Quarterly Report • Oct 14, 2021
Quarterly Report
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| NSI HIGHLIGHTS | 3 |
|---|---|
| SPOTLIGHT: ATLANTA BUILDING | 4 |
| CEO COMMENTS | 7 |
| INCOME, COSTS AND RESULT | 8 |
| REAL ESTATE PORTFOLIO | 9 |
| BALANCE SHEET, NAV AND FINANCING | 11 |
| Publication half year results 2021 | 14 July 2021 | For additional info please contact: |
|---|---|---|
| Publication trading update Q3 2021 | 14 October 2021 | NSI N.V. |
| Publication preliminary results 2021 | 25 January 2022 | Investor Relations |
| Publication annual report 2021 | 4 March 2022 | |
| Publication trading update Q1 2022 | 14 April 2022 | Laura Gomez Zuleta |
| T +31 (0)20 763 0300 | ||
| AGM | 21 April 2021 | E [email protected] |
| Ex-dividend date (final dividend 2020) | 23 April 2021 | |
| Record date | 26 April 2021 | |
| Stock dividend election period | 27 April - 10 May 2021 | |
| Payment date | 13 May 2021 | Publication date: |
| Ex-dividend date (interim dividend 2021) | 18 July 2021 | 15 April 2021 |
| Q1 2021 | Q1 2020 | Change (%) | |
|---|---|---|---|
| Gross rental income | 19,356 | 19,283 | 0.4%2 |
| Net rental income | 13,224 | 14,235 | -7.1%2 |
| Direct investment result | 9,018 | 10,238 | -11.9% |
| Indirect investment result | -392 | -997 | -60.7% |
| Total investment result | 8,626 | 9,242 | -6.7% |
| Earnings per share | 0.45 | 0.49 | -8.5% |
| EPRA earnings per share | 0.47 | 0.54 | -13.6% |
| EPRA cost ratio (incl. direct vacancy costs) | 30.1% | 27.1% | 3.0 pp |
| EPRA cost ratio (excl. direct vacancy costs) | 28.3% | 27.0% | 1.2 pp |
| 31 March 2021 | 31 December 2020 | Change (%) | |
|---|---|---|---|
| Investment property | 1,319,250 | 1,240,192 | 6.4% |
| Net debt | -440,153 | -366,194 | 20.2% |
| Equity | 863,064 | 854,438 | 1.0% |
| IFRS equity per share | 44.74 | 44.29 | 1.0% |
| EPRA NTA per share | 44.87 | 44.44 | 1.0% |
| Net LTV | 33.0% | 29.2% | 3.8 pp |
| Number of ordinary shares outstanding | 19,291,415 | 19,291,415 | |
| Weighted average number of ordinary shares outstanding | 19,291,415 | 19,138,717 | 0.8% |
| 31 March 2021 | 31 December 2020 | D | ||||
|---|---|---|---|---|---|---|
| Offices | HNK | Other | TOTAL | |||
| Number of properties | 43 | 13 | 4 | 60 | 60 | |
| (€m) | ||||||
| Market value3 | 1,005 | 250 | 77 | 1,332 | 1,253 | 6.3% |
| (€m) Annual contracted rent4 |
60 | 19 | 7 | 86 | 84 | 1.5% |
| ERV (€m) | 67 | 23 | 7 | 96 | 93 | 3.3% |
| Lettable area (sqm k) | 302 | 124 | 53 | 479 | 473 | 1.2% |
| Average rent / sqm (€/p.a.) | 210 | 192 | 154 | 200 | 197 | 1.4% |
| EPRA vacancy | 4.6% | 17.6% | 6.6% | 7.8% | 7.0% | 0.8 pp |
| EPRA net initial yield | 4.3% | 4.6% | 5.3% | 4.4% | 4.5% | -0.1 pp |
| Reversionary yield | 6.7% | 9.0% | 9.1% | 7.3% | 7.5% | -0.2 pp |
| Wault (yrs) | 4.5 | 3.2 | 5.0 | 4.2 | 4.0 | 6.0% |
1 The trading update is based on unaudited results.
2 On a like-for-like basis GRI growth is 0.7% negative and NRI growth is 7.6% negative.
3 Reported in the balance sheet at book value including right of use leasehold (IFRS 16), excluding lease incentives and part of NSI HQ (own use).
