Annual / Quarterly Financial Statement • Jan 29, 2019
Annual / Quarterly Financial Statement
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| NSI KEY FIGURES3 | |
|---|---|
| CEO COMMENTS 4 |
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| IN FOCUS: FLEX OFFICES/HNK & SUSTAINABILITY5 | |
| INCOME, COST AND RESULTS 6 |
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| NETHERLANDS PROPERTY MARKET OVERVIEW7 | |
| REAL ESTATE PORTFOLIO8 | |
| BALANCE SHEET, NAV AND FINANCING 12 |
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| CONSOLIDATED FINANCIAL INFORMATION 13 |
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| EPRA KEY PERFORMANCE MEASURES19 | |
| GLOSSARY 21 |
| Publication annual report 2018 | 6 March 2019 | For additional information contact: |
|---|---|---|
| Publication trading update Q1 2019 | 17 April 2019 | NSI N.V. |
| Publication annual half year results 2019 | 18 July 2019 | Investor relations |
| Publication trading update Q3 2019 | 17 October 2019 | |
| Publication final results 2019 | 28 January 2020 | Dirk Jan Lucas |
| T +31 (0)20 763 0368 | ||
| AGM | 17 April 2019 | E [email protected] |
| Ex-dividend date (final dividend 2018) | 23 April 2019 | |
| Record date | 24 April 2019 | Publication date: |
| Stock dividend election period | 25 April - 9 May 2019 | 29 January 2019 |
| Payment of final dividend | 14 May 2019 | |
| Ex-dividend date (Interim dividend 2019) | 22 July 2019 |
| 2018 | 2017 | Change (%) | |
|---|---|---|---|
| Gross rental income | 83,721 | 89,000 | -5.9%2 |
| Net rental income | 69,228 | 74,468 | -7.0%2 |
| Direct investment result | 48,745 | 49,365 | -1.3% |
| Indirect investment result | 42,780 | 42,237 | 1.3% |
| Total investment result | 91,525 | 91,602 | -0.1% |
| Earnings per share | 4.95 | 5.05 | -1.9% |
| EPRA earnings per share | 2.64 | 2.72 | -3.1% |
| Dividend per share3 | 2.16 | 2.16 | 0.0% |
| EPRA cost ratio A (incl. direct vacancy costs) | 26.5% | 26.5% | 0.0 pp |
| EPRA cost ratio B (excl. direct vacancy costs) | 25.0% | 24.3% | 0.7 pp |
| 31 December 2018 | 31 December 2017 | Change (%) | |
|---|---|---|---|
| Investment property | 1,202,691 | 1,072,180 | 12.2% |
| Assets held for sale | 3,940 | 28,791 | -86.3% |
| Net debt | -447,909 | -408,453 | 9.7% |
| Equity | 733,283 | 672,688 | 9.0% |
| IFRS equity per share | 39.48 | 36.63 | 7.8% |
| EPRA NAV per share | 39.75 | 36.66 | 8.4% |
| EPRA NNNAV per share | 39.20 | 36.13 | 8.5% |
| Net LTV | 36.9% | 36.9% | 0.0 pp |
| Number of ordinary shares outstanding | 18,574,298 | 18,364,998 | 1.1% |
| Weighted average number of ordinary shares outstanding | 18,473,101 | 18,133,178 | 1.9% |
| 31 December 2018 | |||||
|---|---|---|---|---|---|
| Offices4 | HNK | Other | TOTAL | ||
| Number of properties | 67 | 14 | 14 | 95 | 126 |
| 5 Market value (€m) |
881 | 210 | 124 | 1,214 | 1,108 |
| Annual contracted rent (€m)6 | 59 | 17 | 11 | 87 | 87 |
| ERV (€m) | 68 | 23 | 11 | 102 | 105 |
| Lettable area (k sqm) | 394 | 127 | 81 | 603 | 676 |
| EPRA Vacancy Rate | 11.1% | 23.2% | 11.2% | 13.8% | 18.4% |
| WAULT (years) | 4.6 | 3.2 | 5.1 | 4.4 | 4.7 |
| Average rent psm (€ p.a.) | 179 | 188 | 165 | 179 | 169 |
| EPRA net initial yield | 5.1% | 4.6% | 6.9% | 5.2% | 5.5% |
1 Based on unaudited figures
6 Before rent free and other lease incentives
2 On a like-for-like basis GRI growth is 0.0% and NRI growth is -0.7%
3 Dividend proposal for 2018, of which €1.04 already paid as interim dividend in August 2018
4 Lange Voorhout, classified as investment property under construction, excluded from ERV and EPRA vacancy
5 At market value; reported in the balance sheet at book value excluding lease incentives and part of NSI HQ in own use
We are now two years into the new strategy we announced in early 2017, to become the leading specialist in the Dutch office market with a strong platform, pro-active asset management, value-add initiatives and active capital recycling.
During these two years we completed €300m in acquisitions and €363m in disposals and are down to around €200m (17% of assets) in remaining non-core assets, which we intent to gradually exit in the coming years. The portfolio is now 80% located in our focus markets, with 45% situated in Amsterdam. Meanwhile, we have significantly improved the operational performance and have built up a promising pipeline of developments and value-add initiatives.
We have made good progress in reducing the vacancy. The 13.8% vacancy rate at year-end 2018 is down 4.6% over the year, including a 2.0% like-for-like contribution. The vacancy rate remains a key focus. We continue to aim for below market vacancy in the medium term and an overall vacancy rate of below 10% by 2020. The vacancy for the office portfolio is already down to 11.1% at year-end 2018 and for the G4 it is already close to equilibrium at 7.2%.
The FY 2018 EPRA EPS of € 2.64 is substantially impacted by the high level of asset rotation, with a concentration of disposals near the year-end, but also by a large number of positive and negative oneoffs. The net effect of all these one-offs is € 0.12 (negative) and includes a paid lease termination fee, the service cost reconciliation, the release of provisions and a IFRS9 impact relating to refinancing.
In 2018 we sold 35 assets for €122m, including 18 assets with an asset value below €2m, and have exited another 18 cities. We acquired four assets and are now down to 95 assets in total. Both the number of assets and cities will see a further decline in 2019. We still own 35 assets with a value below €5m, so there is still room to rationalise and improve the operating efficiency of the portfolio.
The Dutch office cycle is maturing. The market for prime assets is still healthy and liquid, with capital values well underpinned due to a continued influx of - mainly - foreign money on relatively modest return requirements. Having said that, the yield shift appears to be coming to an end and the outlook for capital values is now increasingly reliant on the outlook for rental growth.
The divergence between prime and secondary assets is set to widen in 2019, as financing for secondary assets in provincial locations is proving harder to obtain and if available, more expensive. This underpins our case to further geographically focus the portfolio.
Whilst we still see opportunities to acquire interesting assets at what we believe are attractive IRRs, we remain disciplined and expect the balance of our deal volume to shift to disposals in 2019. This should see us move the LTV to below 35%, from 36.9% at year-end 2018.
We believe a lower LTV is warranted at this time, to offset the higher balance sheet risk related to an increasing exposure to development cap ex in the period ahead. This will come at a cost to EPS in the short run, but ultimately create a more stable business in the long run and should also result in development profits to compensate.
The discussions with ING on the redevelopment of Laanderpoort are ongoing. A mid 2020 start date to create 30,000 - 35,000sqm of new offices is still achievable. The renovation of Bentinck Huis in The Hague is on track for delivery Q1 2020 and we are already seeing good indicative interest for all or part of the project. We are making very preliminary preparations for a potential redevelopment at Centerpoint in Amsterdam, although at this stage it is still uncertain whether this is a project for this cycle or the next.
We have the balance sheet capacity to absorb the potential €120m+ capex for Laanderpoort, even before further disposals of additional retail assets and provincial offices in 2019. The Laanderpoort project will have to be substantially de-risked, however, before any further projects can and will be committed to.
We have the team in place and the business is increasingly moving to where we want it to be in terms of portfolio focus, balance sheet, operating performance and embedded value-add potential.
With a successful restructuring now behind us the business is clearly scalable from here. We could easily accommodate a doubling in the size of the portfolio to more than €2bn without any significant expansion of the team. Having said that, growth for the sake of growth makes no sense and is not our objective.
There are, however, some clear benefits to scale. Our EPRA cost ratio will only fall materially from here if we can spread the costs over a larger asset pool. In addition, a larger portfolio would allow us to consider a larger absolute development or value-add programme, take on larger assets, further reduce funding costs and improve the still relatively modest liquidity in the shares.
