhoven area. 39

41 40

42 Prinsenhof, Den Haag Property information No. of residences: 200 apartments, 7 living/working units, 8 commercial units Year of construction: 2006 Rental segment: mid-rental segment, average 1,075/month (80% 1,000 and up) Energy label: C 41

43 This residential property is part of the Prinsenhof complex in the Beatrix quarter, close to The Hague city centre, with excellent accessibility via rail, tram and bus. The apartments are spread across eight towers, and include three, four and five-room homes varying from 71 m² to 172 m² in size. The complex includes amenities such as a common launderette, a fitness centre, childcare facilities, hair salon, café, restaurant and hotel, as well as a two-floor underground garage. In June 2012, the Prinsenhof complex was granted a World Trade Center licence. With its striking 109-meter high tower, the Prinsenhof is a seamless combination of residential, office and leisure facilities, including cafes, restaurants, sports facilities and a four-star NH hotel. At the same time, with its parks, enclosed courtyards and numerous green areas, the Beatrix district is something of a green oasis in a very busy urban environment. Prinsenhof is within walking distance from The Hague central station, is easily accessible via the RandstadRail light railway, tram and bus, and close to the A12 and A4 motorways. Strategic alignment The Prinsenhof complex is an excellent example of the kind of multi-use (residential, office, retail, hotel and leisure), multi-tenant complex that Bouwinvest has identified as a high-growth segment of the real estate investment market. The high-end apartments in the Prinsenhof are ideal for the target group of international expats. Given that the Hague is home to an array of international bodies, hundreds of embassies and numerous international and multinational companies, there is no shortage of potential international tenants. But given the wide range of facilities, the Prinsenhof is also a perfect location for local residents looking for luxury apartments. 42

44 Financial information 2012 Theoretical rent: 2.5 million Like-for-like rent increase: 1% Financial occupancy rate: 88% Key value drivers Increasing target group of expats and urban short stay ; Located in the Netherlands second largest business area, within walking distance from city centre, with easy access to RandstadRail, tram and bus; Multi-functional complex, offering luxury apartments with many different lay-outs; Expats can rent apartments fully-equipped and fully-furnished. Sustainability All apartments are double glazed and are heated and cooled via thermal energy storage. This balances energy demand between day time and night time and between cold and warm days or months. Both measures help retain heat in the winter and cool air in the summer, to reduce energy use and the environmental impact of related carbon emissions. It also reduces energy bills (and service costs) for the tenants. Active asset management and marketing The Prinsenhof residential complex combines luxury living, a great location and remarkable convenience. Thanks to the proximity of offices, a business centre, a four-star hotel, conference facilities, childcare, various cafés and restaurants, and a spacious underground car park, almost every convenience is just a short walk away. Despite this, the complex was never fully occupied and saw a fairly high turnover. However, thanks to our active marketing over the past two years we have rented over 100 apartments. We set up a model apartment, and made sure the complex was easy to find on the internet, says Tonny Teunissen, Senior Asset Manager. Bouwinvest also started working with a second real estate agent and worked hard to remove any obstacles for potential tenants. This could be putting in a new floor or having walls painted in exchange for higher rent. More important, Tonny says, is that asset management is now much more proactive in its approach to vacant apartments. We report weekly, and we re actively involved in finding ways to attract new tenants. It s very intensive, but it does work. 43

45 4 Report of the Supervisory Board We hereby present the 2012 annual report of Bouwinvest Dutch Institutional Residential Fund NV (the Residential Fund). Bouwinvest Real Estate Investment Management BV (Bouwinvest) is the management company and statutory director of the Residential Fund. The Supervisory Board monitors, supervises and advises the statutory director of the Fund. The Supervisory Board also monitored and supervised the composition, valuation methods and performance of the portfolio of the Residential Fund in More information on the role of the Supervisory Board can be found in the Corporate Governance section of this report on pages 48 to 51. Financial statements and profit appropriation Bouwinvest prepared the financial statements and discussed these with the Supervisory Board. Deloitte Accountants B.V. have audited the financial statements and provided them with an unqualified auditors opinion (see the Auditor s report on pages 91 to 92). The financial statements will be submitted for adoption as part of the 2012 annual report at the 2013 Annual General Meeting of Shareholders (AGM). The Supervisory Board proposes that the AGM adopts the financial statements and in accordance with the requirements of a Dutch Fiscal Investment Institution (FII) declares a dividend payable of 93.0 million. Supervisory Board meetings The Supervisory Board met five times in the course of None of the members of the Supervisory Board were frequently absent. The main discussion topics at these meetings were the strategy of the Fund as stated in the Fund Plan , the quarterly reports and the compliance and risk management of the Fund. The Supervisory Board discussed the effectiveness of the Fund s governance structure and the role of the Bouwinvest Supervisory Board. The Supervisory Board devoted extra attention to the Fund s corporate social responsibility policy. 44

46 The Supervisory Board advised the AGM on the appointment of a new external auditor for the Fund. Deloitte Accountants B.V. was appointed as the external auditor as per 20 September The transition from Ernst & Young Accountants LLP to Deloitte Accountants B.V. went smoothly. In 2012, no acquisitions or sales in excess of 25 million were made that required the approval of the Supervisory Board. Committees AIFMD The Supervisory Board also discussed the impact of the Alternative Investment Fund Managers Directive (AIFMD). When the AIFMD is incorporated in the Dutch Financial Markets Supervisory Act (FMSA) in July 2013, the manager of the Fund will be subject to the FMSA and under the supervision of Dutch Financial Markets Authority (AFM). For the Fund, the appointment of a custodian will be mandatory. Implementation of the AIFMD and the application for a licence with the AFM will require attention on the part of the Fund manager in No committees were established in A word of thanks Fund documentation The governance structure of the Fund and market conditions are factors that influence the investment decision of investors. Due to the changing investment environment, Bouwinvest updated the Terms and Conditions of the Fund and therefore revised the Fund documents. One significant change is the new governance structure, with a Shareholders Committee that will replace the Supervisory Board to increase investors influence on the Fund. The replacement will be effected when one or more new investors enter the Fund. We would like to welcome Roel de Weerd, who was appointed as CFO of Bouwinvest in June of last year. Eelco Siersema stepped down from the Management Board following the merger of the business units Asset Management and Project Development. We wish to thank him for his hard work and dedication. We wish to thank the Management Board and all employees of Bouwinvest for their work, commitment and the results they achieved for the Residential Fund in Amsterdam, the Netherlands, 20 March 2013 The Supervisory Board Jacques van Ek, Chairman Jean Frijns, Vice-Chairman Marjanne Sint Gerard Groener 45

47 J.C. (Jacques) van Ek (1945, Dutch) J.M.G. (Jean) Frijns (1947, Dutch) Chairman Prior to his retirement from Fortis in 2006, Jacques van Ek was a member of its Executive Committee and Chairman of the Management Board of Fortis ASR Insurance Group. He previously served for many years as Chairman of the Board of Directors of De Amersfoortse Verzekeringen. Mr. van Ek is currently Chairman of the Supervisory Board of Amfors Holding BV and FC Utrecht, Chairman of the Task Force Innovatie Regio Utrecht and member of the Supervisory Board of the Hogeschool Utrecht and Meijers Assurantiën. Mr. Van Ek was first appointed to the Supervisory Board of the Residential Fund when it was established in January Vice-Chairman Jean Frijns was until 2012 Extraordinary Professor of Investment Studies at the VU University Amsterdam. Mr. Frijns held a number of senior positions at pension fund ABP until 2005, including Director of Investments, membership of the Board of Directors and ad interim Chairman of the Board. From 2004 until 2009, Mr. Frijns was Chairman of the Monitoring Committee of the Dutch Corporate Governance Code. Mr. Frijns is also currently Vice-Chairman of the Supervisory Board of Kas Bank NV, Chairman of the Supervisory Board of FMO NV, a member of the Supervisory Board of Delta Lloyd and IMC BV and a member of the Board of Directors of JPMorgan Funds in Luxembourg. He is a member of the investment committee of PFZW. Mr. Frijns was first appointed to the Supervisory Board of the Residential Fund when it was established in January He will step down as per 1 May M. (Marjanne) Sint (1949, Dutch) G.H.W. (Gerard) Groener (1958, Dutch) Marjanne Sint has been the Chairman of the Board of Directors of Isala-klinieken in Zwolle, the Netherlands, since From 2000 until 2007, she was Secretary-General of the Ministry of Housing, Spatial Planning and the Environment. She had previously held various other senior positions in both central and local government and at VNU Business Publications. From 1987 to 1991, Ms. Sint was Chairman of the Dutch Labour Party (PvdA, Partij van de Arbeid). Ms. Sint is also currently Chairman of the Supervisory Board of NV ROVA Holding, a member of the Supervisory Board of Bank Nederlandse Gemeenten (BNG) and a member of the Council for Public Health and Healthcare (RvZ, Raad voor de Volksgezondheid en Zorg). Ms. Sint was first appointed to the Supervisory Board of the Residential Fund when it was established in January Gerard Groener has been CEO and Chairman of the Management Board of Corio NV since He joined Corio in 2000 as General Manager of Corio Nederland, following the merger of VIB and Winkel Beleggingen Nederland (WBN), of which he had been a member of the Management Board. From 1993 to 1996, he was a developer at Van Wijnen, having previously held several senior positions at Akzo, including real estate acquisition manager for the Akzo pension fund. Mr. Groener was until 2009 the Chairman of the Dutch Council of Shopping Centres (NRW, Nederlandse Raad voor Winkelcentra). Until 31 December 2012, he served as Chairman of Urban Land Institute (ULI ) in the Netherlands and is currently Vice-Chairman of the EPRA Executive Board. Mr. Groener was first appointed to the Supervisory Board of the Residential Fund in December

48 Vathorst, De Bron, Amersfoort.

49 5 Corporate governance Bouwinvest Dutch Institutional Residential Fund NV (the Residential Fund) was established in The pension fund for the construction industry, Stichting Bedrijfstakpensioenfonds voor de Bouwnijverheid (bpfbouw) is the Residential Fund s anchor investor. The investment objective of the Residential Fund is to provide a longterm investment opportunity with a well-diversified, high quality portfolio of residential real estate in the Netherlands. 48 Structure of the Residential Fund The Residential Fund is a public limited company, incorporated under the laws of the Netherlands, with its corporate seat in Amsterdam, the Netherlands. Its statutory director is Bouwinvest Real Estate Investment Management BV (Bouwinvest), which is also the management company, subject to the terms of the management agreement. The Residential Fund is structured as an investment company with variable capital, as defined in article 2:76a of the Dutch Civil Code. This regime will come into force when the management company falls under the supervision of the Dutch Financial Markets Authority (AFM). This is expected to take place in Until then, however, the Residential Fund is structured as a regular public limited company. It is a fiscal investment institution (FII) within the meaning of article 28 of the Dutch Corporate Income Tax Act Supervisory Board The Supervisory Board supervises the policies of the Residential Fund, the business connected with it, and advises the management company of the Fund. It acts in the interest of all stakeholders of the Residential Fund, and in particular monitors and supervises the composition, valuation and performance of its portfolio. The Supervisory Board has four members, each of whom is appointed by the General Meeting of Shareholders. The members of the Supervisory Board are: Jacques van Ek (1945, Dutch), Chairman, Jean Frijns (1947, Dutch), Vice-Chairman, Marjanne Sint (1949, Dutch) and Gerard Groener (1958, Dutch). To increase investors influence, a Shareholders Committee will replace the Fund s Supervisory Board when one or more investors enter the Fund. The following actions or decisions of the management company require the prior approval of the Supervisory Board: investments and disposals exceeding 25 million; significant changes to the valuation methodology; changes to accounting principles or practices, where these are likely to have a significant impact on accounting treatment; changes to external auditors on the recommendation of the Management Board.

50 General Meeting of Shareholders Shareholders of the Residential Fund must be qualified institutional investors within the meaning of section 1:1 of the Dutch Financial Markets Supervision Act (FMSA). General Meetings of Shareholders are held at least once a year to discuss the annual report, adopt the financial statements, discharge the statutory directors of the Fund for their management and discharge the members of Supervisory Board for their supervision. Shareholder approval is required for resolutions that have a substantial impact on the Residential Fund and its risk profile. replace the Fund s Supervisory Board when one or more investors enter the Fund. The Shareholders Committee will assume the role of the Supervisory Board at Fund level and assume certain rights now held by the General meeting of Shareholders. The Shareholders Committee shall have advisory rights as well as approval rights with regard to any investments within the hurdle rate bandwidth as specified in the Fund Plan, and any transactions that may lead to a conflict of interests. Management company In addition to the shareholders rights as stated in the Articles of Association, shareholders have the rights conferred on them pursuant to the Residential Fund s documentation, as well as the right: to approve the Fund plan or any amendments thereto or deviations there from; to approve the acceptance by the management company of a (prospective) shareholder if and to the extent required to conform with the Terms and Conditions; to approve the transfer of shares if and to the extent required to conform with the Terms and Conditions; to approve proposed changes to the composition and profile of the Supervisory Board; to approve the management company as the Fund s statutory director. Anchor investor As at this annual report s publication date, bpfbouw holds 100% of the shares of the Residential Fund. Update Fund documentation As per 5 December 2012, the Terms & Conditions of the Residential Fund were updated and revised. One significant change is the new governance structure, in which is stipulated that, to increase investors influence, a Shareholders Committee will Bouwinvest is charged with the management and administration of the Residential Fund. It is entitled and authorised to carry out the business activities that form the entire real estate investment process and how these activities must frequently be conducted to achieve the Fund s investment objectives. Bouwinvest considers operating in accordance with responsible business practices to be important in achieving the targeted return on investment. Bouwinvest is structured as a private limited company. Bouwinvest is wholly owned by Stichting Bedrijfstakpensioenfonds voor de Bouwnijverheid (bpfbouw), the Dutch pension fund for the construction industry. Board of Statutory Directors and Management Board Bouwinvest has a Board of Directors and a Management Board. The Board of Directors has two members: the Chief Executive Officer (CEO) and the Chief Financial Officer (CFO). The members of the Board of Directors are collectively responsible for the management of the company and the general course of affairs of the company. The Management Board had five members in 2012: two statutory directors and three operational directors. Details regarding the experience and 49