4 Before free rent and other lease incentives.
The circa 6,500 sqm Atlanta building at Stadhouderskade 5-6 in the city centre of Amsterdam was completed in 1929. Plans dating back to 1919 were to create a hotel on the site, but they were not approved by the municipality. The original development company subsequently went into receivership and in 1926 the site was acquired by the 'N.V. Amsterdamsche Maatschappij tot Exploitatie van Etagewoningen' (AMEE), controlled by Dutch architect F.A. Warners (1888-1952).
The decision was made to build an office instead of a hotel. Whilst the asset is in an excellent central location nowadays, as the city has sprawled over the years, it was a far from ideal office location at the time: it was a relatively fringe location, outside the historic city centre and far from the stock exchange area, where most economic activity was concentrated. AMEE managed to control the rather high development risk by pre-letting part of the building to REO Motor Car Company, an US car manufacturer. At completion in April 1929 the construction costs were 785,000 guilders (356,000 euros).
The foundation stone was laid on March 31, 1928, by Warners' son Allert and his father-in-law Allert de Lange. The building height, originally 10 floors high, was exceptional at the time, as three extra floors were permitted in
Atlanta building in 1931 - unknown photographer via Amstelodamum
exchange for a small strip of land being returned to the municipality. On top of the building, a tower was built adorned by two large wings: the emblem of REO Motor Car Company.
The extra floors lowered the construction and operating costs of the building, supporting the financial case for the building. As a matter of fact, F.A. Warners was far ahead of his time: the property was built on an almost square plot with a concrete structure. This ensured that a flexible layout was possible so that tenants could organise their space according to their own requirements.
REO Motor Car Company leased the basement, ground floor and first four floors. The ground floor was used as showroom for its latest models and the back of the ground floor, two entresol levels and basement as a garage. The large glass facade gave locals the opportunity to catch a glimpse of the latest American cars. Alas, REO would end up only occupying the space for a relatively short period of time. It turned out that the average price tag of a car of 2,000 guilders (900 euro) was far too tall an order for Amsterdammers.
In addition to REO Motor Car Company the building has had many occupiers, larger and smaller, as it was in fact a multi-let building from the start. Major tenants over the years were 'Koninklijke Emballage Industrie van Leer', DAF trucks, whilst the ground floor has also been used by Indonesian Restaurant Raden Mas. Tommy Hilfiger has occupied this building for most of the past two decades, whilst part of the building was also used by Paradiso to stage concerts. Most recently Atlanta has been entirely leased to the international operator WeWork, so the building has come full circle as a flex office.
Main entrance Atlanta in 1932 - unknown photographer via Photo archive F.A. Warners, Amsterdam
The Warners family, having owned the asset since 1929, ultimately sold the building in 1986 and following several subsequent transfers in a relatively short period of time, the building, like many Dutch real estate assets at the time, ended up in Swedish hands in the early 1990's. Eventually the building was transferred to Stena Realty in 1996, at a price of €6.8m. NSI is the 6th owner of the building.
Allert Warners, the original architect's son, in 1955 designed and added an extra floor on top. In 1975 the original 'arched' entrance was renovated into a glass construction. When Tommy Hilfiger vacated the building, the previous owner started a major renovation, adding new elevators and focussing on improving the sustainability of the building. The rear façade has been insulated, window frames were replaced and a heat pump was installed, improving the energy label from F to A. In 2018, the building was classified as a municipal monument by the city of Amsterdam.
On top of this, WeWork has completely redesigned the office space and renovated the installations for enhanced tenant convenience. As such, the historic building has been made future-proof and ready for the new generation of office users. The all-in cost of the recent renovation, including WeWork's additional efforts to improve the quality of the building was circa €12m.
We would like to thank Ons Amsterdam, Bonas, Classic Car Auctions, Delpher, Research Centre Het Nieuwe Institituut, municipality Amsterdam, Amstelodamum and Stadsarchief Amsterdam.
We have started 2021 with renewed energy and are very much looking forward to the end of the global coronavirus pandemic, which appears to be nearing as the vaccine roll-out accelerates globally.