The current EPRA cost ratio of 26.5% may appear high relative to some of our listed European peers, but this is almost entirely due to the relatively small portfolio size of NSI and the exposure to HNK, our flex office service concept.
We are really pleased that we have managed to keep EPRA EPS more or less stable in recent years, even though we have substantially upgraded the quality of the portfolio and significantly reduced the risk profile - moving NSI from a passive dividend distribution model to a more pro-active total return model.
As we continue to optimise the portfolio in 2019, we will be selling off more of our remaining non-core assets, including some high yielding provincial assets. We are unlikely to compensate entirely for the resulting income loss with our operating performance (i.e. vacancy reduction and efficiency gains). We anticipate an EPRA EPS for 2019 in the range of € 2.40 - 2.50. The actual outcome will depend on the timing and size of any acquisitions or disposals.
Given the good health of the business and the positive outlook we will propose that the AGM keep the dividend level over 2018 stable at € 2.16, meaning a final dividend of € 1.12 per share.
Bernd Stahli
In the product life cycle of flex offices, we are now in the growth stage. Whilst the barriers to entry remain low, we see hardly any new entrants with a new innovative product or concept anymore. Most operators now offer more or less the same product, albeit with an individual twist. Many of the larger traditional landlords have stepped up and now also offer an in-house flex office product or are in the process of establishing one.
Once a product or service becomes commoditised the only way to really compete is on price. There is, however, limited competition on price at this point. This is probably because the flex market is still growing in a strong economic environment and because pricing is non-transparent as everyone includes different types and levels of services in the price. Price differentiation and transparency will improve as the flex office industry eventually becomes more mature.
For some operators the game will be to grow and gain market share as quickly as possible, establish brand value and then exit. Some are genuinely in it for the long run. We expect consolidation in the flex industry, especially in the next down cycle. The viable flex business models will come out stronger and this will allow the industry to move to a form of equilibrium, both for the flex office market itself and in relation to the more traditional office market. Asset-rich flex operators with a strong balance sheet are likely to come out on top.
In time the boundaries between the flex office market and the more traditional office market will blur. In fact, they are already blurring, as flex offices are no longer just used by start-ups or scale-ups, but also by larger corporates or temporary project teams at these larger corporates. In addition, many flex office users tend to stay much longer than one would expect from a short term flex lease, sometimes nearing or exceeding the traditional 5-year lease term.
NSI has six years of in-house experience and data from running flex offices through its HNK brand, learning some valuable lessons along the way. We have seen customer demand evolve and have adopted our HNK offering accordingly. We have stopped the sizeable roll-out plans we had in 2015/16 and are now very selective in where we open new HNKs. Our focus is first and foremost on the G4 markets.
In recent years we have been adjusting the mix of flex space and more traditional leased floors to accommodate the growing demand for managed offices. We are now also seeing an increase in demand for fully serviced larger floors, mostly from larger corporates. Being the owner and operating the entire building is proving a key benefit relative to flex operators that only run a few floors in a building, as we can be more flexible in meeting changes in demand.
In 2019 we will continue to review and improve our HNK offering and the organisational set-up. One of the questions that need to be answered this year is how our strategy of focussing only on seven cities fits with our existing wider network of HNK locations. We will have to judge if provincial HNK locations contribute to the franchise value and generate sufficient excess return to compensate for what otherwise will be a modest property return, relative to our focus markets.
Since announcing the new strategy at the start of 2017 we have been active on all fronts to improve the business. In communications to date the focus has been on our strategy and progress, so as to not dilute the message. We have not been very vocal about our sustainability initiatives, except for stating that we are well on track to meet the minimum C-label EPC energy certificate requirement by 2023.
In 2018 we started to work on a future proof ESG programme. As NSI is a small organisation we have used an external advisor to provide the relevant support and manpower to help put together a detailed and ambitious programme.
Everyone at NSI has been involved in establishing the ESG programme. We have considered the UN Sustainable Development Goals and have engaged with external stakeholders to come up with what we believe is a well-rounded programme. The three overarching sustainability priorities we have identified are: Future Proof Buildings, Energy & Carbon and Health and Well-Being.
Our sustainability ambitions clearly go much further than scoring on government-imposed minimum energy labels. To measure and judge our programme and impact we have decided to focus on the GRESB benchmark. We will publish our first GRESB score in 2019. This will provide us with a base score and allow us to set a clear and realistic path for the years ahead, in line with our ambitions.
The team fully recognises that this programme and our participation in GRESB will take time and effort to fully implement and see effects, but it is a way of working that we have already fully embraced. Our recent initiatives reflect this.
Over the past four years we have fully renovated around 80,000 sqm of office space, including a full upgrade of the lighting with 25,000 LED units with motion sensors. We have also started to minimise gas usage and over 40% of the portfolio by sqm is using sustainable district heating, heating pumps or ATES systems. We are committed to increasing the use of sustainable solar energy but due to our recent disposals only 2.4% of our electricity usage is currently generated this way.
The forthcoming 2018 annual report will include more details about our sustainability ambitions.
EPRA EPS for FY 2018 is € 2.64, a 3.1% decline versus last year. The result is nine cents above the upper limit of the guidance range primarily due to positive one-off service charge reconciliations from prior years (€1.3m) incurred in Q4 2018. The combined effect of all the positive and negative one-offs in 2018 is a negative €0.12 per share.
The indirect result is €42.8m or €2.32 per share. A €47.2m positive revaluation of investment property is the largest contributor. A €4.5m movement in the market value of financial derivatives has the biggest negative impact.
Gross rental income is down by 5.9%, largely due to the effect of net disposals in 2017. On a like-for-like basis GRI is flat, negatively impacted by a one-off lease termination fee.
In October a €2m lease termination fee was paid to a tenant in Amsterdam. This has a negative impact on the direct results as it is part of GRI. However, this cost is entirely compensated for by an indirect revaluation result of €3.1m for this asset in 2018, having in effect terminated a 25-year lease contract that was at a rent level far below ERV.
Net rent declined 7.0% due to a deterioration of the NRI margin because of higher operating costs. On a like-for-like basis net rents fell 0.7% (-€0.3m) due to the one-off lease termination fee in Q4 and a relatively high level of positive one-offs in 2017.
Non-recoverable service costs are down €0.8m (40%) due to a lower overall vacancy rate, better cost controls and one-off releases of provisions of previous years.
Operating costs are up €0.8m (6.4%) compared to FY 2017. The NRI margin of 82.7% is 1% lower than last year. Higher municipality costs negatively impacted the operating costs, mainly because of positive one-offs (€1.0m) in 2017.
The NRI margin is better than expected due to lower maintenance costs. Some maintenance has been deferred into 2019 due to longer waiting times for contractors. This could impact the margin in 2019.
Administrative costs are down 13.3% to €8.0m. The majority of the savings comes from lower staff costs (-20.3%). The restructuring and cost cutting is now largely complete and efficiencies going forward have to come from scaling up the business.
Net direct financing costs are down by €3.4m (21.1%) due to lower interest rates post the refinancing. The cost of debt fell from 2.3% at the end of 2017 to 2.0% at the end of 2018. These costs include a negative IFRS 9 one-off of €2.1m following the refinancing of the syndicated bank facility in April. Hence with similar debt levels we expect financing costs to drop further in 2019.
Since the year-end smaller office assets in Capelle a/d IJssel, Ridderkerk and Zoetermeer (2x) and a small retail asset in Zutphen have been sold unconditionally. The transfer of all these assets, with a combined value of €14m, will take place in Q1 and Q2 2019. These assets are, on average, sold at a premium to the book value per December 2018.
| Offices | HNK | Other | Corporate | TOTAL 2018 | TOTAL 2017 | |
|---|---|---|---|---|---|---|
| Gross rental income | 53,437 | 15,364 | 14,920 | 83,721 | 89,000 | |
| Service costs not recharged | -993 | -61 | -183 | -1,237 | -2,075 | |
| Operating costs | -6,554 | -4,771 | -1,933 | -13,256 | -12,457 | |
| Net rental income | 45,890 | 10,532 | 12,806 | 69,228 | 74,468 | |
| Administrative costs | -7,950 | -7,950 | -9,170 | |||
| Earnings before interest and taxes | 45,890 | 10,532 | 12,805 | -7,949 | 61,279 | 65,297 |
| Net financing result | -12,506 | -12,506 | -15,859 | |||
| Direct investment result before tax | 45,890 | 10,532 | 12,805 | -20,455 | 48,773 | 49,438 |
| Corporate income tax | -28 | -28 | -15 | |||
| Direct investment result after tax | 45,890 | 10,532 | 12,805 | -20,483 | 48,745 | 49,423 |
| Direct investment result - discontinued | -58 | |||||
| Direct investment result / EPRA earnings | 45,890 | 10,532 | 12,805 | -20,483 | 48,745 | 49,365 |
The Dutch property investment market witnessed another record year of transactions in 2018, with around €21.0bn of deals. The deal volume for offices was lower at €5.8bn (€7.7bn in 2017).