51 expertise of the directors of Bouwinvest are set out on pages 16 to 17 of this report. Following the merger of the business units Asset Management and Project Development to form the business unit Dutch Investments, as of 1 January 2013, Bouwinvest now has two business units, Dutch Investments and International Investments, each headed by an operational director, who is also a member of the Management Board. The members of the Board of Directors are appointed by the General Meeting of Shareholders of the management company, following nomination by Bouwinvest s Supervisory Board. The operational directors are appointed by the Board of Directors, following the approval of Bouwinvest s Supervisory Board. The Board of Director s charter and the Management Board s charter detail their respective tasks and responsibilities. Investment Committee The management company also has an Investment Committee (IC) in place to advise the Board of Statutory Directors on the approval or rejection of any proposed acquisitions and/or sale of individual investments. The Investment Committee comprises: The Management Board; The heads of Asset Management, regional managers and portfolio managers who report directly to the operational directors of the business units; The Research manager, Risk manager and Compliance officer. When assessing investment proposals, the IC considers a wide range of criteria, including the fit with the core investment profile, risks and potential long-term investment returns. The IC also takes into account any relevant CSR issues, such as materials, energy use and potential maintenance and refurbishment costs. Supervisory Board of the management company Bouwinvest has an independent Supervisory Board with a minimum of three and a maximum of five members. The Supervisory Board currently has four members. The maximum term is four years, with the possibility of reappointment for four years. The role of Bouwinvest s Supervisory Board is to supervise the policies of the Management Board and the general affairs of the company and to advise the Board of Directors. The members of the Supervisory Board are appointed by the General Meeting of Shareholders. In carrying out its duties, the Supervisory Board is guided by the interests of the company and the business connected with it. For that purpose, the Supervisory Board takes into consideration the interests of those involved with the company. The Supervisory Board of the management company has an Audit Committee and a Selection and Remuneration Committee. Corporate Governance Code The Dutch Corporate Governance Code is mandatory for listed companies. Although the Dutch Corporate Governance Code is not mandatory for Bouwinvest as a non-listed company, the Management Board and the Supervisory Board endorse the best practices of the Code as far as applicable for Bouwinvest. Code of Conduct Bouwinvest has established a Code of Conduct that applies to all its employees and which contains rules that apply to the Management and Supervisory Boards with respect to conflicts of interest and investment. The Code of Conduct deals with issues such as ethical behaviour, conflicts of interest, compliance with laws and (internal and external) regulations, CSR, Health and Safety and our business partners. 50

52 Bouwinvest has also instituted a whistleblower policy dealing with the reporting and investigation of unethical behaviour. All employees receive Code of Conduct training. Compliance An independent compliance function within Bouwinvest identifies, assesses, advises on, monitors and reports on the company s compliance risks. These include the risk of legal or regulatory sanctions, financial loss, or loss of reputation that the management company may suffer as a result of its failure to comply with all applicable laws, regulations, codes of conduct and standards of good practice. The compliance officer reports to the statutory directors on a monthly basis and to the chairman of the Supervisory Board on issues related to the Management Board. More details on the compliance function can be found in the Risk Management section on pages 56 to 59. Conflicts of Interest policy Bouwinvest has a Conflicts of Interest policy. The purpose of the policy is to protect the interests of Bouwinvest and the interests of the Fund when Bouwinvest is contemplating entering into a transaction or arrangement that might benefit the private interest of an officer or director of Bouwinvest or might result in a possible excess benefit transaction. The policy also describes how Bouwinvest should act with respect to the allocation of different investment opportunities over the respective funds and clients. The policy is intended to supplement but not replace any applicable Dutch laws governing conflicts of interest. In 2012, there were no conflicts of interests as referred to in the Bouwinvest Conflicts of Interest policy, between the members of the Management Board, the management company, the Residential Fund and/or other funds managed by the management company. Other funds managed by Bouwinvest In addition to the Residential Fund, the management company also manages three other funds: Bouwinvest Dutch Institutional Retail Fund NV; Bouwinvest Dutch Institutional Office Fund NV; Bouwinvest Dutch Institutional Hotel Fund NV; Bouwinvest has separate mandates for the management of international real estate investments. There is a heads of terms agreement between Bouwinvest Development BV and the Residential Fund which states that the Fund has the right of first refusal on any rental housing projects. External Auditor Until 19 September 2012, the Residential Fund s external auditor was Ernst & Young Accountants LLP. As from 20 September 2012, the Residential Fund s external auditor is Deloitte Accountants B.V. Deloitte audits the financial statements of the Fund. Deloitte also audits the financial statements of Bouwinvest REIM and of the other funds managed by Bouwinvest. Regulation In July 2013, the European Alternative Investment Fund Managers Directive (AIFMD) will be incorporated in Dutch law. Bouwinvest will then be subject to this regulation and hence will come under the supervision of the Dutch Financial Markets Authority (AFM). 51

53 6 Corporate Social Responsibility The Fund s aim is to minimise any adverse effects on the environment and society and to promote or enhance the positive impact the company has as a business and as a member of society as a whole. Bouwinvest has defined a Corporate Social Responsibility (CSR) mission, consisting of four pillars: This approach has been successful so far, and we aim to continue to enhance the overall level of sustainability in the long term. 52 Making a positive contribution to society Increasing employee satisfaction Minimising the company s negative impact on the environment Sound corporate governance as the guiding principle for all our actions In line with Bouwinvest s CSR pillars, the Fund s sustainability-related ambitions are focused on increasing the sustainability performance and attractiveness of the properties, and by doing so increasing the value of Residential Fund s property portfolio. We recognise the challenges for the Residential Fund and the limited control we have over large parts of our properties. Therefore, the Fund s main focus in terms of sustainability has been on working with our stakeholders to enhance living comfort for our tenants while optimising energy efficiency. Targets achieved in 2012 Goal New energy labels for all properties Insight into energy use in common areas Increase sustainability performance of 20 assets Investments in sustainability are considered from a business perspective. Energy efficiency measures improve the competitive position of the Fund s residential properties and add value for our stakeholders, both investors and tenants. Sustainability, however, extends beyond energy use. It also covers the social aspects of sustainability, such as investments to upgrade local public amenities and create a pleasant living area where people can meet. As part of our approach to responsible investing, we devote a great deal of attention to addressing issues which are essential to our tenants (such as comfort, energy use, materials, indoor climate) and to those relevant for our investors (such as risk, returns, governance, stability and transparency). Provide investors with greater transparency on sustainability performance (GRESB) achieved partly achieved pending

54 Active dialogue with stakeholders To promote the interests of our tenants, we conduct an annual tenant satisfaction survey. As in previous years, we discussed the results of the survey with our property managers and agreed targets with each property manager aimed at further improving tenant satisfaction. In 2013, we will participate in a joint tenant satisfaction survey with other residential real estate investors to benchmark our results. The key results of the tenant satisfaction survey 1 are: 2,397 tenants responded (response rate 30%); Slight increase in satisfaction compared to 2010; High satisfaction with regard to rental programme; Handling complaints remains a priority for improvement. By forming partnerships and participating in knowledge-sharing meetings and joint improvement initiatives, the Fund stays abreast of the latest innovations available to help us achieve our sustainability targets. Hoogh Havezathe, Zwolle, artist s impression. Project Hoogh Havezathe, Zwolle Key facts Project: Hoogh Havezathe Location: Zwolle Sustainability target: The project meets all the sustainability requirements of the Zwolle town council, which like Bouwinvest has set itself ambitious sustainability targets Sustainability aspects Homes are connected to the BeGreen bio-mass power station The Energy Performance Co-efficient (EPC) is 0.27 Tenants are assigned an energy coach, who can explain the installation, the use and savings on energy use, etc. CO 2 -driven mechanical ventilation system Extra insulated glazing 1 The survey was conducted in The results were discussed with all property managers and various actions were taken in

55 Active sustainable asset management Realising sustainable results In 2012, the majority of the properties in the portfolio were awarded a new energy label. These labels indicate the energy efficiency of a property using an index running from A (excellent energy efficiency) to G (very low energy efficiency). The majority of the portfolio s properties have been awarded an energy label A, B or C (91%), indicating a good overall level of energy efficiency for the portfolio. This puts the Fund among the most sustainable residential funds in the Netherlands. The Fund will continue to optimise portfolio s energy efficiency in the coming years, as all newly-built properties will obtain the highest energy label. The Fund purchases green gas and renewable electricity for common areas in the properties. The Fund has implemented sustainability measures at 14 assets, with the aim of reducing energy use and increasing comfort for tenants. outperformed the average peer group score on the aspects Policy & Disclosure and Environmental Management Systems. The results showed Bouwinvest numerous quick wins to further improve our sustainability performance. We are currently developing and implementing an action plan to improve the overall score for the coming years. This action plan includes but is not limited to the GRESB results, to ensure sustainability is considered at each level of the organisation. Target setting We believe that measurement is the first step towards improvement. The initial focus is therefore on collecting data on current performance and embedding sustainability in daily processes, both internal and external. In 2012, we completed the measurement process, set the parameters and formulated progressive targets for short-term and long-term improvements. Key facts Action Number Armatures with LED lighting 786 High-efficiency central heating boilers 114 Mechanical ventilation systems 495 Climate control systems 57 Benchmarking & monitoring In 2012, Bouwinvest and the Fund participated for the first time in the Global Real Estate Sustainability Benchmark (GRESB). The Residential Fund is considered a Green Starter but Targets Our ambition to increase the coverage and therefore the transparency regarding environmental performance is reflected in the summary of CSR key data on the following page. It also explains the increase in the absolute performance of certain KPIs. More details on the ambitions, targets and KPIs for the Residential Fund are outlined in Bouwinvest s CSR report, which can be downloaded from Bouwinvest s corporate website. Awareness Commitment Innovation Set up communications with tenants regarding sustainability actions and initiatives taken by Bouwinvest (and its managers) Conduct a tenant satisfaction survey in 2013 Focus sponsorship at neighbourhood level Reduce energy consumption in common areas by at least 10% in 2015 compared to 2012 Conduct pilot for innovative tendering to improve energy efficiency 54

56 Corporate Social Responsibility key data Environmental performance Coverage 88.o% 71.2% Energy total (MWh) 7,330 5,653 Energy intensity (kwh/m 2 ) Carbon emissions (ton CO 2 e) 3,324 2,559 Carbon intensity (CO 2 /m 2 ) Percentage assets labelled 99.9% 96.9% Average label score Key sustainability information Distribution of energy labels % Not labelled A B C D E F G Energy performance monitered in % 88% Key facts Yes No Green energy label (A, B or C label) 91% of assets awarded with a green energy label Average EPC label score improved from 1.40 to % 91% Yes No Stakeholder engagement 2012 Tenant satisfaction survey participants 2,397 Participation rate 30% Sustainability highlights Purchase green gas and renewable electricity Participation GRESB since 2012 Majority of the properties awarded with a new energy label 99.9% of assets labelled 55

57 7 Risk management As the statutory director and manager of the Residential Fund, Bouwinvest recognises the importance of having a sound risk management framework in place. The purpose of the framework is to promptly identify significant risks and to assess and manage those risks to support the achievement of the organisational targets. Risk management and compliance Risk framework The key objective of the Residential Fund is to provide investors with a long-term average annual total Fund return of 6.0%. This is achieved by focusing on acquiring investment properties in high-quality locations and with the potential for long-term inflation-hedged cash flow. Bouwinvest uses the Enterprise Risk Management method to manage the risks faced by the Residential Fund, based on the framework established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO I & II). Risk management and compliance are independent functions within Bouwinvest. Their role is to identify, assess, advise on, monitor and report on compliance and other risks faced by the Residential Fund. In 2012, Bouwinvest continued to refine and enhance its risk and compliance capabilities, introduced new policies and widened the scope of its quarterly reporting. Within the domain of real estate, we have established an overarching framework that consists of the following building blocks: Allocation risks Generic sector risks Specific sector risks Management risks Allocation risks Following the decision to invest in real estate, an investor has a wide range of choices for the allocation of investments. Bouwinvest believes that it is not the allocation to real estate that determines risk levels, but the secondary conditions set for the allocation. Using the secondary conditions it has formulated, Bouwinvest allocates on the basis of: Responsible costs; Low risk profile; Stable returns; Corporate Social Responsibility (CSR); Optimal diversification The main allocation risks for the Fund are country, real estate market, portfolio, leverage and regulation risks (i.e. tax and legal). These risks are low for the Residential Fund, as the allocation for the Fund is pre-set. Risk is further limited by pre-defined core regions and core properties. 56

58 Generic sector risks In the real estate sector, the indirect return is part of the overall return, which is why Bouwinvest devotes a great deal of attention to the factors that can influence indirect returns. The term generic sector is used because these elements are indistinguishable from the underlying object itself. The main risk associated with the indirect return are: valuation, transactions and integrity. These risks are within the scope of management and are managed in the following way. Valuation risk Valuation risk is the risk that the property value is affected by incorrect valuation methods or assumptions. To control this risk, the properties are valued on a quarterly basis by external valuers, who are rotated every three years. The results of the valuations are reviewed on a quarterly basis and deviations from previous quarters that exceed 5% are analysed in detail. Bouwinvest has developed its own proprietary valuation model, which is compliant with international IPD-IFRS valuation guidelines and is considered a best of class valuation model in the Netherlands. The model includes a set of fixed valuation criteria, such as vacancy value, mutation ratio, exit yield and discount rate. Transaction risk Transaction risk is the risk that there is not enough of a market (in terms of both quantity and quality) for the sale or acquisition of assets. Bouwinvest has a set of measures in place to control these risks. One is a strict protocol that specifies all the necessary steps in the process of an acquisition or disposal, including guidelines for diversification. No proposal for an acquisition or disposal can be approved prior to a recommendation from the Investment Committee. This committee s review of the proposal includes their assessment as to whether Bouwinvest s risk return models have been correctly applied. Bouwinvest also has its own Research department that continually monitors market developments. The final measure is an up-to-the-minute cash-flow planning that reflects all changes in the cash position, including the acquisition/divestment planning based on hold/sell analyses. Bouwinvest is currently developing the pipeline report, which contains all the possible acquisitions and divestments and the conversion rate. Integrity risk Integrity risk is the risk that the Residential Fund may be affected by improper or unethical conduct on the part of Bouwinvest, its employees or management, such in contravention of legislation and regulations, as well as the standards set by society or by Bouwinvest itself. To control this risk, Bouwinvest has implemented policies and procedures including: A Code of Conduct; A whistleblower policy; A policy on incidents; Know your customer guidelines; and Pre-employment screening. The Compliance department has also implemented an effective monitoring and testing process and has an ongoing awareness programme to increase knowledge and awareness of risk throughout the organisation. The Compliance department reports their findings to the Management Board every quarter. 57