Mid-march we acquired in an off-market transaction three assets, two of which in Amsterdam and one in Rotterdam for €79.8m. The attractive 5.8% gross yield reflects the complexity of the transaction, the speed and deal certainty we were able to offer the seller.
The key asset in the transaction is the 6,500 sqm iconic Atlanta building on Stadhouderskade in the centre of Amsterdam. The building was fully refurbished recently, at a cost of circa €12m, and is now fully let to flexoffice operator Wework on a new 15-year lease.
At Hogehilweg 6 in Amsterdam Zuid-Oost we acquired a small, fully let, office with an interesting future development angle, given that there is lots of residential development activity happening in the surrounding area.
The Rotterdam acquisition, 6,200 sqm of offices at Westblaak 155-189, is 88% let, with one floor vacant. In comparison to our recent disposals in Rotterdam this asset is much better located and offers better space.
During the quarter we sold three smaller assets, a fringe office/industrial asset in Rotterdam, a small office for possible conversion to residential use in The Hague and a very small asset in Hoofddorp. We also agreed to dispose of our two remaining assets in Dordrecht and Delft, with transfer foreseen in Q2. The disposals are on average at a 3,0% premium to the December 2020 book value.
The steady flow of disposals of our remaining non-core assets provides additional capacity for further potential acquisitions. As per the end of March we still have 13 non-core assets to dispose of with a combined book value of €108m, including the two assets with transfer foreseen in Q2 and our two remaining retail assets.
These non-core assets generate, at present, €6.9m in annual net rent. Whilst these assets may appear to offer an attractive yield, we believe the long term total return prospects of NSI are best served if this capital is redeployed into assets with more attractive growth prospects, even if the ingoing yields on these new acquisitions assets are lower.
Following several years of highly active asset rotation our portfolio has significantly improved in terms of location and quality. The portfolio is now 55% located in Amsterdam and the G5 makes up to 89% of assets, including a number of truly iconic assets.
Whilst this has been evident to us as a team, we are cognisant we can (and should) raise awareness of this transition by stepping up our wider efforts to showcase our portfolio to all relevant stakeholders.
In this report we highlight the Atlanta building in Amsterdam, our latest acquisition. We will highlight some of our other buildings in the coming quarters and look to pursue a wider marketing effort of our endeavours.
Rent collection for Q1 is 97.8%. It is 99.7% for offices, 99.3% for HNK and 78.7% for other/retail. In the retail segment we are liaising with our tenants and will look to find a solution with respect to rent outstanding once their stores are back open and we can judge the full extent of the damage to their business and to their prospects.
The vacancy rate for the portfolio increased to 7.8%, up from 7.0% at the end of 2020. The 7.8% vacancy includes 1.7% of strategic vacancy related to HNK Amsterdam Southeast, Leiden and Rotterdam Alexander.
With potentially three development projects breaking ground next year, the team is fully engaged. The zoning process and the final design for the Vivaldi III development are on schedule for a start Q2 next year. The actual decision to start next year will depend on having all relevant stakeholders on board, our balance sheet capacity, the outlook for the economy and prospects for office demand at the time.
The preliminary design phases for both Laanderpoort and Vitrum are set to be completed in Q2 2021. The expected building start date for the Laanderpoort project has moved back a quarter to Q3 2022.
The initial court ruling in H2 2020 for Loon shopping centre in Heerlen in favour of NSI was overturned on appeal in Q1. On external counsel advice on the merits of our legal case we will now lodge an appeal in cassation at the Supreme Court. The dispute is over an insurance claim of circa €12m related to the rebuilding of the shopping centre in 2012. We never accrued this claim in our accounts, prudently, so there is no financial impact as a result of this latest ruling.
The coronavirus pandemic is still having an impact on business. Whilst we may not have much retail exposure left, we genuinely see the pain in the wider retail industry as a result of forced store closures in Q1.
In the office sector we see prospective tenants still delaying decisions and expect the pent up demand to materialise once the economy and social life opens up again - notwithstanding the ongoing debate on the merits of WFH. As such, we remain optimistic about the business and its prospects.