There were fewer large office transactions in 2018 compared to 2017, both individual transactions and with regard to portfolios, particularly in the Amsterdam market, largely as a result of a reluctance by owners to sell in a market that is still improving. As a result, investor interest has spilled over into Rotterdam and The Hague, both of which have seen a significant pick up in volume.
Investors are also moving to provincial locations in search of returns that are no longer attainable in Amsterdam or in the G4, in the expectation that the office market recovery will broaden and that tenant demand will start to pick up in these locations as well.
The investment market is set to become increasingly polarised in 2019. In addition to the normal economic divergence between the G4 and provincial locations, driving rental divergence, there is now also a clear divergence in the financing market. Q3 2018 saw some local Dutch banks restrict their lending capacity for smaller provincial noninstitutional investment product. This is not a temporary restraint on the side of the banks, in our view.
The Dutch office stock is estimated at 53.5m sqm at year-end 2018, with a vacancy rate of circa 10.0%. This is down from 11.5% in 2017. The net effect of withdrawals, conversions and new supply has been relatively modest, so the fall in the vacancy rate reflects positive net absorption.
The vacancy rate in the G4 is currently around 6.5%, with Amsterdam, The Hague and Utrecht clearly stronger than Rotterdam. Outside the Randstad urban area there are few pockets of growth, such as Eindhoven, but in most provincial markets it very much remains difficult with limited net new tenant demand.
The office market ends 2018 on a high, with yields at record lows and rents at a high. 2018 brought a further yield shift as investors have started to price in further rental growth. With new supply slow to come through, as construction costs remain high and planning difficult, the outlook for rents is favourable indeed.
It will be interesting to see how and if the expected rental growth will drive yields and capital values going forward, as part of this growth has already been priced in. There is still an influx of foreign investors with relatively modest return requirements in search of the relative safety of limited supply in combination with healthy demand. This will keep capital values underpinned.
The vacancy rate in the Amsterdam market has fallen to 5.1%, with prime rents having surpassed €500psm in both the city centre and the Zuidas business district. At the end of 2018 Amsterdam has only three buildings with 5,000sqm of supply immediately available. Larger tenants now need to plan substantially ahead.
The Utrecht CBD office market is by far the strongest after Amsterdam, well ahead of The Hague or Rotterdam. This market has historically been largely dependent on public sector-related users, but its appeal has substantially widened in recent years, attracting a large number of corporates, who recognise and appreciate its very central location, its proximity to Amsterdam and its excellent public transport infrastructure.
The dynamics of this market are set to change substantially in the next few years, as the current relatively modest office stock of 0.8m sqm will expand by 0.2m sqm, with a significant development programme in place around the Utrecht CS train station. Utrecht can easily absorb this space, with a part of it already pre-let. We are concerned that this will weaken demand for more suburban markets.
Prime office rents in the CBD are circa €275psm, up from €225psm a year ago. Office rents for the immediate vicinity have increased to nearer €225psm. The vacancy rate in the CBD market is circa 5.3%. The prime yield in Utrecht now is nearing 4.5%.
The Rotterdam office market sprung back to life in 2018. A pick up in tenant demand led the way, with net absorption in 2018. Transaction levels are also up as owners were offered acceptable prices from buyers, either believing in the recovery or under pressure to invest. This trend is likely to continue in 2019.
Rotterdam remains a market for smaller local occupiers. Many larger corporates have moved out in the past two decades and have not been replaced. A combination of further office conversions and more residential development, with circa 18,000 residential units foreseen, should see Rotterdam become a more balanced, structurally sound market in the coming years.
At the end of 2018 the vacancy rate is still relatively high at circa 11.4%, down from nearer 15% a year ago. ERVs are flat, at €225psm for prime space, but incentives are starting to come down marginally. Prime office yields are circa 4.5%.
The office market has had a good 2018. Confidence has returned, as a number of investment and letting transactions confirmed the health of the market. Rents are up, to circa €225psm, the vacancy rate is down to circa 6.1% and yields are now below 5% for prime assets.
There are substantial plans to add a large number of residential units around the two major train stations. These are long term plans, many of which will happen in the next cycle, but it signals a positive trend in which The Hague will eventually become a more vibrant and interesting market, much less dependent on the public sector as the major driver of activity.
The retail market remains difficult. Healthy demand for prime assets remains, but tenant and investment demand for secondary product is limited so tenants and buyers can afford to be selective.
NSI sold 35 assets and acquired four in 2018, reducing the number total of assets to 95. In total 30 offices, four retail assets and one industrial asset were sold. On balance NSI was a net buyer of assets with disposals of €122m and acquisitions of €150m (excl. costs).
Disposals were sold on average at a 2% premium to book value. Non-core assets are down to circa €200m. These assets are retail assets and offices which are too small or not in one of NSI's target cities.
| # Assets | Net sales proceeds / total |
Book profit / (loss) |
Net contract rent |
|
|---|---|---|---|---|
| purchase cost | Dec 17 | |||
| Offices disposals | 30 | 70.9 | 1.7 | 5.0 |
| Other disposals | 5 | 49.9 | -0.9 | 3.9 |
| Total disposals | 35 | 120.7 | 0.8 | 8.9 |
| Offices acquisitions | 4 | 160.6 | -1.19 | 6.010 |
| Total acquisitions | 4 | 160.6 | -1.1 | 6.0 |
| Delta | -31 | -39.9 | -0.3 | -2.9 |
At the end of 2018 Offices and HNK make up 90% of the value of the portfolio. The average asset value now stands at €12.8m, up 45% from 31 December 2017. At the year-end NSI has two unconditional disposals on its books shown as "Assets held for sale". Both are office assets, one in Arnhem and the other in Rotterdam.
| # assets | Value €m | Value % | |
|---|---|---|---|
| Offices | 65 | 877 | 73% |
| HNK | 14 | 208 | 17% |
| Other | 14 | 124 | 10% |
| Total investment properties | 93 | 1,209 | 100% |
| Held for sale | 2 | 4 | 0% |
| Total portfolio | 95 | 1,213 | 100% |
The EPRA vacancy rate is 13.8%, down 4.6% from the end of 2017. The drop is the result of a mix of net lettings, asset rotation and ERV changes. The improvement in the like-for-like for offices fully reflects the efforts of the new team. In HNK the 2.2% non like-for-like change is due to HNK Schinkel which opened in June 2018 and is not included in the like-for-like for 2018.
| Q4-17 | LFL | Non-LFL | Dec 18 | |
|---|---|---|---|---|
| Offices | 15.9% | -1.7% | -3.0% | 11.1% |
| HNK | 29.8% | -4.4% | -2.2% | 23.2% |
| Other | 14.0% | 0.3% | -3.1% | 11.2% |
| Total portfolio | 18.4% | -2.0% | -2.6% | 13.8% |
| Offices + HNK | 19.2% | -2.3% | -2.7% | 14.2% |
7 Acquisitions at Dec-18 book value
8 Including sales and acquisition costs
9 Small loss, net effect of transfer costs and revaluation result at Year End
10 Net contracted rent expected to increase to € 9m when fully let
Net rents are down 0.7% on a like-for-like basis. A negative one-off lease termination fee of €2m in one of our Amsterdam offices has a significant negative impact. Excluding one-offs like-for-like net rental growth would have been positive 3.0%. The margin excluding oneoffs is 80.5%.
For HNK the 31.9% increase in like-for-like rents is due to the high operational leverage of this business and strong improvements in occupancy levels over the past year. This will have a positive effect on LFL net rental growth in 2019.
| YTD 2018 (€m) |
YTD 2017 (€m) |
Change (€m) |
L-f-l (YTD) % |
|
|---|---|---|---|---|
| Offices | 29.4 | 32.1 | -2.7 | -8.4% |
| HNK | 10.5 | 8.0 | 2.5 | 31.9% |
| Other | 9.0 | 9.2 | -0.2 | -2.2% |
| Total portfolio | 48.9 | 49.2 | -0.3 | -0.7% |
The portfolio is 1.1% reversionary, having turned positive for the first time since the downcycle. The reversion in Offices (now 2.3% reversionary) will continue to improve through further rental growth and asset rotation in particular, as offices in our non-target cities are still 15% over-rented. The over-renting of "Other" assets has slightly improved due to asset rotation, with ERVs continue to fall on a likefor-like basis as a result of a difficult retail market.
| Dec 17 | Dec 18 | |
|---|---|---|
| Offices | -0.9% | 2.3% |
| HNK | 3.9% | 3.2% |
| Other | -9.1% | -8.4% |
| Total portfolio | -1.6% | 1.1% |
11 Reversion = ERV let space / contractual rent
| Dec 17 (€m) |
Dec 18 (€m) |
Change (€m) |
Change % |
|
|---|---|---|---|---|
| Offices | 56.3 | 56.7 | 0.4 | 0.8% |
| HNK | 20.2 | 21.3 | 1.0 | 5.2% |
| Other | 11.2 | 11.1 | -0.1 | -0.5% |
| Total portfolio | 87.7 | 89.2 | 1.4 | 1.6% |
ERVs are up 1.6% on a like-for-like basis, the following ERV bridge confirms that the vacancy in the portfolio represents both the main opportunity and challenge for the business.