59 58 Specific sector risk The uncertainty in the Dutch housing market is high. This is reflected in low transaction numbers, downward price pressure and a shift from the owner-occupier sector to the rental sector. The Residential Fund has benefited from this uncertainty in the housing market, as rents and occupancy rates have remained stable. However, the downturn in the housing market has led to to downward revaluations in recent years, due to the lower-than-expected revenues from the sales of individual units and the higher risk perception of real estate in general. Much of the uncertainty is due to the necessary and imminent restructuring of the housing market. Although government intervention is necessary and welcome, one of the main reasons for the current situation is the uncertainty surrounding the policies of the Dutch government itself. The new restriction of the mortgage interest relief, for example, is a result of the government intervention. The extensive subsidies in both the government regulated rental sector and the owner-occupier market are particularly disruptive. The residential property sector still offers a relatively secure income streams that are higher than average interest rates on government bonds. Moreover, earnings are generally inflation proof, as it is usually possible to increase rents in line with or above general price levels, certainly in the non-regulated rental sector. The opportunities for Institutional investors in the Dutch housing investment market is the marked shift from home purchase to the rental sector, particularly the non-subsidized rental sector, which currently accounts for only 3% of the total housing market. The direct return is to a large extent influenced by how well the underlying property is managed. Specific knowledge of the sector is crucial to the understanding of the specifics of the property and to be able to optimise direct returns. We use the term sector-specific, therefore, because there is a correlation between the risk and the direct return of the property. These risks, which are within the scope of management, are: legal, rental and object. Legal risk This is the risk that the direct return is influenced by insufficient legal measures. To control this risk, Bouwinvest has his own legal department that implements policies and procedures to support the business. They advise the business when needed and seek external support when required. The legal department reports its findings and involvement in any legal procedures to the management on a quarterly basis. Rental risk This is the risk that the direct return is influenced by changes in the rental conditions, or that the properties are no longer attractive to tenants. As stated above, customer (tenant) satisfaction is key to the direct returns from the Residential Fund s real estate portfolio. The Residential Fund has introduced measures to limit this rental risk. For instance, the Fund has a system in place to monitor tenant satisfaction with both its rented property and the services provided by the Fund s external property managers. This includes but is not limited to the annual satisfaction survey and random spot checks. Object risk Object risk is the risk that the returns from the property will deviate from the amount that has been calculated in advance. Bouwinvest has the following measures in place to control this risk. Bouwinvest performs an annual hold/sell analysis of the properties to ensure that they continue to support the Residential Fund s overall return objective. The long-term estimates on a per property basis also provide effective insight into expected maintenance costs.

60 The structuring of the portfolio or the overall balance of the assets also takes into account the following diversification variables: type of housing; the indexation policy; the rental segment; year of construction; and, regional spread, with a focus on economically strong regions. The IPD provides a report each quarter, based on our data, about the returns on specific properties. Bouwinvest monitors this information closely to detect any deviations at an early stage. Management risks This refers to the risk that Bouwinvest s management of the Residential Fund, including its management and control of the risks it faces, may in some way be inadequate or ineffective. This would affect the direct and indirect return of the Residential Fund. This risk is subdivided into the following risk elements: continuity; quality; relative performance; transparency; and management fee. To control these risks, there is a management agreement in place that determines the responsibilities of Bouwinvest as the Residential Fund s management company. ISAE 3402 certification provides comfort to investors on the risk management, including risk definition and control measures, of all key processes of a company s day-to-day operations. Bouwinvest gained an ISAE 3402 Type II standard Service Organization Control (SOC) reporting certification over the year The Fund has determined key risk indicators for the risk elements, such as business incidents, performance and the reporting process. This information is passed on to the Management Board each quarter. For further details on financial risk factors, reference is made to Financial risk management in the Notes to the financial statements on pages 73 to 75. Monitoring and reporting The monitoring of these risks is embedded in the daily activities of the responsible line manager and is an integral part of the planning and control cycle. All the defined risks are monitored via key risk indicators. Each quarter, the Management Board 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. The Fund continued to enhance its system for reporting and monitoring risk in These improvements enable management to act in an even more timely manner to counteract or mitigate risk. 59

61 8 Financial statements 2012 All amounts in thousands unless otherwise stated. Statement of comprehensive income Note Gross rental income 6 147, ,934 Service charge income 6 2,713 2,712 Other income Revenues 150, ,892 Service charge expenses (3,495) (3,968) Property operating expenses 7 (40,984) (37,000) Other expenses (44,479) (40,968) Net rental income 106, , Profit (loss) on sales of investment property Positive fair value adjustment completed investment property 12 6,919 35,828 Negative fair value adjustment completed investment property 12 (78,158) (23,487) Fair value adjustments on investment property under construction 13 (3,252) (8,618) Net valuation gain (loss) on investment property (74,491) 3,723 Administrative expenses 8 (13,975) (13,963) Profit before finance result 18,309 97,157 Finance expenses Finance income ,736 Net finance result 481 1,736 Profit before tax 18,790 98,893 Income taxes 10 Profit for the year 18,790 98,893 Other comprehensive income for the year Total comprehensive income for the year, net of tax 18,790 98,893 Net profit attributable to shareholders 18,790 98,893 Total comprehensive income attributable to shareholders 18,790 98,893 Earnings per share ( ) Basic earnings per share Diluted earnings per share

62 Statement of financial position Before appropriation of profit All amounts in thousands unless otherwise stated. As at 31 December Note Assets Non-current assets Investment property 12 2,597,675 2,644,668 Investment property under construction 13 60,146 35,600 Other non-current receivables ,658,082 2,680,294 Current assets Trade and other current receivables 14 2,635 3,394 Cash and cash equivalents 15 26, ,623 28, ,017 Assets held for sale 16 21,528 Total assets 2,686,859 2,819,839 Equity and liabilities Equity attributable to the owners of the Fund Issued capital 1,000,000 1,000,000 Share premium 1,637,867 1,755,661 Revaluation reserve 37,812 54,991 Retained earnings (18,790) (98,893) Net profit for the year 18,790 98,893 Total equity 17 2,675,679 2,810,652 Current liabilities Trade and other payables 18 11,180 9,187 Total liabilities 11,180 9,187 Total equity and liabilities 2,686,859 2,819,839 61

63 All amounts in thousands unless otherwise stated. Statement of changes in equity For 2012, before appropriation of profit Attributable to owners of the Fund Issued Share Revaluation Retained Net profit for Total capital premium reserve 1 earnings the year equity Balance at 1 January ,000,000 1,755,661 54,991 (98,893) 98,893 2,810,652 Comprehensive income Net profit 18,790 18,790 Total comprehensive income 18,790 18,790 Other movements Appropriation of profit 98,893 (98,893) Dividends paid (117,794) (35,969) (153,763) Movement revaluation reserve (17,179) 17,179 Total other movements (117,794) (17,179) 80,103 (98,893) (153,763) Balance at 31 December ,000,000 1,637,867 37,812 (18,790) 18,790 2,675,679 For 2011, before appropriation of profit Attributable to owners of the Fund Issued capital Share premium Revaluation reserve 1 Retained earnings Net profit for the year Total equity Balance at 1 January ,000,000 1,800,996 40,672 (107,284) 64,328 2,798,712 Reclassification dividends paid (42,956) 42,956 Restated balance 1 January ,000,000 1,758,040 40,672 (64,328) 64,328 2,798,712 Comprehensive income Net profit 98,893 98,893 Total comprehensive income 98,893 98,893 Other movements Appropriation of profit 64,328 (64,328) Dividends paid (2,379) (84,574) (86,953) Movement revaluation reserve 14,319 (14,319) Total other movements (2,379) 14,319 (34,565) (64,328) (86,953) Balance at 31 December ,000,000 1,755,661 54,991 (98,893) 98,893 2,810, See explanation dividend restrictions Note 17.

64 Statement of cash flows All amounts in thousands unless otherwise stated. Note Operating activities Rental receipts 148, ,450 Service charge receipts 2,267 3,037 Operating payments (53,477) (48,622) Service charge payments (3,495) (3,968) VAT received (paid) 367 4,639 Interest received 894 1,323 Cash flows from operating activities 95, ,859 Investment activities Proceeds from sale of investment property 29,891 69,061 Payments of investment property 12 (2,102) Payments of investment property under construction 13 (57,870) (52,709) Cash flows from investment activities (30,081) 16,352 Finance activities Dividends paid (153,763) (86,953) Cash flows from finance activities (153,763) (86,953) Net decrease/ increase in cash and cash equivalents (88,481) 33,258 Cash and cash equivalents at beginning of year 114,623 81,365 Cash and cash equivalents at end of year 15 26, ,623 63

65 All amounts in thousands unless otherwise stated. Notes to the financial statements 1 General information Bouwinvest Dutch Institutional Residential Fund NV (the Residential Fund, the Fund) holds a major portfolio of investment properties in the Netherlands. The Residential Fund is a public limited company incorporated under the laws of the Netherlands, with its corporate seat in Amsterdam, the Netherlands. The Fund was formed for the purpose of providing shareholders with a rate of return by acquiring, managing, adding value to and disposing of a diversified real estate portfolio through investments in residential real estate in the Netherlands. During and at the end of 2012, all shares were held by Stichting Bedrijfstakpensioenfonds voor de Bouwnijverheid (bpfbouw). The Fund s active portfolio management is supported by the supply of newly developed properties by Bouwinvest Development BV and third parties. The Residential Fund has the right of first refusal on the residential properties developed. This structure with a separate entity for development activities (Bouwinvest Development BV) has been chosen as the FII (Fiscal Investment Institution) status of the Fund does not allow development activities. The statutory directors will present the annual report to the meeting of the Supervisory Board on 20 March 2013, and to the Annual General Meeting of shareholders on 25 April 2013, and will request the approval of the financial statements. 2 Summary of significant accounting policies The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied unless otherwise stated. The Fund s functional and presentation currency is the Euro. All amounts are in thousands of euros, unless otherwise stated. The financial year 2012 was a normal calendar year from 1 January to 31 December Basis of preparation Statement of compliance In accordance with Part 9, Book 2 of the Dutch Civil Code, Section 362, subsection 8, the financial statements of the Fund have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. The financial statements of the Fund presented are also in accordance with Part 9, Book 2 of the Dutch Civil Code based on Section 362, subsection 8 and 9. Income statement The Fund presents its income statement by nature of expenses. 64

66 Reclassifications In order to further align the processing of the distributable dividends with Dutch Law, the comparative figures have been reclassified. The reclassification is further elaborated on in note 17 of the financial statements.. Application of new and revised International Financial Reporting Standaards (IFRS) In 2012, the Fund did not adopt any new or amended standards early and does not plan the early adoption of any of the standards issued but not yet effective. The Fund adopted the following new and amended IFRS and IFRIC interpretations as of 1 January 2012: IFRS 7 Financial Instruments: Disclosures Amendment to Disclosures, effective 1 July 2011 IAS 12 Income Taxes Recovery of Tax Assets, effective 1 January 2012 IFRS 7 Financial Instruments: Disclosures The amendments to IFRS 7 are effective for annual periods beginning on or after 1 July 2011 and will improve the understanding of transfer transactions of financial assets, including the understanding of the possible effects of any risks that may remain with the entity that transferred the assets. The amendments also require additional disclosures if a disproportionate amount of transfer transactions is undertaken around the end of a reporting period. The Fund does not expect any impact on its current disclosures on financial instruments. IAS 12 Income Taxes The amended standard is effective for annual periods beginning on or after 1 January The amendment provides a practical solution to the difficult and subjective assessment of whether recovery will be through use or through sale when the asset is measured using the fair value model in IAS 40 Investment Property, by introducing a presumption that the recovery of the carrying amount will normally be through sale. The Fund does not expect any impact on its financial position or performance. The adoption of these interpretations did not have any impact on the financial position or performance of the Fund. New and amended standards and interpretations, effective for financial years beginning on or after 1 January 2013 Standards issued but not yet effective Standards issued but not yet effective up to the date of the issuance of the Fund s financial statements are listed below: Amendments to IAS 1 Presentation of Items of Other Comprehensive Income Amendments to IAS 1 Presentation of Financial Statements IFRS 9 Financial Instruments, effective 1 January 2013 IFRS 10 Consolidated Financial Statements, effective 1 January 2013 IFRS 11 Joint Arrangements, effective 1 January 2013 IFRS 12 Disclosure of Interests in Other Entities, effective 1 January 2013 IFRS 13 Fair Value Measurement, effective 1 January

67 Amendment to IFRS 7 and IAS 32 Offsetting Financial Assets and Financial Liabilities and the related disclosures, effective 1 January 2013 respectively 1 January 2014 The Fund has studied the improvements and is currently assessing their impact. Amendments to IAS 1 Presentation of Items of Other Comprehensive Income This standard applies to financial years beginning on or after 1 July The amendments introduce new terminology for the statement of comprehensive income and income statement. Under the amendments to IAS 1, the statement of comprehensive income is renamed the statement of profit or loss and other comprehensive income and the income statement is renamed the statement of profit or loss. Other than the above-mentioned presentation changes, the application of the amendments to IAS 1 does not result in any impact on profit or loss, other comprehensive income and total comprehensive income. 66 Amendments to IAS 1 Presentation of Financial Statements This standard applies to financial years beginning on or after 1 January IAS 1 requires an entity that changes accounting policies retrospectively, or makes a retrospective restatement or reclassification to present a statement of financial position as at the beginning of the preceding period (third statement of financial position). The amendments to IAS 1 clarify that an entity is required to present a third statement of financial position only when the retrospective application, restatement or reclassification has a material effect on the information in the third statement of financial position and that related notes are not required to accompany the third statement of financial position. The Fund does not expect any impact on its financial position or performance. IFRS 9 Financial Instruments IFRS 9 as issued reflects the first and second phase of the IASB s work on the replacement of IAS 39 and applies to the classification and measurement of financial assets and liabilities as defined in IAS 39. The standard is effective for annual periods beginning on or after 1 January In subsequent phases, the IASB will address hedge accounting, derecognition and asset and liability offsetting. The adoption of the first phase of IFRS 9 will not have an effect on the classification and measurement of the Fund s financial assets. IFRS 10 Consolidated Financial Statements This standard applies to financial years beginning on or after 1 January 2013, and identifies the concept of control as the determining factor in whether an entity should be included in the consolidated financial statements of the parent company. The standard provides additional guidance to assist in the determination of control where this is difficult to assess. The Fund does not expect any impact on its financial position or performance. IFRS 11 Joint Arrangements This standard applies to financial years beginning on or after 1 January 2013, and provides a reflection of joint arrangements by focusing on the rights and obligations of the arrangement rather than its legal form. The standard requires a single method to account for interests in jointly controlled entities. The Fund does not expect any impact on its financial position or performance.