EPRA EPS for Q1 2021 is €0.47 per share, down from €0.54 per share in Q1 2020. The €0.07 fall includes €0.03 in higher maintenance costs, mostly related to activities initiated in 2020, such as works related to new leases or lease extensions signed. The remainder relates to higher property taxes and higher funding costs as a result of a lower level of capitalised interest during the quarter.
We are still comfortable with a forecast for EPRA EPS of €2.25 to €2.35 per share for 2021, underpinned by an almost flat like-for-like NRI for 2021. Having said that, an extended period of economic inactivity related to ongoing coronavirus concerns could still adversely impact this forecast. And, as the team continues to pursue potential acquisitions and disposals, the timing and size of any such deals may also still impact our EPS forecast.
We have initiated a pilot at our Motion Building in Amsterdam Sloterdijk to create a new state-of-the-art office, offering a service level and wider variety of working, meeting and collaboration spaces, incorporating the latest changes in tenant requirements post coronavirus and WFH. This new offering should be up and running by Q1 2022.
In Q1 we completed and internally presented our Paris-proof roadmap. The ambition is for NSI to become CO2 neutral in 2035. We will start to communicate on the main elements of this plan in the period ahead.
Bernd Stahli
EPRA EPS for the first quarter is € 0.47. The EPRA EPS is 13.6% lower compared to last year (€ 0.54). The decrease is largely driven by higher operating costs and higher net financing costs.
Gross rental income is up 0.4% compared to the same period last year, due to letting of Bentinck huis and acquisitions in 2020 and 2021. On a like-for-like basis gross rental income is down 0.7%, driven by a 2.1% like-for-like decrease for the HNK segment. The fall in HNK rents is due to a higher vacancy in this segment, mainly because of the renovation of one of the three buildings of HNK Amsterdam Southeast. The ING agreement to pay half rent for Laanderpoort ahead of the development of this asset has also negatively impacted GRI.
Net rental income is down 7.1% year to date, due to higher operating costs. The NRI margin is down by 5.5 percentage points to 68.3%, On a like-for-like basis net rent is down by 7.6%. Like-for-like net rental income is down in all segments, this is due to higher operating costs driven by higher municipal taxes and higher maintenance costs.
Non-recoverable service charges for the first quarter are up by 12% compared to the same period last year. This is because of higher vacancy in the HNK portfolio (€ 0.1m) and positive one-off effects on HNK service charge reconciliations in Q1 2020.
Operating costs during the quarter are 22% (€ 1.0m) higher compared to the same period last year. This is mainly due to higher municipal taxes (€ 0.5m), of which € 0.3m is related to higher property taxes, which under IFRS are charged in the quarter these are incurred (traditionally Q1). Operating costs were furthermore negatively impacted by a higher level of maintenance costs (€ 0.2m) and higher property management costs (€ 0.1m) compared to Q1 2020.
Administrative expenses are 6.6% (€ 0.1m) lower compared to the first quarter of 2020. This is mainly due to capitalised staff costs related to our development projects (€ 0.1m).
Financing costs are up by 17% (€ 0.3m) compared to last year. This is due to a higher amount of debt outstanding during the quarter (€ 0.1m) and due to a lower level of capitalised interest relating to development projects (€ 0.1m).
The disposal of two assets in Dordrecht and Delft was agreed in Q1. The actual transfer of these assets is foreseen late April, early May.
| Q1 2021 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Offices | HNK | Other | Corporate | TOTAL | TOTAL Q1 | |||
| A'dam | Other NL | A'dam | Other NL | 2020 | ||||
| Gross rental income | 7,376 | 5,920 | 1,116 | 3,251 | 1,694 | 19,356 | 19,283 | |
| Service costs not recharged | -33 | -82 | -49 | -175 | -35 | -374 | -335 | |
| Operating costs | -1,196 | -2,209 | -380 | -1,152 | -822 | -5,758 | -4,713 | |
| Net rental income | 6,147 | 3,629 | 687 | 1,924 | 837 | 13,224 | 14,235 | |
| Administrative costs | -1,874 | -1,874 | -2,006 | |||||
| Earnings before interest and taxes | 6,147 | 3,629 | 687 | 1,924 | 837 | -1,874 | 11,350 | 12,229 |
| Net financing result | -2,331 | -2,331 | -1,989 | |||||
| Direct investment result before tax | 6,147 | 3,629 | 687 | 1,924 | 837 | -4,205 | 9,019 | 10,239 |
| Corporate income tax | -1 | -1 | -1 | |||||
| Direct investment result / EPRA earnings | 6,147 | 3,629 | 687 | 1,924 | 837 | -4,206 | 9,018 | 10,238 |
In Q1 NSI acquired a portfolio of three assets and sold three assets. The portfolio acquired included assets in Amsterdam city centre, Amsterdam Southeast and Rotterdam, for a combined price of € 79.8m. Total disposal proceeds in 21Q1 were € 15m (excluding costs).