The yield on the portfolio is down 30bps to 5.2%, due to the effects of asset rotation and a 3.7% increase in capital values. The yield for HNK is up due to an increase in the contracted rent and Other assets because of asset rotation and a fall in the market value.
| EPRA Net Initial Yield | Gross Initial Yield | Reversionary Yield | ||||
|---|---|---|---|---|---|---|
| Dec 18 | Dec 17 | Dec 18 | Dec 17 | Dec 18 | Dec 17 | |
| Offices | 5.1% | 5.8% | 6.7% | 7.8% | 7.7% | 9.1% |
| HNK | 4.6% | 3.9% | 8.0% | 8.0% | 10.8% | 11.9% |
| Other | 6.9% | 6.0% | 8.9% | 8.1% | 9.2% | 8.6% |
| Total portfolio | 5.2% | 5.5% | 7.1% | 7.9% | 8.4% | 9.5% |
The entire portfolio is appraised externally twice a year. Some assets saw a change in external appraiser, in accordance with our standard appraiser rotation process.
Capital values are up on average by 3.7%. Valuations in Amsterdam and the other G4 cities are up by ca. 6%. Following years of outperformance, it appears capital growth in Amsterdam is slowing, whilst in the other G4 markets it is accelerating. Office assets in Other Netherlands are still underperforming with a negative 6.3% revaluation result.
The HNK valuation is up by 9.1%, a strong improvement once again following a more than 10% uplift in 2017. This is particularly driven by HNK assets in the G4. Assets in the segment Other are down by 4.9% as the Dutch retail investment market remains difficult.
| Valuation | Revaluation | ||||
|---|---|---|---|---|---|
| Dec 18 | Positive | Negative | Total | % YTD | |
| Offices | 881 | 65.0 | -25.7 | 39.3 | 4.4% |
| HNK | 210 | 22.1 | -4.7 | 17.4 | 9.1% |
| Other | 124 | 4.1 | -13.6 | -9.5 | -4.9% |
| Total portfolio | 1,214 | 91.2 | -44.0 | 47.2 | 3.7% |
We continue to invest in the portfolio. Capital expenditure in 2018 is €17.9m. Most of the offensive capex is invested in HNK Schinkel, which opened in June, and selectively in other HNKs, including The Hague, Rotterdam, Amsterdam and Ede. Offensive capex in Offices relates to Bentinck Huis in The Hague and in Other to Keizerslanden Shopping Centre, which transferred to the new owner in December and Lageland Shopping Centre in Rotterdam. Defensive capex is €4.7m in 2018.
| Offensive | Defensive | Total | |
|---|---|---|---|
| Offices | 0.3 | 4.3 | 4.6 |
| HNK | 11.2 | 0.0 | 11.2 |
| Other | 1.8 | 0.4 | 2.5 |
| Total | 13.2 | 4.7 | 17.9 |
NSI currently has one asset classified as development ("Investment property under construction", Bentinck Huis in The Hague). Negotiations with ING for the potential redevelopment of Laanderpoort is ongoing. A mid-2020 start date for this 30,000- 35,000 sqm project is still feasible.
Two further potential new developments have also been announced in 2018, including the redevelopment of Centerpoint in Amsterdam South East into a 40–70k sqm mixed use project. The other development relates to a potential new 15–27k sqm office tower adjacent to the Motion Building in Amsterdam Sloterdijk, which was acquired in H2 2018. Both projects are still very much in the exploration phase. The extensive refurbishment of Bentinck Huis is progressing well. The design phase will be finalised in the first quarter. Works will start in Q2 with completion set for Q1 2020.
| Project | Location Current | sqm | Final sqm |
Capex Phase | Timing | |
|---|---|---|---|---|---|---|
| Bentinck Huis | The Hague |
6k | 6k | €5.4m Design | Q2 2019 | |
| Laanderpoort | A'dam | 13k | 30k –35k | €120m Initiative | Earliest Q2 2020 |
|
| Centerpoint | A'dam | 15k 40k – 70k | Exploration | |||
| Motion Building | A'dam | 0 15k – 27k | Exploration |
13 Total revaluation excluding movement of lease incentives
12 Reversionary yield = ERV / Market Value
The Offices portfolio is down to 67 assets, 26 less than a year ago. The average asset size for offices is up from €7.9m in 2017 to €13.1m now and is bound to increase further. In the G4 the average asset size is already above €20m.
With 30 office disposals 2018 has been an active year. The focus has been on selling small assets in secondary locations, not the easiest part of the portfolio to sell. This is reflected in the reduction of 22 offices in Other NL. The average lot size of office disposals is €2.1m.
The EPRA vacancy rate is down to 11.1%, rapidly dropping to a level below the national average. Whilst we still have some legacy lease expiries ahead, we expect further asset rotation and net lettings to continue to drive the vacancy rate to a structurally lower level. At the same time, going into 2019, we are looking proactively at extending lease contracts early where possible.
| Dec 17 | Sep 18 | Dec 18 | |
|---|---|---|---|
| Number of properties | 93 | 83 | 67 |
| Market value (€m) | 736 | 844 | 881 |
| Market value (€ psm) | 1,690 | 1,950 | 2,233 |
| Annual contracted rent (€m) | 57 | 59 | 59 |
| ERV (€m) | 67 | 71 | 68 |
| Lettable area (k sqm) | 436 | 433 | 394 |
| EPRA Vacancy | 15.9% | 13.8% | 11.1% |
| WAULT (years) | 5.0 | 4.6 | 4.6 |
| Average rent psm (€ p.a.) | 168 | 171 | 179 |
| EPRA net initial yield | 5.8% | 5.2% | 5.1% |
The G4 portfolio is valued on a 4.7% EPRA net initial yield, down from 5.3% at year-end 2017. This 60bps gap is not like-for-like and reflects the acquisition of Q-port and the Motion Building with their above average vacancy as well as a 6.1% uplift in capital values, with Amsterdam up 6.2%.
The office exposure to non-target cities is declining. Leiden already represents over half of the value of Other Randstad and Eindhoven and Den Bosch over 75% of the value of Other Netherlands.
| G4 | Randstad Other |
Other NL |
|
|---|---|---|---|
| Number of properties | 33 | 19 | 15 |
| Market value (€m) | 677 | 103 | 101 |
| Market value per asset (€m) | 21 | 5 | 7 |
| Market value (€ psm) | 2,960 | 1,340 | 1,136 |
| Annual contracted rent (€m) | 41 | 9 | 9 |
| ERV (€m) | 47 | 10 | 10 |
| Reversion | 7.0% | -6.1% | -10.7% |
| Lettable area (k sqm) | 229 | 77 | 89 |
| EPRA Vacancy | 7.2% | 17.5% | 22.4% |
| WAULT (years) | 4.9 | 4.0 | 3.7 |
| Average rent psm (€ p.a.) | 201 | 149 | 138 |
| EPRA net initial yield | 4.7% | 6.8% | 6.4% |
The like-for-like NRI is negative 8.4%, largely due to the €2.0m oneoff lease termination cost. Excluding this cost like-for-like NRI is -1.8%, due to higher maintenance and letting costs, the mark-tomarket on some legacy leases that were renewed in both 2017 and 2018 and some sizeable positive one-offs in 2017.
| NRI growth | Revaluation | ||
|---|---|---|---|
| % | % | % | |
| G4 | -9.4% | 6.1% | 3.1% |
| Other Randstad | -7.5% | 3.6% | 0.2% |
| Other Netherlands | -6.1% | -2.8% | -6.3% |
| Total | -8.4% | 4.4% | 0.8% |
Following extensive asset rotation and ERV growth of 0.8% during the year, the office portfolio is now 2.3% reversionary. This is up from -0.9% at the end of 2017 and -8.3% at the end of 2016.