68 IFRS 12 Disclosure of Interests in Other Entities This standard applies to financial years beginning on or after 1 January 2013, and provides disclosure requirements for all forms of interests in other entities, including joint arrangements, associations, special purpose vehicles and other off-balance sheet vehicles. The Fund does not expect any impact on its financial position or performance. IFRS 13 Fair Value Measurement This standard applies to financial years beginning on or after 1 January 2013, and provides a definition of fair value and a single source of fair value measurement, and disclosure requirements for use across IFRS. The Fund is currently assessing the impact of this standard. Amendment to IFRS 7 and IAS 32 Offsetting Financial Assets and Financial Liabilities and the related disclosures The amendments to IFRS 7 are effective for the annual periods beginning on or after 1 January The amendments to IAS 32 are effective for the annual periods beginning on or after 1 January The amendments provide disclosures information (IFRS 7) about rights of offset related arrangements (IAS 32). The Fund does not expect any impact on its current disclosures on financial instruments. Preparation of the financial statements The financial statements have been prepared on the historical cost basis except for investment property and investment property under construction, that are measured at fair value as explained in the accounting policies below. Historical cost is generally based on the fair value of the consideration given in exchange for assets. The principal accounting policies are set out below. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Fund s accounting policies. Changes in assumptions may have a significant impact on the financial statements in the period the assumptions changed. Management believes that the underlying assumptions are appropriate. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in Note Investment property Investment property that is under construction or being developed for future use as investment property is presented under Investment property under construction. Land held under operating leases is classified and accounted for by the Fund as investment property when it meets the rest of the definition of investment property and is accounted for as a finance lease. Investment property is measured initially at its cost, including related transaction costs, such as advisory costs, notary costs, transfer taxes and borrowing costs. Borrowing costs incurred for the purpose of acquiring, constructing or producing a qualifying investment property are capitalised as part of its cost. Borrowing costs are capitalised while acquisition or construction is actively underway and cease once the asset is substantially complete, or suspended if the development of the asset is suspended. 67

69 After initial recognition, investment property is stated at fair value. Fair value is based on active market prices, adjusted, if necessary, for any difference in the nature, location or condition of the specific asset. In line with the Practice Statements, as incorporated in the Royal Institute of Chartered Surveyors Appraisal and Valuation Standards ( the Red Book ), valuations are performed as of the financial position date by professional valuation experts who hold recognised and relevant professional qualifications and have recent experience in the location and category of the investment property being valued. These valuations form the basis for the carrying amounts in the financial statements. Investment property that is being redeveloped for continuing use as an investment property or for which the market has become less active continues to be measured at fair value. The fair value of investment property reflects, among other things, rental income from current leases and assumptions about rental income from future leases in the light of current market conditions, including vacancy and rental incentives. The fair value also reflects, on a similar basis, any cash outflows that could be expected in respect of the property. Some of those outflows are recognised as a liability, including finance lease liabilities in respect of leasehold land classified as investment property; others, including contingent rent payments, are not recognised in the financial statements. Subsequent expenditure is capitalised to the asset s carrying amount only when it is probable that future economic benefits associated with the expenditure will flow to the Fund and the cost of the item can be measured reliably. All other repairs and maintenance costs are expensed when incurred. When part of an investment property is replaced, the carrying amount of the replaced part is derecognised. 68 If a valuation obtained for a property held under a lease is net of all payments expected to be made, any related lease liability recognised separately in the statement of financial position is added back to arrive at the carrying value of the investment property for accounting purposes. The fair value of investment property does not reflect future capital expenditure that will improve or enhance the property and does not reflect the related future benefits from this future expenditure other than those a rational market participant would take into account when determining the value of the property. Gains and losses arising from changes in fair values are included in the income statement in the year in which they arise. Investment properties are derecognised either when they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Gains and losses on disposal of investment properties are recognised in the statement of comprehensive income in the year of disposal. 2.3 Investment property under construction Investment property under construction for future use as investment property is stated at fair value. Fair value measurement on investment property under construction is only applied if the fair value is considered to be reliably measurable. If the Fund determines that the fair value of an investment property under construction is not reliably determinable when construction is incomplete, it shall measure that investment under construction at cost until either its fair value becomes reliably determinable or

70 construction is completed. It may sometimes be difficult to determine the fair value of the investment property under construction reliably. In order to evaluate whether the fair value of an investment under construction can be determined reliably, management considers, among others, the following factors: The provisions of the construction contract. The stage of completion. Whether the project/property is standard (typical for the market) or non-standard. The level of reliability of cash inflows after completion. The development risk specific to the property. Past experience with similar construction projects. Pre-let percentage. Status of construction permits. Starting one year before completion of the project, an external valuation expert values the project twice a year. Gains and losses arising from changes in fair values are included in the income statement in the year in which they arise. The Residential Fund has an agreement with Bouwinvest Development BV. Investment property is not developed within the Residential Fund but within Bouwinvest Development BV. When entering into the contract, the rental risk is transferred to the Fund; the remaining risks remain with the developer. The paid installments are therefore recognised as investment property under construction. 2.4 Other non-current receivables Other non-current receivables relate to VAT compensation. 2.5 Financial instruments Financial assets Financial assets are classified as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity financial assets, and available-for-sale financial assets, as appropriate. The Fund determines the classification of its financial assets at initial recognition. When financial assets are initially recognised, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. Financial assets are derecognised only when the contractual rights to the cash flows from the financial asset expire or the Fund transfers substantially all risks and rewards of ownership. The Fund s financial assets consist of loans and receivables. Financial assets recognised in the statement of financial position as trade and other receivables are classified as loans and receivables. They are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. The Fund assesses at each financial position date whether there is objective evidence that a financial asset or group of financial assets is impaired. If there is objective evidence (such as significant financial difficulty of the obligor, breach of contract, or it becomes probable that the debtor will enter bankruptcy), the asset is tested for impairment. The amount of the loss is measured as the difference between the asset s carrying 69

71 amount and the present value of estimated future cash flows (excluding future expected credit losses that have not been incurred) discounted at the financial asset s original effective interest rate (that is, the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced through use of an allowance account. The amount of the loss is recognised in profit or loss. With respect to trade receivables, a provision for impairment is made when there is objective evidence (such as the probability of insolvency or significant financial difficulties of the debtor) that the Fund will not be able to collect all of the amounts due under the original terms of the invoice. Impaired debts are derecognised when they are assessed as uncollectible. If in a subsequent period the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date. Any subsequent reversal of an impairment loss is recognised in profit or loss. Financial liabilities Financial liabilities are classified as financial liabilities at fair value through profit or loss, loans, held-tomaturity financial liabilities, and available-for-sale financial liabilities, as appropriate. The Fund determines the classification of its financial liabilities at initial recognition. When financial liabilities are initially recognised, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expired. Financial liabilities included in trade and other payables are recognised initially at fair value and subsequently at amortised cost. The fair value of a non-interest bearing liability is its discounted repayment amount. If the due date of the liability is less than one year, discounting is omitted. 2.6 Prepayments Prepayments are stated at cost less any accumulated impairment losses. 2.7 Cash and cash equivalents Cash and cash equivalents include cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. 2.8 Assets held for sale The assets held for sale consist of investment properties held for sale and properties held for sale. Investment properties held for sale are expected to be sold within a year and are classified as current assets and valued at fair value (potential seller expenses are not taken into account in the fair value assessment). 70

72 Properties held for sale are recently acquired properties that were exclusively acquired with the intention to resell. These properties are valued at the lower of the cost price or the net realisable value (expected net sales proceeds). 2.9 Issued capital Shares are classified as equity when there is no obligation to transfer cash or other assets. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds Trade and other payables Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. Tenant deposits The Residential Fund obtains deposits from tenants as a guarantee for returning the property at the end of the rental term in a specified good condition or for the rent payments for a period ranging from 1 to 12 months. Such deposits are treated as financial assets in accordance with IAS 39 and they are initially recognised at fair value. The deposit is subsequently measured as amortised cost. Tenant deposits are classified as current liabilities, unless the Fund has an unconditional right to defer settlement of the deposit for at least 12 months after the date of the statement of financial position Dividend distribution Dividend distribution to the Fund s shareholders is recognised as a liability in the Fund s financial statements in the period in which the dividends are approved Rental income Rental income from investment property leased out under operating leases is recognised in the profit and loss account on a straight-line basis over the term of the lease. Rent incentives granted by the Fund to its tenants are recognised as an integral part of the total rental income. The rent incentives are included in other current assets. Incentives to enter into rental agreements are spread evenly over the rental term, even if the payments are not made on such a basis. The rental term is the non-cancellable period of the rental agreement, together with any further term for which the tenant has the option to continue the rental agreement, when at the inception of the rental agreement it is reasonably certain that the tenant will exercise this option. Premiums received to terminate rental agreements are recognised in the income statement when they arise Service charges, property operating expenses and administrative expenses In the case of service contracts with third parties, service charges are recovered from tenants. Service charges in respect of vacant property are expensed. These mainly relate to gas, water, electricity, cleaning and security. Property operating expenses comprise those costs that are directly attributable to the 71

73 operation of properties, net of costs charged to tenants. These mainly relate to tax, insurance, leasehold, maintenance and professional fees. These are expensed as incurred. Administrative expenses are expenses that are not directly attributable to the operation of properties (including charged management costs not directly related to properties, office overheads, advice, valuation and audit fees, listing costs and marketing and promotion costs). Service charges for which the Fund acts as a principal are presented in the profit and loss account. Therefore, for those property investments for which the Fund is in full control of the service charges, the service charges invoiced to tenants and the corresponding expenses are shown separately on an accrual basis Other income Income attributable to the year that cannot be classified under any of the other income categories Finance income and expenses Finance income consists of interest income and is recognised in the profit and loss account. Interest income is recognised in the profit and loss account as it accrues Cash flow statement Cash flows are stated according to the direct method. The premise for operating cash flows is rental income, to which adjustments are made to obtain the net operating cash flows. The acquisitions of investment properties are disclosed as cash flows from investment activities, as this reflects the Fund s business activities most appropriately. Cash and cash equivalents comprise cash on hand, demand deposits, short-term deposits in banks with original maturities of three months or less and short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value Earnings per share The Fund presents basic and diluted earnings per share (EPS) for its ordinary share capital. The earnings per ordinary share are calculated by dividing the profit or loss attributable to the Fund s shareholders by the weighted average number of issued ordinary shares during the reporting period. In calculating the diluted earnings per share, the profit or loss attributable to the Fund s shareholders and the weighted average number of issued ordinary shares during the reporting period are adjusted for all potential dilutive effects on the ordinary shares Income taxes Based on its status as an FII, the Fund is subject to Dutch corporate income tax at a rate of 0%, see note

74 3 Financial risk management 3.1 Financial risk factors The risk management function within the Fund is carried out with respect to financial risks. Financial risks are risks arising from financial instruments to which the Fund is exposed during or at the end of the reporting period. Financial risk comprises market risk (including interest rate risk and other price risk), credit risk and liquidity risk. Risk management is carried out by the risk manager under policies approved by the Statutory Director of the Fund. The treasury manager identifies and evaluates financial risks in close cooperation with the Fund s business units and the risk manager. The statutory director of the Fund provides written principles for overall risk management, as well as written policies covering specific areas, such as interest rate risk, credit risk, and the investment of excess liquidity. Market risk Market risk of financial instruments relates to foreign exchange risk, price risk and interest rate risk. For more information, we refer you to the Risk Management section on pages 56 to 59. (I) Foreign exchange risk The Fund has no exposure to foreign exchange risk as it operates in a euro country only. (II) Price risk The Fund has no significant exposure to price risk as it does not hold any equity securities or commodities. The Fund is not exposed to price risk other than in respect of financial instruments, such as property price risk, including property rental risk. (III) Interest rate risk As the Fund has no external loans and borrowings, it has no exposure to interest rate risks. (IV) Hedging risk The Fund has no hedging instruments in place. Credit risk Credit risk is defined as the unforeseen losses on assets if counterparties should fail to meet their obligations. The creditworthiness of tenants is closely monitored. When entering into a contract, their credit rating is checked, while throughout the term of the contract a close watch is kept on the accounts receivable. Rents are in general also payable in advance and part of the rent payable is secured by means of bank guarantees or guarantee deposits. There are no significant credit risk concentrations. It is our policy to enter into financial transactions only with financial institutions with a credit rating of at least A+ (Standard & Poor s). The financial risk is monitored for each individual transaction. Given the high credit rating of its counterparties, the Fund does not expect any defaults. 73

75 The carrying amounts of the financial assets represent the maximum credit risk. The combined carrying amount on the reporting date was made up as follows: (I) The Fund s maximum exposure to credit risk by class of financial asset was as follows: Trade and other receivables, net of provision for impairment (Note 14) Rent receivables from tenants 1,845 1,331 Other financial assets 790 2,063 Cash and cash equivalents 26, ,623 Deposits refundable to tenants may be withheld by the Fund in part or in whole if receivables due from the tenant are not settled or in the event of other breaches of contract. (II) Analysis by credit quality of financial assets was as follows: Trade and other current receivables Neither past due nor impaired 413 Total neither past due nor impaired 413 Past due but not impaired Less than 30 days overdue 30 to 90 days overdue Total past due but not impaired Individually determined to be impaired (gross) 30 days to 90 days overdue 1,417 2, to 180 days overdue 2,064 1,346 Total individually determined to be impaired (gross) 3,481 3,688 Less: impairment provision (1,636) (1,542) Total trade and other current receivables, net of provision for impairment 2,635 3,394 There is no significant concentration of credit risk with respect to cash and cash equivalents, as the Fund holds cash accounts with a large number of financial institutions. Liquidity risk Liquidity risk is the risk that the Fund will encounter difficulty in meeting obligations associated with financial liabilities. Prudent liquidity risk management implies maintaining sufficient cash, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, the treasury manager aims to maintain flexibility in funding by keeping committed credit lines available. 74