The disposals are assets in Hoofddorp, The Hague and Rotterdam, which left the balance sheet in Q1 and on average were sold marginally ahead of the December 2020 book value. Following these transactions, 55% of NSI's portfolio is now located in Amsterdam.
| # Assets | Market | Market | |
|---|---|---|---|
| value | value | ||
| (€ m) | (%) | ||
| Offices | 43 | 1,005 | 75% |
| HNK | 13 | 250 | 19% |
| Other | 4 | 77 | 6% |
| TOTAL | 60 | 1,332 | 100% |
The EPRA vacancy at the end of the quarter is 7.8%, vs 7.0% at the end of 2020. Most of the increase in vacancy comes from HNK and one asset in particular: HNK Southeast. One of three buildings of this HNK has been strategically vacated in its entirety ahead of a refurbishment.
| Dec. 2020 | L-f-l | Other | Mar. 2021 | |
|---|---|---|---|---|
| Offices | 4.2% | 0.6% | -0.1% | 4.6% |
| HNK | 14.9% | 2.7% | 17.6% | |
| Other | 6.9% | -0.3% | 6.6% | |
| TOTAL | 7.0% | 1.1% | -0.3% | 7.8% |
Gross rents are down 0.7% on a like-for-like basis for the quarter. Split by segment, Offices are down 0.3%, HNK 2.1% and Other up 0.4%.
Net rents decreased by 7.6% on a like-for-like basis, with Offices down 7.2%, and HNK and 'Other' down by 8% and 10.8% respectively. While optically a large drop, this figure should not be extrapolated to the full year as the main reason for the decline was a high level of maintenance costs, which just happened to be incurred in Q1, as well as municipal taxes which were 15% higher than last year. Although against the challenging pandemic backdrop the focus will be squarely on tenant retention, we expect like-for-like net rents to be flat for the full year 2021.
| YTD 2021 | YTD 2020 | L-f-l | |
|---|---|---|---|
| Offices | 9.2 | 9.9 | -7.2% |
| HNK | 2.7 | 2.9 | -8.0% |
| Other | 0.8 | 1.0 | -10.8% |
| TOTAL | 12.7 | 13.7 | -7.6% |
The office vacancy increased to 4.6%. The largest contributing factor was the departure of a tenant in Rotterdam Alexander, where we expect to start a refurbishment in the period ahead.
| Mar. 2021 | ||||
|---|---|---|---|---|
| A'dam | Other NL | TOTAL | Dec. 2020 | |
| Number of properties | 18 | 25 | 43 | 43 |
| Market value (€ m) | 630 | 375 | 1,005 | 931 |
| Market value asset (€ m) | 35 | 15 | 23 | 22 |
| Ann. contract rent (€ m) | 34 | 25 | 60 | 58 |
| Average rent / sqm | 232 | 185 | 210 | 206 |
| Reversionary potential | 12.8% | -0.9% | 7.0% | 4.8% |
| Lettable area (sqm k) | 153 | 149 | 302 | 296 |
| Market rent (€ m) | 40 | 27 | 67 | 63 |
| EPRA vacancy | 3.2% | 6.8% | 4.6% | 4.2% |
| EPRA net initial yield | 4.1% | 4.6% | 4.3% | 4.4% |
| Reversionary yield | 6.4% | 7.2% | 6.7% | 6.8% |
| Wault | 4.5 | 4.4 | 4.5 | 4.1 |
The EPRA vacancy rate for HNK is up by 270 bps to 17.6% this quarter. This is mainly the result of HNK Amsterdam Southeast being partially vacated ahead of a major refurbishment, which is expected to complete in December this year. The strategic vacancy is 3.1% as a result, so adjusted for this, the real HNK vacancy is 14.5%. HNK Houthavens also saw a vacancy increase, mostly as a result of the current pandemic impacting the prospects of smaller start-up businesses. Overall, the tenant retention rate during the quarter was strong at 76%.