We aim to have our entire Offices & HNK portfolio meet the minimum C label energy certificate requirement well before the governmentimposed deadline of 2023. By value 85% of our portfolio already has a C energy label or better. We aim to include an upgrade to an A label on all larger-scale capex projects currently planned. We estimate the costs of upgrading all assets in target cities to an A label at around €6m.
14 NRI like-for-like FY 2018 compared to FY 2017, only includes assets in portfolio throughout 2018 and 2017, transformation and development projects are excluded. Revaluation and ERV growth relate to assets in portfolio on 31 December 2018 and 31 December 2017.
HNK had another successful year in 2018. The EPRA vacancy rate fell by 6.6% to 23.2% (FY17: 29.8%). Amsterdam Schinkel, our fourteenth HNK, which opened in June with 55% vacancy had an exceptional start and was fully let at the end of 2018. This shows that demand for our HNK formula is strong if in the right location. We also see strong interest in the other G4 markets and selective other HNKs and we expect a similar or better take-up in 2019, which should see the vacancy rate drop to well below 20%.
We continue to invest in our assets to upgrade conventional space into managed offices where demand warrants. A further 1,600 sqm of MO space is added, a 15% increase, primarily at HNK Rotterdam Centrum, HNK Utrecht CS and HNK The Hague. At HNK Schinkel 500 sqm of MO space is realised and let. Despite the addition of new space the EPRA vacancy rate for MO space reduced from 13.6% at 31 December 2017 to 11.6% at the end of the year.
| Dec 17 | Sep 18 | Dec 18 | |
|---|---|---|---|
| Number of properties | 14 | 14 | 14 |
| Market value (€m) | 181 | 204 | 210 |
| Market value (€ psm) | 1,419 | 1,595 | 1,650 |
| Annual contracted rent (€m) | 15 | 16 | 17 |
| ERV (€m) | 22 | 22 | 23 |
| Lettable area (k sqm) | 128 | 127 | 127 |
| EPRA Vacancy | 29.8% | 25.8% | 23.2% |
| WAULT (years) | 2.9 | 3.0 | 3.2 |
| Average rent psm (€ p.a.) | 176 | 184 | 188 |
| EPRA net initial yield | 3.9% | 4.0% | 4.6% |
The EPRA net initial yield is up to 4.6%, as a result of a 15% increase in contracted rent. With vacancy rapidly declining, positively impacting non-recoverable service charges, net rents for HNK are normalising. The EPRA NIY of HNK is slowly nearing the yield for Offices. HNK still offers a lot of scope for growth as the reversionary yield remains high at 10.9%.
The Other segment comprises our remaining retail exposure and one small industrial asset. In 2018 circa 30% of the Other portfolio is sold, comprising four retail assets and one industrial asset. The combined disposal price of €59m was 0.7% below the book value.
We continue to actively manage the portfolio to maximise value. At Zuidplein shopping centre in Rotterdam, the single largest remaining retail asset, an agreement with the co-owners to collectively invest circa €20m (NSI share ca. €4m) to upgrade the centre should further enhance the attractiveness of the asset, which already attracts circa 11 million visitors per annum. In Rijswijk a new master plan for the In de Boogaard shopping centre is presented to the municipality authority, proposing an upgrade involving part of the centre being transformed into residential and office space.
| Dec 17 | Sep 18 | Dec 18 | |
|---|---|---|---|
| Number of properties | 19 | 17 | 14 |
| Market value (€m) | 191 | 174 | 124 |
| Market value (€ psm) | 1,689 | 1,637 | 1,520 |
| Annual contracted rent (€m) | 16 | 15 | 11 |
| ERV (€m) | 16 | 15 | 11 |
| Lettable area (k sqm) | 113 | 107 | 81 |
| EPRA Vacancy | 14.0% | 13.0% | 11.2% |
| WAULT (years) | 5.0 | 5.4 | 5.1 |
| Average rent psm (€ p.a.) | 169 | 172 | 165 |
| EPRA net initial yield | 6.0% | 6.3% | 6.9% |
In 2018 the retail portfolio saw a further drop in capital values, whilst the value of the last remaining industrial asset is up. The revaluation of the Other segment is a negative 4.9% in 2018, pushing the EPRA net initial yield up to 6.9%. The vacancy rate remained relatively stable on a like-for-like basis and improved by 2.8% because of disposals.
At the end of 2018 two smaller office are assets held for sale, in Arnhem and Rotterdam, both of which will be transferred in Q1 2019.
The EPRA NAV at the end of 2018 is €738.3m, an increase of 9.7% compared to 12 months ago (€673.2m at YE 2017). Due to a small rise in the number of shares following the issuance of stock dividend the EPRA NAV per share increased by 8.4% from €36.66 at the end of 2017 to €39.75 at 31 December 2018. The change in the NAV is explained in the bridge below.
Following the introduction of IFRS 9, NSI has retrospectively calculated the impact on the refinancing of the syndicated bank facility (Nexus) in 2016. NSI qualifies this refinancing as a modification and has adjusted the opening balance sheet for 2018.
The gap between the EPRA NAV and EPRA NNNAV of €39.21 per share is €0.55 and reflects the negative fair value of our derivatives and the market value of the debt.
The issue price of the stock dividend in May was €38.08 on an exdividend basis in line with June 2018 EPRA NAV. In August stock dividend was issued at €37.44 per share, a 2.6% discount to June 2018 EPRA NAV. The issue of stock dividend has a negative impact on EPRA NAV of 3 cents in 2018.
NSI refinanced most of its debt in the first half of 2018. First NSI agreed an 8-year €40m unsecured US private placement (USPP) with Pricoa in January with a coupon reflecting an implied investment grade credit profile.
In April NSI refinanced its syndicated bank facility with a new 5 year €480m loan, split in a €180m Term Loan and a €300m revolving credit facility at lower margins. The new financing triggered a €2.1m one-off (non-cash) financing cost in accordance with IFRS 9.
In October €50m of unsecured 10 year notes were issued in a private placement to Barings, further confirming the implied investment grade status and adding an additional sizable funding partner to the investor base.
As part of the acquisition of the Jacobsweerd office asset in Utrecht a €25.7m secured loan with Berlin Hyp was taken over from the previous owner. This loan will expire in July 2020.
At the end of 2018 the average loan maturity is 5.0 years (December 2017: 3.1 years), 79% of debt drawn is unsecured (86% of available debt) and the cost of debt is down to 2.0%, from 2.3% at the end 2017. The focus in 2019 will be on further extending maturities and further increasing the funding diversification.
Net debt is up by €39.4m in 2018. This is primarily driven by net acquisitions of €39.9m including costs. Taking into account debt to credit institutions our remaining committed undrawn credit facilities are circa €215m.
| Cash | -0.2 | -6.8 | 6.6 |
|---|---|---|---|
| Debt to credit institutions | 10.5 | 9.9 | 0.6 |
| Book value debt | 437.7 | 405.4 | 32.3 |
| Amortisation costs | -1.4 | -1.8 | 0.4 |
| Debt outstanding | 439.1 | 407.2 | 31.9 |
| Dec-18 | Dec-17 | Change |
The LTV is 36.9% at December 2018, stable compared to December 2017 (36.9%), as the increase in net debt is compensated by a positive revaluation result of the assets. As a result of lower financing costs the ICR increased to 5.5x, well above the 2.0x covenant.