76 The Fund s liquidity position is monitored on a daily basis by management and is reviewed quarterly by the Statutory Director of the Fund. A summary table with maturity of financial assets and liabilities presented below is used by key management personnel to manage liquidity risks and is derived from managerial reports at Fund level. The amounts disclosed in these tables are the contractual undiscounted cash flows. Undiscounted cash flows in respect of balances due within 12 months generally equal their carrying amounts in the statement of financial position, as the impact of discounting is not significant. The maturity analysis of financial instruments at 31 December 2012 was as follows: Demand and less than 1 month From 1 to 3 months From 3 to 12 months Total Assets Trade and other receivables 2, ,635 Liabilities Tenant deposits 2,659 2,659 Trade payables 5,299 5,299 Other financial liabilities 1, ,422 3,222 The maturity analysis of financial instruments at 31 December 2011 was as follows: Demand and less than 1 month From 1 to 3 months From 3 to 12 months Total Assets Trade and other receivables 413 2, ,394 Liabilities Tenant deposits 1,972 1,972 Trade payables 4,493 4,493 Other financial liabilities 1, ,273 2,722 As the amount of contractual undiscounted cash flows related to bank borrowings and debentures and other loans is based on variable rather than fixed interest rates, the amount disclosed is determined by reference to the conditions existing at the reporting date. That is, the actual spot interest rates effective as of 31 December 2012, and 31 December 2011, are used to determine the related undiscounted cash flows. 75

77 3.2 Fair value estimation The Fund has no financial assets that are measured at fair value. The carrying amounts of the financial assets and their fair values were as follows: As at 31 December Note Carrying amount Fair value Carrying amount Fair value Receivables 14 2,635 2,635 3,394 3,394 Cash and cash equivalents 15 26,142 26, , ,623 Other payables 18 (11,180) (11,180) (9,187) (9,187) 17,597 17, , ,830 The carrying amount less impairment provision of trade receivables and trade payables approximates their fair value. All other balance sheet items are short-term and therefore not adjusted to their fair value. 3.3 Capital risk management The Fund s objectives when managing capital are to safeguard the Fund s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders, and to maintain an optimal capital structure to reduce the cost of capital. Funding is secured by its shareholders through capital calls for which estimates are made each year. No external funding will be obtained. The Fund distributes the operating profit annually to its shareholders as required by tax law. Reference is made to Note 11. In order to maintain or adjust its capital structure, the Fund may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, buy back shares from shareholders or sell assets to reduce debt. 4 Critical accounting estimates and judgements Estimates and judgements are continually evaluated and are based on historical experience and adjusted for current market conditions and other factors. 4.1 Critical accounting estimates and assumptions Management makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom be exactly the same as the related actual results. The estimates, assumptions and management judgements that carry a significant risk of material adjustment to the carrying amounts of assets and liabilities within the next financial year are outlined below. Principal assumptions underlying management s estimation of fair value property portfolio The valuation of the investment property portfolio is determined in accordance with the Fund s valuation principles. All investments are measured at fair value and based on active market prices, adjusted, if necessary, for any difference in nature, location or condition of the specific asset. 76

78 Current economic developments and uncertainties influence the valuation of our investment properties. The methods and significant assumptions applied in determining the fair value of our investment properties are mainly due to (i) active market prices, (ii) the influence of so-called rent-free periods and vacancy rates, (iii) the discount rates and (iv) assumed trends in rents. Market values are based on valuations by independent external valuation experts. The valuation is based on an open market value, supported by market evidence in which assets can be exchanged between a knowledgeable willing buyer and a knowledgeable willing seller in an arm s length transaction at the date of the valuation, in accordance with the guidelines of the Stichting ROZ Vastgoedindex Nederland (IPD/ROZ Property Index) applicable in the Netherlands. The valuations are based on a discounted cash flow (DCF) analysis of each property, combined where necessary with valuations based on market evidence. The DCF analyses are adjusted to existing rental agreements, in order to cover the full period of existing rental agreements. The DCF analyses are based on calculations of the future rental revenue in accordance with the terms in existing rental agreements, and estimations of the rental values when the agreement expires. The starting point for the estimation of the discount rate is the nominal interest rate for 10-year Dutch government bonds. This rate should be increased in accordance with the risks involved in property investments. The whole investment property portfolio is appraised on a quarterly basis by external appraisers. The valuations are executed by external independent valuation experts. 5 Core regions A spread by core regions is applied in the analysis of the valuation of the investment property portfolio. The Fund has invested in the following core regions: Randstad (Amsterdam, Utrecht, Rotterdam and The Hague), Mid East (Apeldoorn, Arnhem, Nijmegen and Zwolle) and Brabantstad (Breda, Eindhoven, Den Bosch and Tilburg). The valuation of the completed investment properties, including assets held for sale per core region for the year ended 31 December 2012, is as follows: Property valuation as at 31 December Region Randstad 2,084,365 2,126,246 Mid East 128, ,522 Brabantstad 73,009 75,196 Non-core regions 311, ,232 Total 2,597,675 2,666,196 77

79 6 Gross rental income and service charge income Theoretical rent 153, ,360 Incentives (980) (1,128) Vacancies (4,669) (5,298) Total gross rental income 147, ,934 The nature of the theoretical rent has an indefinite duration because there are no fixed contract periods. Service charge income represents 2.7 million (2011: 2.7 million) income receivable from tenants for the services of utilities, caretakers, etc. when the Fund acts as principal. 7 Property operating expenses Taxes 6,063 5,954 Insurance Maintenance 21,237 18,421 Valuation fees Property management fees 2,901 2,753 Promotion and marketing Letting and lease renewal fees 2,451 2,650 Other operating expenses 6,076 5,011 Addition to provision for bad debts 657 1,136 Total property operating expenses 40,984 37,000 In 2012, 0.5 million (2011: 0.8 million) of the maintenance expenses related to unlet properties. 8 Administrative expenses Management fee Bouwinvest 13,400 13,497 Audit fees Marketing fees 98 Other administrative expenses Legal fees 43 2 Total administrative expenses 13,975 13,963 Where administrative expenses relate directly to the operation of the property portfolio, they are charged to operating expenses. Where administrative expenses relate directly to the development of the property portfolio, they are capitalised.

80 9 Net finance result Finance income Interest income 481 1,736 Total finance result 481 1, Income taxes The Fund is structured as a fiscal investment institution (fiscale beleggingsinstelling, or FII ) within the meaning of Article 28 of the Dutch Corporate Income Tax Act 1969 (Wet op de vennootschapsbelasting 1969). An FII is subject to Dutch corporate income tax at a rate of 0%, provided that certain requirements are met regarding the Fund s distribution of profits, its activities, leverage and shareholders. An FII is obliged to distribute its distributable profits annually within eight (8) months after the end of the relevant fiscal year (doorstootverplichting). The distributable profit generally only includes current income (dividends, interest and rental income). The (realised and unrealised) gains on securities and the realised gains on all other investments (including real estate), which are added to a so-called reinvestment reserve (herbeleggingsreserve), are not included in the distributable profit. An FII is obliged to be engaged exclusively in portfolio investment activities, i.e. it may not (partly) conduct an active trade or business. Whether an activity is characterised as a portfolio investment activity or as a business activity for Dutch tax purposes depends on all the relevant facts and circumstances. Additional rules apply for real estate development activities related to the FII s own real estate portfolio. Improvements to existing properties do not qualify as development activities provided that the capital expenditure is less than 30% of the value of the property as determined by the Dutch Valuation of Immovable Property Act (Wet Waardering onroerende zaken) prior to the improvements. An FII may finance its investments with debt up to a maximum of 60% of the fiscal book value of the real estate property, plus 20% of the fiscal book value of all other investments. To qualify as an FII, the Fund must be owned for at least 75% by: Individuals; Entities that are not liable for profit tax and the profits of which are not taxed at the level of the beneficiaries; Entities that are exempt from profit tax and the profits of which are not taxed at the level of the beneficiaries; and/or Listed/regulated FIIs. It is also prohibited for entities resident in the Netherlands to collectively own an interest of 25% or more in the Fund through one or more mutual funds or corporate entities not resident in the Netherlands with a capital divided into shares; and no single individual may own an interest of 5% or more. The Residential Fund met the requirements of an FII in The effective tax rate was therefore 0%. 79

81 11 Employee benefits expense The Residential Fund has no employees. 12 Investment property At the beginning of the year 2,666,196 2,696,266 Additions: Transfer from investment property under construction 30,072 26,072 Investments 2,102 Disposals (29,456) (68,483) Net gain (loss) from fair value adjustments on investment properties (71,239) 12,341 Total investment property 2,597,675 2,666,196 Less: classified as held for sale (21,528) At the end of the year 2,597,675 2,644,668 The Fund s investment properties were valued by an external valuation expert on a quarterly basis. On 31 December 2012, these properties were revalued by independent professionally qualified valuation experts with experience in the locations and categories of the investment properties valued. The carrying values of investment property as at 31 December 2012, and 1 January 2012, are in line with the valuations reported by the external valuation experts. The significant assumptions made relating to the valuations are set out below Randstad Mid East Brabantstad Non-core regions Total Current average rent ( /m 2 ) Estimated rental value ( /m 2 ) Gross initial yield 5.6% 6.0% 5.4% 6.1% 5.6% Net initial yield 3.5% 3.9% 4.7% 4.3% 4.3% Current vacancy rate (no rental units) 2.4% 1.3% 2.3% 2.4% 3.5% Current financial vacancy rate 3.2% 2.8% 1.9% 2.6% 3.1% Long-term vacancy rate 2.3% 1.8% 1.7% 2.1% 2.2% Long-term growth rental rate 3.6% 3.9% 3.1% 3.1% 3.5% Inflation rate 2.0% 80

82 2011 Randstad Mid East Brabantstad Non-core regions Total Current average rent ( /m 2 ) Estimated rental value ( /m 2 ) Gross initial yield 5.3% 5.8% 5.0% 5.7% 5.4% Net initial yield 4.3% 4.5% 4.1% 4.4% 4.3% Current vacancy rate (no rental units) 2.1% 1.3% 2.9% 2.2% 2.4% Current financial vacancy rate 3.6% 2.6% 1.8% 3.6% 2.1% Long-term vacancy rate 2.2% 3.8% 1.8% 2.8% 3.1% Long-term growth rental rate 3.2% 3.3% 3.4% 3.2% 3.3% Inflation rate 1.6% The valuation of the investment properties has taken into account a vacancy period ranging from one (1) to three (3) months. There are no rental incentives. The vacancy rate showed a downward trend due to successful efforts to improve letting in assets with the highest vacancy rate. As at 31 December 2012, the Fund had unprovisioned contractual obligations for future repairs and maintenance of 4.6 million (2011: 3.5 million). Direct operating expenses recognised in profit or loss include 1.3 million (2011: 1.2 million) relating to investment property that was vacant. Investment property includes buildings held under finance leases of which the carrying amount is nil (2011: nil). Sensitivity analysis The appraisal of the portfolio implies a net initial yield of 4.0% (2011: 4.0%). If the yields used for the appraisals of investment properties on 31 December 2012 had been 100 basis points higher (2011: 100 basis points higher) than was the case at that time, the value of the investments would have been 19.6% lower (2011: 20.2% lower). In this situation, the Fund s shareholders equity would have been 510 million lower (2011: 545 million lower). The table below presents the sensitivity of the valuation to changes in the most significant assumptions Change rental rates 5% + 5% 5% + 5% Value of the investment property (129,884) 129,884 (132,233) 132,233 Change net initial yield 25 bps + 25 bps 25 bps + 25 bps Value of the investment property 168,762 (168,762) 176,311 (176,311) 81

83 13 Investment property under construction At the beginning of the year 35,600 17,581 Investments 57,870 52,709 Transfer to investment property (30,072) (26,072) Net gain (loss) from fair value adjustments on investment property under construction (3,252) (8,618) At the end of the year 60,146 35, Investment property under construction at fair value 60,146 35,600 Investment property under construction at amortised cost As at 31 December 60,146 35,600 The Fund has an agreement with Bouwinvest Development BV, which develops part of the investment property for the Fund. Investment property under construction relates to De Heelmeesters (Amsterdam) and Breecamp-Oost (Zwolle). Third-party investment property under construction include Deo Neo (Haarlem), Brandevoort (Helmond) and Sterrenbeke (Arnhem). The investment property under construction is valued by external valuation experts. The significant assumptions made relating to the valuations are set out below Gross initial yield 5 6% 5.5 6% Net initial yield 4 5% % Long-term vacancy rate 2.4% 4.5% Long-term growth rental rate 11.3% 2.7% Inflation rate 2.5% 2.3% Estimated average development profit on completion (4.6)% (7.6)% Estimated average percentage of completion 69.8% 31.3% Current average rent ( /m 2 ) 1,020 1,183 Construction costs ( /m 2 ) 2,817 3, Trade and other current receivables Trade receivables 1,845 1,331 Other receivables 790 2,063 Balance as at 31 December 2,635 3,394 82

84 15 Cash and cash equivalents Bank deposits 90,000 Bank balances 26,142 24,623 Balance as at 31 December 26, ,623 The cash and cash equivalents (balance and deposits) were freely available to the Fund as at 31 December Assets held for sale As at 31 December 2012, the Fund held no investment property for sale for which an offer had been received from a third party. At year-end 2011, the Fund held one asset for sale for which an offer from a third party was received, with an assessed fair value of 21.5 million. As set out in Note 25, this property was disposed of in January 2012, realising, after taking attributable expenses into account, a profit on book value of 0.7 million. 17 Equity attributable to shareholders of Bouwinvest Dutch Institutional Residential Fund NV For 2012, before appropriation of profit Attributable to owners of the Fund Issued Share Revaluation Retained Net profit for Total capital premium reserve 1 earnings the year equity Balance at 1 January ,000,000 1,755,661 54,991 (98,893) 98,893 2,810,652 Comprehensive income Net profit 18,790 18,790 Total comprehensive income 18,790 18,790 Other movements Appropriation of profit 98,893 (98,893) Dividends paid (117,794) (35,969) (153,763) Movement revaluation reserve (17,179) 17,179 Total other movements (117,794) (17,179) 80,103 (98,893) (153,763) Balance at 31 December ,000,000 1,637,867 37,812 (18,790) 18,790 2,675, See explanation dividend restrictions in this Note.