Managed offices retain their appeal. The EPRA vacancy of Managed Offices at HNK is down to 14.6%, from 15.3% at 31 Dec 2020. Net new take-up was up circa 124% by number of contracts (47 new contracts vs 21 same period last year) and 140% by contracted rent.
| A'dam | Other NL | TOTAL | Dec. 2020 | |
|---|---|---|---|---|
| Number of properties | 3 | 10 | 13 | 13 |
| Market value (€ m) | 90 | 160 | 250 | 249 |
| Market value asset (€ m) | 30 | 16 | 19 | 19 |
| Ann. contract rent (€ m) Average rent / sqm |
5 235 |
14 181 |
19 192 |
19 190 |
| Reversionary potential | 7.7% | -6.0% | -2.4% | 0.4% |
| Lettable area (sqm k) | 27 | 96 | 124 | 124 |
| Market rent (€ m) | 7 | 16 | 23 | 23 |
| EPRA vacancy | 21.7% | 15.9% | 17.6% | 14.9% |
| EPRA net initial yield Reversionary yield |
3.4% 7.3% |
5.2% 9.9% |
4.6% 9.0% |
4.3% 9.2% |
| Wault | 2.5 | 3.4 | 3.2 | 3.2 |
The EPRA vacancy for the segment Other is down by 30bps to 6.6% in Q1. Like-for-like net rents are down 10.8% due to higher operating costs mainly doubtful debtors (due to the pandemic effect on retail) as well as higher taxes.
Net debt is up by € 74.0m compared to the end of December 2020. This is primarily due to the acquisition of a portfolio containing three assets in mid-March and capital expenditures, and is partially offset by disposals and retained earnings.
Taking into account debts to credit institutions at the end of March 2021, NSI has circa € 175m of cash and committed undrawn credit facilities at its disposal. This ensures sufficient flexibility and capacity to fund the development pipeline and selective further acquisitions.
| Mar. 2021 | Dec. 2020 | D | |
|---|---|---|---|
| Debt outstanding | 436.9 | 367.1 | 69.8 |
| Amortisation costs | -1.1 | -1.1 | 0.1 |
| Book value of debt | 435.9 | 366.0 | 69.9 |
| Cash and cash equivalents | -0.1 | -0.2 | 0.0 |
| Debts to credit institutions | 4.4 | 0.4 | 4.0 |
| Net debt | 440.2 | 366.2 | 74.0 |
Leverage and hedging
The LTV is 33.0% at the end of March 2021, up 3.8 percentage point compared to December 2020 (29.2%), driven by the increase of net debt as a result the acquisition of new assets during the period.
The ICR stands at 5.7x at the end of the first quarter of 2021 compared to 7.2x at the end of December 2020. As municipal taxes are generally charged in the first quarter, net operating income and thus the ICR tend to be lower in the first quarter of the year. The ICR remains well above the 2.0x covenant.
| Covenant | Dec. 17 | Dec. 18 | Dec. 19 | Dec. 20 | Mar. 21 | |
|---|---|---|---|---|---|---|
| LTV | ≤ 60.0% | 36.9% | 36.9% | 27.4% | 29.2% | 33.0% |
| ICR | ≥ 2.0x | 4.7x | 5.5x | 6.8x | 7.2x | 5.7x |
NSI is using swaps to hedge interest rate risk on variable rate loans. Funds for the acquisition of three assets were drawn on the RCF, as a result of which the volume hedge ratio at the end of March 2021 is 73% (target range: 70-100%).
At the end of March 2021 the average loan maturity is 4.6 years (December 2020: 5.2 years) with no loans maturing until 2023. At yearend 85% of debt drawn is unsecured (89% of available debt). The average cost of debt is stable at 2.0%.
The weighted average maturity of both the derivatives and the fixed rate debt is circa 5.2 years at the end of March 2021 and the subsequent maturity hedge ratio is 113% (target range 70-120%).
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