The maturity of derivatives is 5.1 years at the end of 2018 and the maturity hedge is 100% (target range: 70-120%). The notional amount of swaps outstanding and fixed rate debt at the end of 2018 is €430m. The volume hedge is 98% (target range: 70-100%).
| Covenant | Dec 15 | Dec 16 | Dec 17 | Dec 18 | |
|---|---|---|---|---|---|
| LTV | ≤60% | 43.3% | 44.1% | 36.9% | 36.9% |
| ICR | ≥ 2.0x | 3.2x | 3.8x | 4.7x | 5.5x |
| FY 2018 | FY 2017 | |||
|---|---|---|---|---|
| Gross rental income | 83,721 | 89,000 | ||
| Service costs recharged to tenants | 13,465 | 11,983 | ||
| Service costs | -14,702 | -14,058 | ||
| Service costs not recharged | -1,237 | -2,075 | ||
| Operating costs | -13,256 | -12,457 | ||
| Net rental income | 69,228 | 74,468 | ||
| Revaluation of investment property | 46,418 | 28,329 | ||
| Net result on sale of investment property | 841 | 6,064 | ||
| Net result from investments | 116,488 | 108,861 | ||
| Administrative costs | -7,950 | -9,170 | ||
| Other income and costs | 18 | 5,548 | ||
| Financing income | 27 | 12 | ||
| Financing costs | -12,532 | -15,871 | ||
| Movement in market value of financial derivatives | -4,497 | 3,658 | ||
| Net financing result | -17,003 | -12,201 | ||
| Result before tax | 91,553 | 93,037 | ||
| Corporate income tax | -28 | -91 | ||
| Result from continuing operations after tax | 91,525 | 92,946 | ||
| Result from discontinued operations after tax | -1,344 | |||
| Total result for the year | 91,525 | 91,602 | ||
| Exchange rate differences on foreign participations | 0 | |||
| Other comprehensive income | 0 | |||
| Total comprehensive income for the year | 91,525 | 91,602 | ||
| Total comprehensive income attributable to: | ||||
| Shareholders | 91,525 | 91,602 | ||
| Total comprehensive income for the year | 91,525 | 91,602 | ||
| Data per average outstanding share: | ||||
| Diluted as well as non-diluted result after tax - continuing operations | 4.95 | 5.13 | ||
| Diluted as well as non-diluted result after tax - discontinued operations | -0.07 | |||
| Diluted as well as non-diluted result after tax | 4.95 | 5.05 |
| 31 December 2018 | 31 December 2017 | |
|---|---|---|
| Assets | ||
| Investment property | 1,202,691 | 1,072,180 |
| Financial fixed assets | 0 | 0 |
| Derivative financial instruments | 323 | 1,162 |
| Tangible fixed assets | 777 | 787 |
| Intangible fixed assets | 510 | 560 |
| Other non-current assets | 6,319 | 6,134 |
| Non-current assets | 1,210,619 | 1,080,822 |
| Debtors and other receivables | 1,755 | 1,829 |
| Cash and cash equivalents | 245 | 6,827 |
| Assets held for sale | 3,940 | 28,791 |
| Current assets | 5,940 | 37,447 |
| Total assets | 1,216,559 | 1,118,269 |
| Shareholders' equity | ||
| Issued share capital | 68,353 | 67,583 |
| Share premium reserve | 920,935 | 921,715 |
| Other reserves | -347,531 | -408,212 |
| Total result for the year | 91,525 | 91,602 |
| Shareholders' equity | 733,283 | 672,688 |
| Liabilities | ||
| Interest bearing loans | 436,407 | 404,708 |
| Derivative financial instruments | 5,327 | 1,712 |
| Other non-current liabilities | 4,080 | 3,540 |
| Non-current liabilities | 445,813 | 409,959 |
| Redemption requirement interest bearing loans | 1,250 | 700 |
| Derivative financial instruments | 43 | |
| Creditors and other payables | 25,602 | 24,855 |
| Debts to credit institutions | 10,497 | 9,873 |
| Liabilities directly associated with assets held for sale | 71 | 195 |
| Current liabilities | 37,464 | 35,623 |
| Total liabilities | 483,277 | 445,582 |
| Total shareholders' equity and liabilities | 1,216,559 | 1,118,269 |
| FY 2018 | FY 2017 | |||
|---|---|---|---|---|
| Result from operations after tax | 91,525 | 92,946 | ||
| Adjusted for: | ||||
| Revaluation of investment property | -46,418 | -28,329 | ||
| Net result on sale of investment property | -841 | -6,064 | ||
| Net financing result | 17,003 | 12,201 | ||
| Corporate income tax | 28 | 91 | ||
| Depreciation and amortisation | 223 | 162 | ||
| -30,005 | -21,939 | |||
| Movements in working capital: | ||||
| Debtors and other receivables | -88 | 764 | ||
| Creditors and other payables | 1,015 | -3,744 | ||
| 927 | -2,980 | |||
| Cash flow from operating activities | 62,447 | 68,027 | ||
| Financing income received | 27 | 12 | ||
| Financing costs paid | -9,750 | -15,093 | ||
| Tax paid | -57 | -78 | ||
| Cash flow from continuing operating activities | 52,666 | 52,868 | ||
| Cash flow from discontinued operating activities | -49 | |||
| Cash flow from operating activities | 52,666 | 52,819 | ||
| Purchases of investment property and subsequent expenditure | -178,539 | -155,195 | ||
| Proceeds from sale of investment property | 120,139 | 240,623 | ||
| Investments in tangible fixed assets | -58 | -76 | ||
| Disinvestments in tangible fixed assets | 15 | |||
| Investments in intangible fixed assets | -104 | -466 | ||
| Disinvestments in intangible fixed assets | 12 | |||
| Cash flow from continuing investment activities | -58,563 | 84,912 | ||
| Cash flow from discontinued investment activities | 1,394 | |||
| Cash flow from investment activities | -58,563 | 86,306 | ||
| Dividend paid to the company's shareholders | -31,887 | -23,169 | ||
| Proceeds from interest bearing loans | 519,712 | 99,000 | ||
| Transaction costs interest bearing loans paid | -1,297 | |||
| Repayment of interest bearing loans | -487,838 | -205,550 | ||
| Settlement of derivatives | -11,089 | |||
| Cash flow from continuing financing activities | -1,309 | -140,808 | ||
| Cash flow from financing activities | -1,309 | -140,808 | ||
| Net cash flow continuing operations | -7,206 | -3,027 | ||
| Net cash flow from discontinued operations | 1,345 | |||
| Net cash flow | -7,206 | -1,683 | ||
| Cash and cash equivalents and debts to credit institutions - balance as per 1 January |
-3,046 | -1,363 | ||
| Exchange rate differences | 0 | 0 | ||
| Cash and cash equivalents and debts to credit institutions - balance as per 31 December 2017 / 31 December 2018 |
-10,252 | -3,046 |
| Issued share capital |
Share premium reserve |
Other reserves | Result for the year |
Shareholders' equity | |
|---|---|---|---|---|---|
| Balance as per 31 December 2017 | 67,583 | 921,715 | -408,212 | 91,602 | 672,688 |
| Retrospective adjustment IFRS 9 | 956 | 956 | |||
| Balance as per 1 January 2018 | 67,583 | 921,715 | -407,256 | 91,602 | 673,644 |
| Total result for the year | 91,525 | 91,525 | |||
| Other comprehensive income | 0 | 0 | |||
| Total comprehensive income for the year | 0 | 91,525 | 91,525 | ||
| Profit appropriation - 2017 | 91,602 | -91,602 | |||
| Distribution final dividend - 2017 | 402 | -407 | -16,407 | -16,412 | |
| Interim dividend - 2018 | 368 | -373 | -15,469 | -15,474 | |
| Contributions from and to shareholders | 770 | -780 | 59,725 | -91,602 | -31,887 |
| Balance as per 31 December 2018 | 68,353 | 920,935 | -347,531 | 91,525 | 733,283 |
| Issued share capital |
Share premium reserve |
Other reserves | Result for the year |
Shareholders' equity | |
|---|---|---|---|---|---|
| Balance as per 1 January 2017 | 65,873 | 923,435 | -367,220 | -17,833 | 604,255 |
| Total result for the year | 91,602 | 91,602 | |||
| Other comprehensive income | 0 | 0 | |||
| Total comprehensive income for the year | 0 | 91,602 | 91,602 | ||
| Profit appropriation - 2016 | -17,833 | 17,833 | |||
| Distribution final dividend - 2016 | 872 | -877 | -12,355 | -12,360 | |
| Interim dividend - 2017 | 839 | -844 | -10,804 | -10,809 | |
| Contributions from and to shareholders | 1,710 | -1,720 | -40,992 | 17,833 | -23,169 |
| Balance as per 31 December 2017 | 67,583 | 921,715 | -408,212 | 91,602 | 672,688 |
| Continuing operations | Discontinued | ||||||
|---|---|---|---|---|---|---|---|
| Offices | HNK | Other | Corporate15 | TOTAL | operations | TOTAL | |
| Gross rental income | 53,437 | 15,364 | 14,920 | 83,721 | 83,721 | ||
| Service costs recharged to tenants | 7,814 | 4,002 | 1,649 | 13,465 | 13,465 | ||
| Service costs | -8,807 | -4,062 | -1,832 | -14,702 | -14,702 | ||
| Service costs not recharged | -993 | -61 | -183 | -1,237 | -1,237 | ||
| Operating costs | -6,554 | -4,771 | -1,931 | -13,256 | -13,256 | ||
| Net rental income | 45,890 | 10,532 | 12,806 | 69,228 | 69,228 | ||
| Revaluation of investment property | 39,225 | 16,978 | -9,786 | 46,418 | 46,418 | ||
| Net result on sale of investment property | 1,790 | -949 | 841 | 841 | |||
| Net result from investment | 86,906 | 27,510 | 2,071 | 116,488 | 116,488 | ||
| Administrative costs Other income and costs |
-7,950 18 |
-7,950 18 |
-7,950 18 |
||||
| Financing income | 27 | 27 | 27 | ||||
| Financing costs | -12,532 | -12,532 | -12,532 | ||||
| Movement in market value of financial derivatives | -4,497 | -4,497 | -4,497 | ||||
| Net financing result | -17,003 | -17,003 | -17,003 | ||||
| Result before tax | 86,906 | 27,510 | 2,070 | -24,933 | 91,553 | 91,553 | |
| Corporate income tax Total result for the year |
86,906 | 27,510 | 2,070 | -28 -24,961 |
-28 91,525 |
-28 91,525 |
|
| Other comprehensive income | 0 | 0 | 0 | ||||
| Total comprehensive income for the year | 86,906 | 27,510 | 2,070 | -24,961 | 91,525 | 91,525 | |
| Attributable to shareholders | 86,906 | 27,510 | 2,070 | -24,961 | 91,525 | 91,525 |
| Continuing operations | Discontinued | ||||||
|---|---|---|---|---|---|---|---|
| Offices | HNK | Other | Corporate | TOTAL | operations | TOTAL | |
| Investment property | 872,159 | 206,987 | 123,544 | 1,202,691 | 1,202,691 | ||
| Other assets | 4,651 | 1,333 | 336 | 3,609 | 9,929 | 9,929 | |
| Assets held for sale | 3,940 | 3,940 | 3,940 | ||||
| Total assets | 880,750 | 208,320 | 123,880 | 3,609 | 1,216,559 | 1,216,559 | |
| Non-current liabilities | 1,285 | 2,338 | 457 | 441,733 | 445,813 | 445,813 | |