85 For 2011, before appropriation of profit Attributable to owners of the Fund Issued capital Share premium Revaluation reserve 1 Retained earnings Net profit for the year Total equity Balance at 1 January ,000,000 1,800,996 40,672 (107,284) 64,328 2,798,712 Reclassification dividends paid (42,956) 42,956 Restated balance 1 January ,000,000 1,758,040 40,672 (64,328) 64,328 2,798,712 Comprehensive income Net profit 98,893 98,893 Total comprehensive income 98,893 98,893 Other movements Appropriation of profit 64,328 (64,328) Dividends paid (2,379) (84,574) (86,953) Movement revaluation reserve 14,319 (14,319) Total other movements (2,379) 14,319 (34,565) (64,328) (86,953) Balance at 31 December ,000,000 1,755,661 54,991 (98,893) 98,893 2,810,652 Dividend restrictions The Residential Fund is subject to legal restrictions regarding the amount of dividends it can pay to its shareholders. Dutch Law stipulates that dividends can only be paid up to an amount equal to the excess of the Fund s own funds over the sum of the paid-up capital, statutory reserves and reserves required by law. The revaluation reserve, being a legal reserve, cannot be freely distributed. Dividends are all payments from the free reserves. The free reserves consist of the share premium and retained earnings. Dividends will consist partly of profits and other payments. In prior years, all dividend payments were booked against retained earnings, resulting in negative retained earnings. In order to further align the processing of the distributable dividends with Dutch Law and taking into account the FII status of the Fund, the distributable dividends are made from retained earnings insofar the retained earnings being the total amount of retained earnings and result for the year are not negative. The remaining amount of legally required distributable dividends is subsequently made from share premium. Any residual negative retained earnings is supplemented from the share premium. Management has retrospectively reclassified and applied the accounting of the distributable dividends within equity in order to further align it with Dutch Law. The retrospective reclassifications resulted in 42,956,000 decrease in share premium and 42,956,000 increase in retained earnings in the opening balance as per 1 January Additionally, it resulted in a 2,379,000 decrease in share premium and 2,379,000 increase in retained earnings during the year 2011, resulting in a cumulative decrease of 45,335,000 in share premium and a cumulative increase of 45,335,000 in retained earnings up to 31 December All reclassifications are made within equity and do not have an effect on the total equity nor have an effect on the result See explanation dividend restrictions in this Note.

86 Share capital and share premium Number of shares in fully paid up equivalents Paid-up share capital Share premium Total share capital and share premium Opening balance at 1 January ,000,000 1,000,000 1,758,040 2,758,040 Dividends paid (2,379) (2,379) Balance at 31 December ,000,000 1,000,000 1,755,661 2,755,661 Opening balance at 1 January ,000,000 1,000,000 1,755,661 2,755,661 Dividends paid (117,794) (117,794) Balance at 31 December ,000,000 1,000,000 1,637,867 2,637,867 Issued capital The authorised capital comprises five (5) million shares each with a nominal value of 1,000. As at 31 December 2012, in total 1,000,000 shares had been issued and fully paid up. Share premium The share premium consists of capital paid on shares in excess of the nominal value. At the establishment of the Fund, the shareholder bpfbouw contributed an investment property portfolio under legal title of share premium. Revaluation reserve The revaluation reserve relates to the revaluation of the property investments. The (unrealised) positive or negative difference between the cumulative increase or decrease in the fair value of the investment property owned at the end of the year has been included in the revaluation reserve. The revaluation reserve as at year-end 2012 was determined at the individual property level. 18 Trade and other payables Trade payables 5,299 4,493 Rent invoiced in advance 1,422 1,273 Tenant deposits 2,659 1,972 VAT payable Other payables 1,012 1,027 Balance as at 31 December 11,180 9,187 The other payables relate to invoices yet to be received for maintenance of and investments in the portfolio. 85

87 19 Earnings per share Basic earnings per share are calculated by dividing the net profit attributable to shareholders by the weighted average number of ordinary shares outstanding during the year Net profit attributable to shareholders 18,790 98,893 Weighted average number of ordinary shares 1,000,000 1,000,000 Basic earnings per share ( per share) The Residential Fund has no potentially dilutive ordinary shares. Therefore, the diluted earnings per share are the same as the basic earnings per share. 20 Dividends per share In 2012, million (2011: 87.0 million) was paid as dividend. The payment of a dividend over 2012 of (2011: 94.70) per share as at year-end 2012, amounting to a total dividend of 93.0 million (2011: 94.7 million), is to be proposed at the Annual General Meeting of Shareholders on 25 April These financial statements do not reflect this dividend payable. The dividend proposal for 2012 has not been accounted for in the financial statements. The dividend for 2012 will be paid in cash. 21 Contingent liabilities and assets As at 31 December 2012, the Fund s total future commitments amounted to 92 million (2011: 74 million). These commitments are made up as follows: Investment commitments Deo Neo, Haarlem 15 1 De Heelmeesters, Amsterdam 13 Meyster s Buiten, Utrecht 10 Brandevoort, Helmond 8 6 Park Lentseveld, Lent 7 Sterrenbeke, Arnhem 3 3 Breecamp-Oost, Zwolle 2 De Vlondertuinen, Rosmalen 6 Forum, Rotterdam The Fund has a contractual agreement with Bouwinvest REIM for an indefinite period in which it has to pay a management fee, based on the assets under management. The notice period is two years.

88 22 Related parties The Residential Fund and members of the Supervisory Board and Management Board of Bouwinvest Real Estate Investment Management BV (Bouwinvest) and the other entities under mangement by Bouwinvest, qualify as related parties of the Fund. A 13.4 million (2011: 13.5 million) fee was paid to Bouwinvest in Bouwinvest Development BV and bpfbouw and the subsidiaries and investments held by bpfbouw are also deemed related parties. Members of the Supervisory Board and Management Board of Bouwinvest do not have any material interest in the Fund s voting shares and do not have options on shares. The Fund has not granted any loans to the members of the Supervisory Board and Management Board of Bouwinvest. The members of the Supervisory Board and Management Board of Bouwinvest held no personal interest in the Fund s investments in The Fund has an agreement with Bouwinvest Development BV, which develops part of the investment property for the Fund. In 2012, 31.9 million (2011: 29.4 million) was paid to Bouwinvest Development BV with regard to the projects Duyfrak (Katwijk) and De Heelmeesters (Amsterdam). 23 Remuneration Bouwinvest is the manager and the statutory director of the Fund. The management fee paid for the year 2012 amounted to 13.4 million (2011: 13.5 million). In consideration of the management activities with respect to the Fund, Bouwinvest receives an annual management fee equal to 0.50% (exclusive of VAT) of the Fund s property value in accordance with the valuation methods of the Fund. The management fee is payable quarterly in advance. The remuneration of the members of the Supervisory Board is included in the management fee paid to Bouwinvest REIM. 87

89 24 Audit fees The table below shows the fees charged over the year 2012 by Deloitte Accountants B.V. and the Deloitte Network (2011: Ernst & Young LLP) in respect of activities for the Residential Fund Audit of the financial statements Other audit engagements Tax advisory services 2 Other non-audit services Total audit fees Subsequent events The Residential Fund has no significant subsequent events that needs to be disclosed. Signing of the Financial Statements Amsterdam, 20 March 2013 On behalf of the Statutory Director Bouwinvest Real Estate Investment Management BV Dick van Hal, CEO and Statutory Director Roel de Weerd, CFO and Statutory Director On behalf of the Supervisory Board of Bouwinvest Dutch Institutional Residential Fund NV Jacques van Ek, Chairman of the Supervisory Board Jean Frijns, Vice-Chairman of the Supervisory Board Marjanne Sint Gerard Groener 88

90 Other information 9 Articles of Association related to the appropriation of profit Appropriation of profit is provided for in Article 23 of the Residential Fund s Articles of Association. This specific article is quoted below The distributable profit shall be at the disposal of the General Meeting for distribution of dividend or in order to be added to the reserves. If the General Meeting has made a decision about profit distribution not later than immediately prior to or after the adoption of the financial statements, the distributable profit will be added to the reserves Distribution of profits shall take place after the adoption of the financial statements which show that the distribution is permitted The General Meeting may resolve to distribute one or more interim dividends and/or other interim distributions. The Management Board may also resolve to distribute one or more interim dividends Dividends shall be payable immediately after they have been declared, unless the General Meeting provides otherwise Distribution to shareholders may be made only to the extent of distributable equity and if an interim dividend is paid, that requirement is met according to an interim financial statement as referred to in Article 2:105 Section 4 of the Dutch Civil Code. The Fund shall deposit the interim financial statements at the offices of the Chamber of Commerce (Commercial Register) within eight days after the date of the decision to make an interim distribution In calculating the appropriation of profits, the shares held by the Fund in its own share capital shall not be taken into account. Appropriation of profit 2011 The Annual General Meeting of shareholders on 25 April 2012 adopted and approved the 2011 financial statements of the Residential Fund. A dividend of (in cash) per share has been paid. The profit for 2011, amounting to 98.9 million, has been incorporated in the retained earnings. 89

91 Proposal for profit appropriation 2012 The management of the Fund proposes to the General Meeting of shareholders that a dividend of (in cash) per share be paid for Of the profit for 2012 amounting to 18.8 million, 18.8 million will be incorporated in the retained earnings. Subsequent events The Residential Fund has no significant subsequent events that needs to be disclosed. 90

92 Independent auditor s report To: The shareholder of Bouwinvest Dutch Institutional Residential Fund N.V. Report on the financial statements We have audited the accompanying financial statements 2012 of Bouwinvest Dutch Institutional Residential Fund N.V., Amsterdam, which comprise the statement of financial position as per December 31, 2012, the statements of comprehensive income, changes in equity and cash flows for the year then ended and notes, comprising a summary of the significant accounting policies and other explanatory information. Management s responsibility Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards as adopted by the European Union and with Part 9 of Book 2 of the Dutch Civil Code, and for the preparation of the Report of the Management Board in accordance with Part 9 of Book 2 of the Dutch Civil Code. Furthermore management is responsible for such internal control as it determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error. Auditor s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. This requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion with respect to the financial statements In our opinion, the financial statements give a true and fair view of the financial position of Bouwinvest Dutch Institutional Residential Fund N.V. as per December 31, 2012 and of its result and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union and with Part 9 of Book 2 of the Dutch Civil Code. 91

93 Report on other legal and regulatory requirements Pursuant to the legal requirement under Section 2:393 sub 5 at e and f of the Dutch Civil Code, we have no deficiencies to report as a result of our examination whether the Report of the Management Board, to the extent we can assess, has been prepared in accordance with Part 9 of Book 2 of this Code, and whether the information as required under Section 2:392 sub 1 at b-h has been annexed. Further we report that the Report of the Management Board, to the extent we can assess, is consistent with the financial statements as required by Section 2:391 sub 4 of the Dutch Civil Code. Amsterdam, March 20, 2013 Deloitte Accountants B.V. Was signed: J. Holland 92

94 Financial overviews in accordance with INREV valuation principles 10 In order to give investors information on the transition from the Net Asset Value (NAV) according to IFRS to the adjusted NAV based on INREV valuation principles, the Fund also publishes the accounts according to the INREV valuation principles. The fundamental assumption underlying the adjusted INREV NAV of the Fund is that it should give a more accurate reflection of the economic value of the Fund and a participation in the Fund as it would be realised by a participant in a theoretical sale, as of the balance sheet date, assuming an arm s length transaction, a willing buyer/seller and an adequate time to market. The adjusted INREV NAV is based on the IFRS valuation principles plus the deviations, as described below. In accordance with the INREV guidelines there is no correction for the distributed dividend as they are not seperately recorded as a liability. This has been adjusted for the comparative figures 2010 and The INREV valuation principles are based on the IFRS valuation principles, with the following differences: All amounts in thousands unless otherwise stated. X Possible impact on NAV and NAV per share N/A Not applicable in 2012 Note Total Per share Actual impact on 2012 figures Actual impact on 2011 figures NAV as per the financial statements x x Yes Yes Effect of exercise of options, convertibles and other equity interests x x N/A N/A Effect of not yet distributed dividend recorded as a liability x x N/A N/A Diluted NAV, after the exercise of options, convertibles and other equity interests and the effect of not yet distributed dividend x x N/A N/A 1 Revaluation to fair value of investment properties x x N/A N/A 2 Revaluation to fair value of development property x x N/A N/A 3 Revaluation to fair value of property intended for sale x x N/A N/A 4 Fair value of property that is leased to tenants under a finance lease x x N/A N/A 5 Transfer taxes and purchaser s costs x x N/A N/A 6 Revaluation to fair value of fixed rate debt x x N/A N/A 7 Deferred tax x x N/A N/A 8 Set-up costs x x Yes Yes 9 Acquisition expenses x x N/A N/A 10 Contractual fees and or any other contingent liability x x N/A N/A 11 Income taxes effect of the adjustments x x N/A N/A 12 Minority interest effects on the above adjustments x x N/A N/A Diluted INREV NAV x x Yes Yes Number of shares/units issued x N/A N/A Number of shares/units issued taken dilution x N/A N/A effect into account YES Impact on INREV NAV in 2012 O/S Outstanding; depending on the events in

95 Statement of financial position in accordance with INREV valuation principles Before appropriation of profit As at 31 December IFRS Adjustment INREV IFRS Adjustment INREV Assets Non-current assets Investment property 2,597,675 2,597,675 2,644,668 2,644,668 Investment property under construction 60,146 60,146 35,600 35,600 Other non-current receivables ,658,082 2,658,082 2,680,294 2,680,294 Current assets Trade and other current receivables* 2,635 1,200 3,835 3,394 1,800 5,194 Cash and cash equivalents 26,142 26, , ,623 28,777 1,200 29, ,017 1, ,817 Investment property held for sale 21,528 21,528 Total assets 2,686,859 1,200 2,688,059 2,819,839 1,800 2,821,639 Equity and liabilities Equity attributable to the owners of the Fund Total equity 2,675,679 1,200 2,676,879 2,810,652 1,800 2,812,452 Current liabilities Trade and other payables 7,099 7,099 5,942 5,942 Rent invoiced in advance 1,422 1,422 1,273 1,273 Tenant deposits 2,659 2,659 1,972 1,972 Total liabilities 11,180 11,180 9,187 9,187 Total equity and liabilities 2,686,859 1,200 2,688,059 2,819,839 1,800 2,821, * The INREV adjustment in the trade and other current receivables is netted.

96 Statement of comprehensive income in accordance with INREV valuation principles As at 31 December IFRS Adjustment INREV IFRS Adjustment INREV Gross rental income 147, , , ,934 Service charge income 2,713 2,713 2,712 2,712 Other income Revenues 150, , , ,892 Service charge expenses (3,495) (3,495) (3,968) (3,968) Property operating expenses (40,984) (40,984) (37,000) (37,000) Other expenses (44,479) (44,479) (40,968) (40,968) Net rental income 106, , , ,924 Profit (loss) on sales of investment property Positive fair value adjustment 6,919 6,919 35,828 35,828 Negative fair value adjustment (81,410) (81,410) (32,105) (32,105) Net valuation gain (loss) on investment property (74,491) (74,491) 3,723 3,723 Administrative expenses (13,975) (600) (14,575) (13,963) (600) (14,563) Profit before finance expense 18,309 17,709 97,157 96,557 Finance expense Finance income ,736 1,736 Net finance expense ,736 1,736 Profit before tax 18,790 18,190 98,893 98,293 Income taxes Net profit 18,790 18,190 98,893 98,293 Other comprehensive income for the year Total comprehensive income for the year 18,790 18,190 98,893 98,293 Net profit attributable to shareholders 18,790 18,190 98,893 98,293 Total comprehensive income attributable to shareholders 18,790 18,190 98,893 98,293 Earnings per share ( ) Basic earnings per share Diluted earnings per share

97 Statement of changes in equity in accordance with INREV valuation principles For 2012, before appropriation of profit Attributable to owners of the Fund Issued capital Share premium Revaluation reserve 1 Retained earnings Net profit for the year Total equity Balance according to IFRS at 1 January ,000,000 1,755,661 54,991 (98,893) 98,893 2,810,652 Changes according to INREV at 1 January ,400 (600) 1,800 Balance at 1 January ,000,000 1,755,661 54,991 (96,493) 98,293 2,812,452 Comprehensive income Net profit 18,790 18,790 Total comprehensive income 18,790 18,790 Other movements Appropriation of profit 98,293 (98,293) Dividends paid (117,794) (35,969) (153,763) Movement revaluation reserve (17,179) 17,179 Changes according to INREV (600) (600) Total other movements (117,794) (17,179) 79,503 (98,893) (154,363) Balance at 31 December ,000,000 1,637,867 37,812 (16,990) 18,190 2,676, See explanation dividend restrictions Note 17.

98 Statement of changes in equity in accordance with INREV valuation principles For 2011, before appropriation of profit Attributable to owners of the Fund Issued capital Share premium Revaluation reserve 1 Retained earnings Net profit for the year Total equity Balance according to IFRS at 1 January ,000,000 1,800,996 40,672 (107,284) 64,328 2,798,712 Reclassification dividends paid (42,956) 42,956 Changes according to INREV at 1 January ,400 2,400 Restated balance 1 January ,000,000 1,758,040 40,672 (64,328) 66,728 2,801,112 Comprehensive income Net profit 98,893 98,893 Total comprehensive income 98,893 98,893 Other movements Appropriation of profit 66,728 (66,728) Dividends paid (2,379) (84,574) (86,953) Movement revaluation reserve 14,319 (14,319) Changes according to INREV (600) (600) Total other movements (2,379) 14,319 (32,165) (67,328) (87,553) Balance at 31 December ,000,000 1,755,661 54,991 (96,493) 98,293 2,812, See explanation dividend restrictions Note 17.

99 All amounts in thousands unless otherwise stated. Notes to the INREV financial statements Total 2012 Per share 2012 Total 2011 Per share 2011 Note NAV as per the financial statements 2,675,679 2, ,810,652 2, Effect of exercise of options, convertibles and other equity interests Effect of not yet distributed dividend recorded as a liability (not included in equity) Diluted NAV, after the exercise of options, convertibles and other equity interests and the effect of not yet distributed dividend 2,675,679 2, ,810,652 2, Revaluation to fair value of investment properties 2 Revaluation to fair value of self-constructed or developed investment property 3 Revaluation to fair value of property intended for sale 4 Fair value of property that is leased out to tenants under a finance lease 5 Transfer taxes and purchaser s costs 6 Revaluation to fair value of fixed rate debt 7 Deferred tax 8 Set-up costs 1, , Acquisition expenses 10 Contractual fees and other contingent liability 11 Income taxes effects of adjustments 12 Minority interest effects on the above adjustments Diluted INREV NAV 2, , ,812,452 2, Number of shares issued 1,000,000 1,000,000 Number of shares issued taking dilution effect into account 1,000,000 1,000,000 1 Revaluation of fair value of investment properties As per 31 December 2012, no adjustment had been made, since all of the Fund s investment properties are already valued at fair value under the fair value option of IAS

100 2 Revaluation of fair value of development properties As per 31 December 2012, no adjustment had been made, since all of the Fund s development properties are already valued at fair value under the fair value option of IAS Revaluation of fair value of property intended for sale Assets in this category are measured under IFRS at the lower of cost or net realisable value in the financial statements. The adjustment represents the impact on NAV of the revaluation of the property intended for sale, measured at cost, to fair value. As per 31 December 2012, no properties intended for sale had been presented that are not included in the fair value of investment property. 4 Fair value of property that is leased out to tenants under a finance lease Property that is leased to tenants under a finance lease is initially measured at the net investment value and subsequently based on a pattern reflecting the constant rate of return. The adjustment represents the impact on NAV of the revaluation of the finance leases to fair value. As per 31 December 2012, no adjustments had been made since no property is held that is leased to tenants under a finance lease. 5 Transfer taxes and purchaser s costs This adjustment represents the positive impact on NAV of the possible reduction of transfer taxes and purchaser s costs for the seller based on the expected sale via the sale of shares. Transfer taxes and purchaser s costs which would be incurred in an asset sale are generally deducted when determining the fair value of the properties. The effect of a possible sale of shares in a property vehicle might be taken into account when determining the deduction of transfer taxes and purchaser s costs (if this lowers the actual transfer tax and/or purchaser s costs to be paid upon sale by the seller). The Fund has no investment property structured in special vehicles. As per 31 December 2012, no adjustments had been made due to the fact that it is impossible to sell investment property via a share deal. Therefore, there is no possibility of an additional reduction of the transfer tax or purchaser s costs that might lead to a higher sales price. 99

101 6 Revaluation of fair value of fixed rate debt Debt is initially recognised at fair value net of transaction costs and subsequently measured at amortised cost using the effective interest method. This adjustment represents the impact on NAV of the measurement of all debt and related (re-)financing expenses to the fair value after first time measurement as at the balance sheet date. As per 31 December 2012, no adjustment had been made, as no fixed rate debt is presented. (Assumption: Fund presents Euribor loans). 7 Deferred tax Under IFRS, deferred tax (assets and liabilities) is measured at the nominal statutory tax rate. How the Fund expects to settle deferred tax is not taken into consideration. This adjustment represents the impact on NAV of the deferred tax for assets and liabilities or financial instruments based on the expected settlement. This should be taken into consideration when tax structures have been applied to reduce tax on capital gains or allowances. Where goodwill is included in the balance sheet as a result of a deferred tax liability that is eliminated following the above-mentioned adjustment, the goodwill related to this deferred tax will be excluded from NAV. The Residential Fund has the status of a fiscal investment institution (0% corporate tax rate). Therefore, no adjustment has been made, as the Fund is exempt from corporate tax payments. 8 Set-up costs Set-up costs (i.e. establishment expenses) are charged immediately to income after the initial closing date. This adjustment represents the impact on NAV of the capitalisation and amortisation of set-up costs over the first five years of the terms of the Fund. When capitalising and amortising set-up costs, a possible impairment test should be taken into account every time the adjusted NAV is calculated when market circumstances change and it is not to be expected that the capitalised set-up costs can be profitable. As per 31 December 2012, an amount of 1.2 million had been charged to the Fund as set-up costs. Calculation adjustment NAV Total set-up costs 3,000 Accumulated depreciation of set-up costs (5 years) 600 Total amortised value as per 31 December ,800 Set-up costs booked directly charged to income as per 31 December ,200 Adjustment NAV (excluding tax) 1,200 Please note that if the Fund manager decides to amortise the expenses over a shorter or longer period than five years, the adjusted NAV is not in line with INREV NAV and is therefore not INREV NAV. 100

102 9 Acquisition expenses Under the Fair Value model, acquisition expenses of investments under the fair value assumptions according to IFRS may be partly charged to income or equity as fair value changes at the first subsequent measurement date after acquisition. This is when the fair value at the moment of measurement is less than the total amount of the purchase value of the assets and the acquisition expenses. This adjustment represents the impact on NAV of the capitalisation and amortisation of acquisition expenses over the period from acquisition of the specific asset until five years after initial closing. When an asset is sold during the amortisation period, the balance of capitalised acquisition expenses is charged to the income statement in the period of sale. When capitalising and amortising acquisition costs, a possible impairment test should be taken into account every time the adjusted NAV is calculated (when market circumstances change). It is not expected that the capitalised acquisition costs can be utilised with the sale of units of the Fund. As per the balance sheet date, no amount had been charged to the Fund as acquisition expenses. Please note that if the Fund manager decides to amortise the expenses over a longer or shorter period than five years, the adjusted NAV is not in line with INREV NAV and is therefore not INREV NAV. 10 Contractual fees and or any other contingent liability A liability represents a present obligation. A fee payable at the end of the lifetime of the Fund or at any other moment during the lifetime of the Fund may not meet the criteria for recognition of a provision or liability in accordance with IFRS at the moment the accounts are prepared. As per the balance sheet date, all contractual fees and contingent liabilities are recognised in accordance with IFRS. The Fund did not enter into any other contractual fees or contingent liabilities that are not presented in the accounts as per the balance sheet date. 11 Income taxes effects of adjustments The Fund is structured as a fiscal investment institution (fiscale beleggingsinstelling, or FII ) within the meaning of article 28 of the Dutch Corporate Income Tax Act 1969 (Wet op de vennootschapsbelasting 1969). An FII is subject to Dutch corporate income tax at a rate of 0%. Therefore, the tax impact on NAV of the above-mentioned adjustments is nil. 12 Minority interest effects on the above adjustments This adjustment represents the impact on NAV of the combined effect of the recognition of minority interests on all the above adjustments (the INREV NAV is net of minority interest). As per the balance sheet date, no adjustment had been made, since the Fund holds no minority interests. 101

103 Independent auditor s report To: The shareholder of Bouwinvest Dutch Institutional Residential Fund N.V. We have audited the accompanying financial overviews 2012 of Bouwinvest Dutch Institutional Residential Fund N.V., Amsterdam, in accordance with INREV Valuation Principles as set out on page 93 up to and including page 101, which comprise the statement of financial position as at December 31, 2012, the statement of comprehensive income and the statement of changes in equity for the year then ended and the notes comprising a summary of the accounting policies and other explanatory information. Management s responsibility Management is responsible for the preparation of the financial overviews in accordance with the INREV Valuation Principles, which are selected and disclosed by the Fund, as set out in the notes on page 93 up to and including page 101 of the financial overviews in accordance with INREV Valuation Principles. Furthermore, management is responsible for such internal control as it determines is necessary to enable the preparation of the financial overviews that are free from material misstatement, whether due to fraud or error. Auditor s responsibility Our responsibility is to express an opinion on these financial overviews based on our audit. We conducted our audit in accordance with Dutch Law, including the Dutch Standards on Auditing. This requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial overviews are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial overviews. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial overviews, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation of the financial overviews in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial overviews. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial overviews are prepared, in all material respects in accordance with the accounting policies selected and disclosed by the Fund, as set out in the notes on page 93 up to and including page 101 of the financial overviews in accordance with INREV Valuation Principles. 102

104 Basis of accounting We draw attention to notes on page 93 up to and including page 101 of the financial overviews in accordance with INREV Valuation Principles, which describes the basis of accounting. The accounting policies used are selected and disclosed by the entity. Our opinion is not qualified in this respect. Amsterdam, March 20, 2013 Deloitte Accountants B.V. Was signed: J. Holland 103

105 Shareholders information & Investor Relations Legal and capital structure Bouwinvest Dutch Institutional Residential Fund NV is a public limited liability company incorporated under the laws of the Netherlands, with its corporate seat in Amsterdam, the Netherlands. Conditional upon the enactment of the financial supervision regime, the Fund is structured as an investment company with variable capital as defined in article 2:76a of the Dutch Civil Code. This regime will come into force when the management company falls under the supervision of the Dutch Financial Markets Authority (AFM). Bouwinvest will apply for a license in accordance with the requirements of the EU directive on Alternative Investment Fund Managers, which is expected to be incorporated in Dutch law in July The Fund s corporate purpose is to invest its assets in accordance with the requirements of the tax regime for a Dutch fiscal investment institution (FII), on the condition that the associated risks are diversified for the purpose of the shareholders sharing in its profits. The Fund s current capital structure is shown in the table below. Shareholders In 2012, the entire share capital was held by bpfbouw. Name shareholder Number of shares at year-end 2012 Stichting Bedrijfstakpensioenfonds voor de Bouwnijverheid (bpfbouw) 1,000,000 Dividend As a result of the Fund s fiscal investment institution (FII) status, Bouwinvest will distribute all of the Net Fiscal Realised Result to its shareholders through four quarterly interim dividend payments and one final dividend payment. The Management Board proposes to pay a dividend of per share for 2012 (2011: 94.70), which corresponds to a pay-out ratio of 100%. It is proposed that the dividend will be paid in cash, within the constraints imposed by the company s fiscal investment institution (FII) status. Of this total dividend, 68.8% was paid out during The fourth instalment was paid on 1 March The remainder of the distribution over 2012 will be paid in one final instalment following the Annual General Meeting of shareholders on 25 April Financial calendar 1 March 2013 Payment interim dividend fourth quarter April 2013 Annual General Meeting of shareholders 1 May 2013 Payment of final dividend June 2013 Payment interim dividend first quarter September 2013 Payment interim dividend second quarter December 2013 Payment interim dividend third quarter December 2013 General Meeting of shareholders 104

106 Fund terms In recent years, the investment market has become an investor market. Therefore, Bouwinvest has, in cooperation with its legal adviser, renewed the fund terms of three Dutch sector funds. The updated fund terms have improved the governance structure and potential liquidity of the funds. The renewed fund terms were adopted by the General Meeting of Shareholders in December Investor relations Bouwinvest aims high levels of transparency in its communication on its financial situation, strategy, plans and other relevant information to its existing and potential investors and other stakeholders. The Management Board, together with the Investor Relations department, is committed to providing shareholders and other stakeholders with information on an equal basis, simultaneously, on time and in a clear and consistent manner. Bouwinvest therefore disseminates this information through various channels including press releases, annual and interim reports, periodicals and public announcements. All of this information is available on the Bouwinvest Investor Web. In addition to its corporate presentations, Bouwinvest can provide investors with several factsheets about the attractiveness of the Netherlands for real estate investments, the three Dutch sector funds and the management company Bouwinvest REIM. The Bouwinvest website was renewed in 2012 and is now focused on information required by investors. In addition to the regular information outlined above, Bouwinvest organised a number of investor relations activities in 2012, such as our traditional investor relations seminar in May, road shows, one-on-one meetings and property tours with (potential) investors, and attended a number of conferences to present and discuss the organisation, as well as its strategy and activities, with (potential) investors. For further information about Bouwinvest s investor relations activities, please contact our Investor Relations department at [email protected]. You can also visit our website at 105