| Current liabilities | 1,288 | 407 | 1,613 | 34,084 | 37,392 | 37,392 | |
| Liabilities directly associated with assets held for sale |
71 | 71 | 71 | ||||
| Total liabilities | 2,645 | 2,745 | 2,069 | 475,818 | 483,277 | 483,277 | |
| Purchases of investment property and subsequent expenditures |
165,163 | 11,150 | 2,226 |
15 The segment Corporate reflects costs and revenues that are not directly tied to properties.
| Continuing operations | Discontinued | ||||||
|---|---|---|---|---|---|---|---|
| Offices | HNK | Other | Corporate | TOTAL | operations | TOTAL | |
| Gross rental income | 53,866 | 13,339 | 21,795 | 89,000 | 56 | 89,056 | |
| Service costs recharged to tenants | 6,706 | 3,297 | 1,979 | 11,983 | 16 | 11,999 | |
| Service costs | -8,281 | -4,209 | -1,568 | -14,058 | -35 | -14,092 | |
| Service costs not recharged | -1,574 | -912 | 412 | -2,075 | -18 | -2,093 | |
| Operating costs | -5,702 | -4,578 | -2,177 | -12,457 | -22 | -12,479 | |
| Net rental income | 46,590 | 7,848 | 20,030 | 74,468 | 15 | 74,483 | |
| Revaluation of investments | 18,695 | 15,875 | -6,242 | 28,329 | -970 | 27,359 | |
| Net result on sale of investments | 3,144 | 0 | 2,920 | 6,064 | -326 | 5,738 | |
| Net result from investment | 68,429 | 23,724 | 16,708 | 108,861 | -1,280 | 107,580 | |
| Administrative costs | -9,170 | -9,170 | -77 | -9,247 | |||
| Other income and costs | 5,548 | 5,548 | 9 | 5,557 | |||
| Financing income | 12 | 12 | 1 | 12 | |||
| Financing costs | -15,871 | -15,871 | -1 | -15,872 | |||
| Movement in market value of financial derivatives | 3,658 | 3,658 | 3,658 | ||||
| Net financing result | -12,201 | -12,201 | 0 | -12,201 | |||
| Result before tax | 68,429 | 23,724 | 16,710 | -15,826 | 93,037 | -1,348 | 91,689 |
| Corporate income tax | -91 | -91 | 4 | -87 | |||
| Total result for the year | 68,429 | 23,724 | 16,710 | -15,917 | 92,946 | -1,344 | 91,602 |
| Other comprehensive income | |||||||
| Total comprehensive income for the year | 68,429 | 23,724 | 16,710 | -15,917 | 92,946 | -1,344 | 91,602 |
| Attributable to shareholders | 68,429 | 23,724 | 16,710 | -15,917 | 92,946 | -1,344 | 91,602 |
| Continuing operations | Discontinued | ||||||
|---|---|---|---|---|---|---|---|
| Offices | HNK | Other | Corporate | TOTAL | operations | TOTAL | |
| Investment property | 731,583 | 178,859 | 161,738 | 1,072,180 | 1,072,180 | ||
| Other assets | 4,859 | 913 | 362 | 11,165 | 17,299 | 17,299 | |
| Assets held for sale | 28,791 | 28,791 | 28,791 | ||||
| Total assets | 736,442 | 179,771 | 190,891 | 11,165 | 1,118,269 | 1,118,269 | |
| Non-current liabilities | 1,302 | 1,631 | 607 | 406,419 | 409,959 | 409,959 | |
| Current liabilities | 2,125 | -98 | 854 | 32,547 | 35,428 | 35,428 | |
| Liabilities directly associated with assets held for sale |
195 | 195 | 195 | ||||
| Total liabilities | 3,427 | 1,533 | 1,655 | 438,966 | 445,582 | 445,582 | |
| Purchases of investment property and subsequent expenditures |
142,725 | 5,831 | 6,640 | 155,195 | 155,195 |
| Note | FY 2018 | FY 2017 | |||
|---|---|---|---|---|---|
| € ' 000 | per share (€) | € ' 000 | per share (€) | ||
| EPRA earnings | 1 | 48,745 | 2.64 | 49,365 | 2.72 |
| EPRA cost ratio (incl. direct vacancy costs) | 5 | 26.5% | 26.5% | ||
| EPRA cost ratio (excl. direct vacancy costs) | 5 | 25.0% | 24.3% | ||
| Property related capex | 6 | 178,539 | 155,195 |
| Note | 31 December 2018 | 31 December 2017 | ||||
|---|---|---|---|---|---|---|
| € ' 000 | per share (€) | € ' 000 | per share (€) | |||
| EPRA NAV | 2 | 738,330 | 39.75 | 673,238 | 36.66 | |
| EPRA NNNAV | 2 | 728,076 | 39.20 | 663,592 | 36.13 | |
| EPRA net initial yield (NIY) | 3 | 5.2% | 5.5% | |||
| EPRA topped-up net initial yield | 3 | 5.6% | 5.9% | |||
| EPRA vacancy rate | 4 | 13.6% | 18.4% |
| FY 2018 | FY 2017 | |
|---|---|---|
| Gross rental income | 83,721 | 89,056 |
| Service costs not recharged | -1,237 | -2,093 |
| Operating costs | -13,256 | -12,479 |
| Net rental income | 69,228 | 74,483 |
| Administrative costs | -7,950 | -9,247 |
| Net financing result | -12,506 | -15,859 |
| Direct investment result before tax | 48,773 | 49,377 |
| Corporate income tax | -28 | -12 |
| Direct investment result / EPRA earnings | 48,745 | 49,365 |
| Direct investment result / EPRA earnings per share (€) | 2.64 | 2.72 |
| 31 December 2018 | 31 December 2017 | ||||
|---|---|---|---|---|---|
| € ' 000 | per share (€) | € ' 000 | per share (€) | ||
| Equity attributable to shareholders | 733,283 | 39.48 | 672,688 | 36.63 | |
| Fair value of derivative financial instruments | 5,047 | 0.27 | 550 | 0.03 | |
| EPRA NAV | 738,330 | 39.75 | 673,238 | 36.66 | |
| Fair value of derivative financial instruments | -5,211 | -0.28 | -560 | -0.03 | |
| Fair value of debt | -5,043 | -0.27 | -9,085 | -0.49 | |
| EPRA NNNAV | 728,076 | 39.20 | 663,592 | 36.13 |
| 31 December 2018 | 31 December 2017 | |
|---|---|---|
| Investment property including assets held for sale | 1,214,430 | 1,108,393 |
| Developments | -15,500 | -800 |
| Property investments | 1,198,930 | 1,107,593 |
| Allowance for estimated purchasers' costs | 83,943 | 77,532 |
| Gross up completed property portfolio valuation | 1,282,855 | 1,185,125 |
| Annualised cash passing rental income | 82,118 | 83,479 |
| Annualised property outgoings | -15,150 | -17,896 |
| Annualised net rent | 66,968 | 65,583 |
| Notional rent expiration of rent free periods or other lease incentives | 4,491 | 3,794 |
| Topped-up annualised net rent | 71,459 | 69,377 |
| EPRA net initial yield | 5.2% | 5.5% |
| EPRA topped-up net initial yield | 5.6% | 5.9% |
| 31 December 2018 | 31 December 2017 | |
|---|---|---|
| Estimated rental value of vacant space Estimated rental value of the whole portfolio |
14,085 103,227 |
19,398 105,288 |
| EPRA vacancy | 13.6% | 18.4% |
| FY 2018 | FY 2017 | |
|---|---|---|
| Administrative costs | 7,950 | 9,247 |
| Service costs not recharged | 1,237 | 2,093 |
| Operating costs | 13,256 | 12,479 |
| Leasehold | -245 | -213 |
| EPRA costs (including direct vacancy costs) | 22,196 | 23,607 |
| Direct vacancy costs | -1,237 | -1,976 |
| EPRA costs (excluding direct vacancy costs) | 20,960 | 21,631 |
| Gross rental income | 83,721 | 89,056 |
| EPRA gross rental income | 83,721 | 89,056 |
| EPRA cost ratio (incl. direct vacancy costs) | 26.5% | 26.5% |
| EPRA cost ratio (excl. direct vacancy costs) | 25.0% | 24.3% |
| FY 2018 | FY 2017 | |
|---|---|---|
| Acquisitions | 161,397 | 139,472 |
| Development (ground-up/green field/brown field) | 175 | |
| Like-for-like portfolio | 15,101 | 10,557 |
| Other | 1,867 | 5,167 |
| Capital Expenditure | 178,539 | 155,195 |
Investment property are reclassified to assets held for sale if it is expected that the carrying amount will be recovered principally through disposal rather than from continued use. This is the case if the investment property concerned is available for immediate sale in its present condition, taking into account the common terms for sale of such property and probability of a sale being high. This means the property must be actively marketed for sale at a price that is reasonable compared to its current market value and the sale should be expected to take place within one year from the date of reclassification.
EPRA costs include all administrative costs, net service costs and operating expenses as reported under IFRS, but do not include ground rent costs. These costs are reflected including and excluding direct vacancy costs. The EPRA cost ratio is calculated as a percentage of gross rental income less ground rent costs.
NSI qualifies as a Dutch Real Estate Investment Trust (fiscale beleggingsinstelling or FBI) and as such is charged a corporate income tax rate of 0% on its earnings. The tax regime stipulates certain conditions, such as a maximum ratio of 60% between debt and the book value of real estate, maximum ownership of shares by one legal entity or natural persons, and the obligation to pay out the annual profit by way of dividends within eight months after the end of the financial year.
Before 2014, activities permitted under FBI legislation were limited to portfolio investments activities only. Effective 1 January 2014, new legislation allows FBI's to perform enterprise-type business activities within certain limits. These activities must be carried out by a taxable subsidiary and must support the operation of the FBI's real estate business.
EPRA earnings is a measure of operational performance and represents the net income generated from operational activities. It excludes all components not relevant to the underlying net income performance of the portfolio.
Indicator for the profitability of NSI; portion of the EPRA earnings attributable to shareholders allocated to the weighted average number of ordinary shares.
Association of Europe's leading property companies, investors and consultants which strives to establish best practices in accounting, reporting and corporate governance and to provide high-quality information to investors.
The estimated amount at which a property or space within a property, would be let under the market conditions prevailing on the date of valuation.
G4 refers to the locations Amsterdam, The Hague, Rotterdam and Utrecht, being the largest cities in the Netherlands.
HNK stands for 'Het Nieuwe Kantoor', ("The New Office'). HNK is NSI's flexible office concept and offers an inspiring environment with stylish workplaces, office spaces, meeting areas, catering facilities and a variety ofancillary services. HNK offers different propositions, including memberships (flexible workstations), managed offices (fully equipped offices), bespoke
offices and meeting rooms.
Debt ratio and profitability ratio used to measure a company's ability to pay interest on outstanding debt. The interest coverage ratio is calculated by dividing net rental income during a given period by net financing expenses during the same period.
The direct result reflects the recurring income arising from core operational activities. The direct result consists of gross rental income minus operating costs, service costs not recharged to tenants, administrative costs, direct financing costs, corporate income tax on the direct result, and the direct investment result attributable to non-controlling interests.
The indirect result reflects all income and expenses not arising from day-to-day operations. The indirect result consists of revaluations of property, net result on sales of investment, indirect financing costs (movement in market value of derivatives and exchange rate differences, corporate income tax on the indirect result, and the indirect investment result attributable to non-controlling interests.
The total result reflects all income and expenses; it is the total of the direct and the indirect investment result.
Adjustments in rent granted to a tenant or a contribution to tenants' expenses in order to secure a lease. The impact of lease incentives on net rental income is straightlined over the firm duration of the lease contract under IFRS.
Like-for-like growth figures aim at assessing the organic growth of NSI. In the case of like-for-like rental income the aim is to compare the rental income of all or part of the standing portfolio over a certain period with the rental income for the same portfolio over a previous period (i.e. year-on-year and/or quarter-onquarter). In order to calculate like-for-like growth, the nominal increase in rent is adjusted for the impact of acquisitions, divestments and properties transferred to and from the development portfolio and between segments (e.g. office to HNK).
The LTV ratio reflects the balance sheet value of interest-bearing debts plus short term debts to credit institutions, net of cash and cash equivalents, expressed as a percentage of the total real estate investments, including assets held for sale.
The estimated amount for which a property should change hands on the date of valuation between a willing buyer and a willing seller in an arm's length transaction after proper marketing wherein each party had acted knowledgeably, prudently, and without compulsion. The market value does not include transaction costs.
The net asset value represents the total assets minus total liabilities. At NSI this equates to the shareholders' equity (excluding non-controlling interests as stated in the balance sheet). The NAV is often expressed on a per share basis; in this calculation the number of shares outstanding at reporting date is used rather than the average number of shares.
The EPRA NAV reflects fair value of net assets on an ongoing, long-term basis. Assets and liabilities do not impact the company in the long-term, as the fair value of financial derivatives and deferred taxes, are therefore excluded.
The net margin measures operating efficiency; it indicates how effective NSI is in managing its expense base. It is calculated as net rental income as a percentage of gross rental income.
The net result on sales of investment property reflects the disposal price paid by a third party for a property minus the value at which the respective property was recorded in the accounts at the moment of sale, net of sales costs made. The sales costs include costs of real estate agents and legal costs, but can also include internal costs made which are directly related to transaction.
The Randstad is the central-western area of the Netherlands, consisting primarily of the four largest Dutch cities (Amsterdam, Rotterdam, The Hague and Utrecht) and their surrounding areas.
The effective rent reflects the contractual annual rent after straight-lining of rent free periods and rental discounts.
Gross rental income reflects the rental income from let properties, after taking into account the net effects of straightlining for lease incentives and key money, including turnover rent and other rental income (e.g. specialty leasing and parking income).
Gross rental income net of (net) costs directly attributable to the operation of the property (non-recoverable service charges and operating costs). Income and costs linked to the ownership structure, such as administrative expenses, are not included.
The estimated annualised cash rental income as at reporting date, excluding the net effects of straight-lining of lease incentives. Vacant units and units that are in a rent-free period at the reporting date are deemed to have no passing cash rent.
This ratio compares the minimum guaranteed rent and the turnover rent to the estimated rental value and as such indicates whether a unit or property is underlet or over-rented.
The reversionary rate measures the rental gain/loss of a deal as the difference between the new rent (after the deal) and the old rent (before the deal).
Standing portfolio is used in like-for-like calculations and concerns the real estate investments at a specific date that have been consistently in operation as part of NSI's portfolio during two comparable periods.
Note that an investment property can be considered both standing and at the same time non standing, depending on the comparison periods used (e.g. year-on-year and quarter-on-quarter).
The EPRA NNNAV is designed to provide a spot measure of NAV including all assets and liabilities at fair value. This measure adjusts the EPRA NAV for the market to market of the financial instruments, debt and deferred taxes.
Vacancy rate (EPRA): reflects the loss of rental income against ERV as a percentage of ERV of the total operational portfolio.
This ratio is used as an indicator of the average length of leases in portfolios. It can be calculated over the full lease term of the contracts either up to expiration date or up to break option date.
Yield can generally be defined as the income or profit generated by an investment expressed as a percentage of its costs or the total capital invested.
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