107 Contact information External auditor Deloitte Accountants BV Orlyplein HC Amsterdam The Netherlands Tax adviser Ernst & Young Belastingadviseurs LLP Cross Towers Antonio Vivaldistraat HP Amsterdam The Netherlands Legal adviser and Fund notary DLA Piper Nederland B.V. Amstelveenseweg JJ Amsterdam The Netherlands Real estate notary De Brauw Blackstone Westbroek Claude Debussylaan MD Amsterdam The Netherlands Valuers MVGM Vastgoedtaxaties Stationsplein LE Amersfoort The Netherlands Colliers International Buitenveldertselaan VA Amsterdam The Netherlands DTZ Zadelhoff Apollolaan BG Amsterdam The Netherlands 106

108 Glossary Assets under management Assets under management are the investment properties, properties under construction, the properties held for sale and cash. specific items. The gains on investments, which are added to a so-called reinvestment reserve (herbeleggingsreserve), are not included in the fiscal distributable profits. Capital growth Capital growth to the investor is the INREV total return per year, based on the increase in net asset value. Committed property Property which the Fund or any of the Fund entities has committed to acquire under any binding contractual agreement, arrangement, promise, commitment, contract, instrument or understanding, where such property is not generating income for the benefit of the Fund or any of the Fund entities as of the reporting date. Direct Fund return The direct fund return is the percentage of the generated net cash income over the reporting period, divided by the average net asset value of the fund (INREV methodology). Direct return investment properties Net rental income of investment properties divided by the value of the investment properties, on a monthly basis (IPD methodology). Distributable earnings Distributable earnings is the total rental income net of all expenses, costs, fees (including management fee), financing costs and taxes borne by the Fund, as well as net proceeds from disposals and other income, available for distribution to the shareholders after payment of, or making reasonable reservation for, any obligations, costs and expenses of the Fund. Distributable earnings differs from the fiscal distributable profits. The fiscal distributable profits only include current income (dividends, interest and rental income) and may be adjusted for certain Financial occupancy rate This is the average occupancy rate of the portfolio over the year calculated on the basis of rental revenue according to contracts as at the reporting date, as a percentage of the theoretical rental revenue. Forward acquisitions Forward acquisitions are contractual obligations for the purchase of investment properties, either at a fixed price or for which the purchase price has not been fixed. The committed forward acquisitions are disclosed in the Notes to the statement of financial position and are not capitalised, apart from prepayments and costs incurred directly in relation to the forward acquisition projects, which in these cases are capitalised as assets under construction. The project is classified as investment property after the moment of conveyance. Gross Asset Value (GAV) The gross asset value of a fund is the gross property value plus the value of any further assets at market value as per the chosen valuation principles. Gross initial yield Gross initial yield is the passing rent divided by the property value as per year-end. Gross lettable area Gross lettable area is the total floor area of all investment properties that can be occupied by tenants at the reporting date. Gross rental income The gross rental income is the total contractual rental income over the reporting period. 107

109 Indirect Fund return The indirect fund return is the percentage of the valuation movements over the reporting period, divided by the average net asset value of the fund (INREV methodology). Income return Income return to the investor is the income return per year, based on distributed dividends/capital distributions. The income return per year as a percentage is equal to the distributed dividends/ capital distributions, divided by the net asset value at the beginning of the year, plus any capital calls and less any distributed dividends/capital distributions. INREV applies the definition dividend yield which is the amount of income the Fund distributes to investors as a percentage of the current NAV. Like-for-like gross rental income Like-for-like gross rental income compares the increase of the gross rental income of the portfolio that has been consistently in operation. This is excluding new contracts, vacancy and rental income from properties under construction. Net asset value (NAV) The net asset value is equal to the shareholders equity of the Fund. INREV NAV is equal to IFRS NAV plus INREV adjustments regarding: revaluation to fair value of property intended for sale; revaluation to fair value of fixed rate debt; set-up costs; acquisition expenses. 108 Indirect return investment properties Capital increase of investment properties divided by the value of the investment properties, on a monthly basis (IPD methodology). Indirect return investment under construction Indirect return investment under construction is the indirect result related to investment under construction divided by the average gross asset value at the beginning and the end of the period, plus investments and less transfers to the portfolio. Interest coverage ratio The interest coverage ratio is the earnings before finance expense as a percentage of the finance expense. Investment properties Properties in operation are investment properties that are fully operational on the reporting date. Net asset value per share is the net asset value divided by the number of shares as at the reporting date. Net initial yield This is the net rental income divided by the property value as per year-end. Payout ratio of distributable earnings This is the distributed dividend in the reporting period divided by the distributable income in the reporting period. Physical occupancy rate The physical occupancy rate is the total number of rented unit/ square meters divided by the total number of units/ available square meters. Real Estate Expense Ratio (REER) The real estate expense ratio reflects real estate expenses of the current reporting period (12 months) and is backward-looking. The REER includes the management fees and the fund expenses as a percentage of the weighted average NAV over the year.

110 Reletting and renewal The percentage reletting and renewal is the amount of new rental contracts over the reporting period divided by the total theoretical rent at year-end (contractual rent plus estimated rental value of vacant space). Total Expense Ratio (TER) The total expense ratio reflects the total expenses of the current reporting period (12 months) as a percentage of the weighted average Net Asset Value (NAV) over the period. The TER is backwardlooking and includes the management fee, the Fund expenses, the property specific costs and the service charge shortfall. Total Return On Equity (ROE) Total return on equity is the INREV total return per year (income return plus capital growth). Solvency ratio Solvency ratio is equity divided by total assets. Weighted average cost of debt The compounded total average rate of the interest rates on each external debt instrument in the Fund weighted by the size of such instruments. 109

111 Properties overview All amounts in thousands unless otherwise stated 31 December 2012 No. of residential units Theoretical gross annual rent as per 31 December 2012 Municipality Street name/ property name No. of parking units Year of construction Land ownership Core region Alphen aan den Rijn Kerk en Zanen Freehold Randstad 790 Amersfoort Vathorst Type K Freehold Randstad 657 Amstelveen Westwijk I Freehold Randstad 1,013 Amstelveen Westwijk VI Freehold Randstad 602 Amstelveen Westwijk VIII Freehold Randstad 792 Amsterdam Buitenveldert Leasehold Randstad 3,452 Amsterdam Sloten I Leasehold Randstad 959 Amsterdam Kon. Wilhelminaplein I Leasehold Randstad 1,120 Amsterdam Kon. Wilhelminaplein II Leasehold Randstad 1,270 Amsterdam Sloten II Leasehold Randstad 809 Amsterdam Sloten III Leasehold Randstad 1,794 Amsterdam Sloten V Leasehold Randstad 990 Amsterdam Sloten VI Leasehold Randstad 1,491 Amsterdam Sloten VII Leasehold Randstad 2,444 Amsterdam Sloten VIII Leasehold Randstad 1,286 Amsterdam Sloten IX Leasehold Randstad 1,009 Amsterdam Map II Leasehold Randstad 1,290 Amsterdam Java Eiland Freehold Randstad 8,485 Amsterdam Borneo Eiland Leasehold Randstad 4,660 Amsterdam Oeverpad Leasehold Randstad 1,192 Amsterdam Koploper Leasehold Randstad 4,389 Amsterdam Vaandeldrager Leasehold Randstad 2,511 Amsterdam Winnaar Leasehold Randstad 2,657 Amsterdam Zuidoost Geinwijk Leasehold Randstad 875 Amsterdam Zuidoost Nieuw Gerenstein Leasehold Randstad 1,612 Apeldoorn De Maten I Freehold Mid East 1,274 Berkel en Rodenrijs Parkwijk-Oost Freehold Randstad 783 Diemen Noord II Freehold Randstad 842 Diemen Noord X Freehold Randstad 1,249 Diemen West I Freehold Randstad 687 Diemen West II Freehold Randstad 1,282 Diemen West III Freehold Randstad 1,191 Diemen Noord XV Freehold Randstad 598 Ede Gld West Freehold Mid East 1,069 Eindhoven Gijzenrooi Freehold Brabantstad 590 Gouda Groenhovenpark Freehold Non-core 2,040 Gouda Mammoet Oost Freehold Non-core 1,010 Gouda Goverwelle II Freehold Non-core

112 No. of residential units Theoretical gross annual rent as per 31 December 2012 Municipality Street name/ property name No. of parking units Year of construction Land ownership Core region Groningen Hoornse Meer III Freehold Non-core 1,051 Haarlem Zuidpolder I Freehold Randstad 661 Hoogland De Ham Freehold Randstad 563 Hoogvliet Rotterdam Maaskwadrant Leasehold Randstad 1,103 Katwijk t Duyfrak Freehold Randstad 1,157 Koog aan de Zaan Westerkoog Freehold Randstad 1,886 Leidschendam Heuvelzijde I Freehold Randstad 2,508 Leidschendam Heuvelzijde II Freehold Randstad 787 Lelystad De Tjalk Freehold Non-core 864 Maastricht Boschstraat Oost Freehold Non-core 1,513 Maastricht Belvedere Haven Freehold Non-core 635 Maastricht Cour Renoir Freehold Non-core 987 Nieuwegein Fokkesteeg Freehold Randstad 723 Nieuwegein Batau Noord I Freehold Randstad 2,203 Nieuwegein Galecop I Freehold Randstad 725 Nuenen Langakker I Freehold Brabantstad 892 Roermond Oranjelaan Freehold Non-core 745 Rotterdam Oosterflank Leasehold Randstad 947 Rotterdam Zevenkamp IV Leasehold Randstad 1,170 Rotterdam Noordelijk Niertje Leasehold Randstad 1,663 Rotterdam Prinsenland I Leasehold Randstad 1,384 Rotterdam Prinsenland II Leasehold Randstad 984 Rotterdam Oostplein Freehold Randstad 842 Rotterdam Grindweg Leasehold Randstad 673 Rotterdam Prinsenland III Leasehold Randstad 1,014 Rotterdam Kop van Zuid Leasehold Randstad 3,985 Rotterdam Prinsenparkbuurt Leasehold Randstad 650 Rotterdam Weena Freehold Randstad 1,123 Rotterdam De Witte Keizer Freehold Randstad 1,679 Sassenheim Wasbeek Freehold Randstad 642 The Hague Haags Modehuis Freehold Randstad 743 The Hague CentreCourt Freehold Randstad 1,361 The Hague Riethof Leasehold Randstad 1,223 The Hague Prinsenhof Leasehold Randstad 2,874 The Hague Landouwen I Freehold Randstad 1,572 Utrecht Parkwijk Noord Freehold Randstad 1,041 Utrecht Parkwijk Zuid veld Leasehold Randstad 949 Utrecht Parkwijk Zuid veld Leasehold Randstad

113 No. of residential units Theoretical gross annual rent as per 31 December 2012 Municipality Street name/ property name No. of parking units Year of construction Land ownership Core region Utrecht Terwijde 14/ Freehold Randstad 1,053 Utrecht Langerak II Leasehold Randstad 893 Utrecht Dichterswijk Leasehold Randstad 1,682 Utrecht Parkwijk Het Zand Leasehold Randstad 1,165 Utrecht Tuinpark Leasehold Randstad 3,332 Utrecht De Bongerd I Leasehold Randstad 832 Utrecht Watermolen Leasehold Randstad 1,151 Valkenswaard Brouwerhof Zuid Freehold Non-core 933 Velserbroek Bastion Freehold Randstad 1,236 Venlo Hagerhof West Freehold Non-core 846 Wijk bij Duurstede De Horden Freehold Non-core 781 Zoetermeer Buytenwegh de Leyens I Freehold Randstad 798 Zoetermeer Stadscentrum Freehold Randstad 681 Zoetermeer Rokkeveen Freehold Randstad 925 Zoetermeer Rokkeveen Rad Freehold Randstad 2,135 Zwolle Stadshagen Freehold Mid East 2,056 Zwolle Bewegingshuis Freehold Mid East ,772 4, ,083 Properties < 10 million 2, ,217 Total 14,580 5, ,

114 Key information over three years Balance sheet Total assets 2,686,859 2,819,839 2,804,423 Total shareholders equity 2,675,679 2,810,652 2,798,712 Total debt from credit institutions All amounts in thousands unless otherwise stated Performance per share Dividends (in ) Net earnings (in ) ,33 Net asset value IFRS (in, at year-end) 2, , , Net asset value INREV (in, at year-end) 2, , , Result Net profit 18,790 98,893 64,328 Total Expense Ratio (TER) 0.55% 0.53% 0.54% Real Estate Expense Ratio (REER) 2.05% 1.88% 1.75% Result (% ROE) Income return 3.4% 3.4% 3.4% Capital growth (2.8)% 0.1% (1.1)% Total return 0.6% 3.5% 2.3% Portfolio figures Investment property 2,597,675 2,666, Investment property under construction 60,146 35, Gross initial yield 5.6% 5.4% 5.0% Total number of residential units 14,580 14, Average monthly rent per unit (in ) Financial occupancy rate (average) 97.6% 96.6% 97.0% Reletting and renewals 14.1% 14.8% 14.9% Sustainability (A,B or C - label) 91.0% 82.3% Property performance Direct return investment properties 4.0% 4.0% 4.1% Indirect return investment properties (2.7)% 0.1% (0.9)% Total return investment properties 1.3% 4.1% 3.1% IPD/ROZ residential real estate index (all properties) Direct return investment properties 4.2% 4.1% 4.0% Indirect return investment properties (3.7)% (2.1)% (1.4)% Total return investment properties 0.3% 1.9% 2.5% 113

115 114

116 115

117 Colophon Bouwinvest La Guardiaweg DG Amsterdam Postbus AA Amsterdam The Netherlands t +31 (0) f +31 (0) [email protected] Coordination and editing Bouwinvest and C&F Report Amsterdam B.V. Design C&F Report Amsterdam B.V. Text Bouwinvest Photography Marc Dorleijn, Sjaak Henselmans, Frank van der Pol, Martin Sweers 116 Print Drukkerij Aeroprint, Ouderkerk aan de Amstel

118