interim results half year 2018 - nsi · nsi half year results i 4 key highlights first half 2018...

Interim Results Half Year 2018July 2018

“NSI will be the leading specialist in the Dutch office market, with a strong and

efficient platform that will drive returns through pro-active asset management,

value-add initiatives and active capital recycling.

NSI will be the partner of choice for investors looking to team up with a best-in-

class operator”

NSI Half Year Results I 3

Table of contents

1. Introduction

2. Progress and strategy update

3. Market and portfolio update

Annex

4. Financials update

5. Final remarks


Key highlights first half 2018

Balance sheet

management

• US Private placement – €40m note reflecting implied investment grade credit rating

• New syndicated loan facility – Improved margins and maturity

• Cost of debt – down 0.4% to 1.9%

• Debt maturity – Up to 5.1 years up from 3.1 years at FY17

Operational

performance

Financial

performance

• EPRA Vacancy – Down 1.8% to 16.6%

• EPRA Vacancy LFL – Down 0.6% (Offices and HNK down 1.0%)

• Asset rotation – 2 acquisitions1 (€54m) and 13 disposals (€26m)

• Development – Announcement of negotiations with ING regarding Laanderpoort

• Valuation result – Positive uplift of 3.1% (Amsterdam up 7.5%)

• EPRA EPS – €1.19 per share (net of €0.11 negative IFRS 9 effects)

• EPRA NAV per share – up 4.9% to €38.44

• Interim dividend – stable at €1.04 per share

1: Includes acquisition of Lange Voorhout in The Hague and transfer costs


EPRA vacancy (%)

Strong operational and financial performance

Improved occupancy

Enhanced NAV per share

18.4%16.6%

31 Dec 17 30 Jun 18

-1.8%

EPRA NAV per share (€)

36.66

38.44

31 Dec 17 30 Jun 18

+4.9%

Revenue and earnings H1 2018 H1 2017 Change %

Operating margin 78.6% 79.9% -1.3%

Net rents like-for-like -0.4% 1.8% -2.2%

EPRA Earnings per share1 (€) 1.19 1.35 -11.5%

Interim dividend per share (€) 1.04 1.04 0.0%

Balance sheet 30 Jun 18 31 Dec 17 Change %

EPRA Vacancy 16.6% 18.4% -1.8%

Portfolio revaluation 3.1% 2.5%

EPRA NAV per share (€) 38.44 36.66 4.9%

EPRA NNNAV per share (€) 38.15 36.13 5.6%

Average cost of debt 1.9% 2.3% -0.4%

LTV 36.3% 36.9% -0.5%

Key metrics

1: EPRA Earnings per share H1 2018 net of € 0.11 negative IFRS 9 effects


Table of contents

1. Introduction



Annex


5. Final remarks


Asset rotation H1 2018

Disposals

# Assets # Tenants

Market

Value

Dec-17

Net sales

proceeds

Book profit

/ loss

Net contract

rent

Dec-17

NIYWAULT

Dec-17

EPRA

Vacancy

Total Offices 12 47 20.5 19.8 -0.7 1.1 5.3% 2.8 48.9%

Total Other 1 1 6.61 6.5 -0.1 0.5 8.0% 0.3 0.0%

Total disposals 13 48 27.0 26.3 -0.8 1.6 6.0% 2.2 38.1%

Acquisitions

# Assets # Tenants

Market

Value

Jun-18

Total

purchase

cost

Book profit

/ loss2

Net contract

rent

Jun-183NIY

WAULT

Jun-18

EPRA

Vacancy

Total Offices 1 9 36.9 39.3 -2.4 1.6 4.1% 3.1 23.6%

Total acquisitions 1 9 36.9 39.3 -2.4 1.6 4.1% 3.1 23.6%

Delta -12 -39 9.9 -13.0 -3.2 0.0 -1.9% 0.9

1: Includes capex in H1 2018

2: Loss caused by transfer costs Q-port acquisition

3: Net contracted rent expected to increase to € 2.3m when fully operational

A more concentrated, higher quality portfolio of larger assets


Increased focus on Dutch Offices

In recent years NSI has focused its portfolio, with full divestment of Belgian activities and most retail assets

41% 39%34%

59%67%

83% 84%12% 14%

20%

5%

17% 16%

29% 27% 26%

36% 33%

18% 20% 21%Office BE

20152012 201720142013 H1 20182016

Retail

Other

Office NL

€2.1bnNSI GAV €1.1bn€1.2bn€1.2bn€1.7bn€1.8bn

Breakdown of portfolio by GAV (%)

€1.2bn


Increased focus on Offices in economic growth centres

23%

36%41%

17%

20%

20%

8%

10%

10%

18%

16%13%

34%

17% 16%

Other G4

Amsterdam

2016

Other NL

2017 H1 2018

Other

€1.2bn

Other

Randstad

€1.2bn€1.1bn

45%

2014 2015

13%

53%

2016 2017 H1 2018

24%

35%

+43%

Sector split evolution since 2016 Share of Amsterdam in Offices portfolio (excluding HNK)

Asset rotation on track with portfolio moving towards Amsterdam and 85% of Offices and HNK in target cities


Heading to a more concentrated portfolio

Location overview H1 18 (portfolio value €1.2bn) Number of assets Average asset value (€m)

114

0

300

50

100

150

200

250

350

20142012 2013 2015 2016 2017 H1

2018

-65%

10.2

10

4

0

2

6

8

12

20152012 2013 2014 2016 2017 H1

2018

+122%


Table of contents

1. Introduction



Annex


5. Final remarks


Dutch office market

Investment volumes Offices Netherlands (€bn) Prime Yields

Vacancy rate Offices Netherlands Prime rental growth(1)

1: Indexed (2009 = 100)

Source: JLL

2011 20152009 2010 2012 2013 2014 2016 2017 H1 2018

1.72.1

1.3 1.21.7

3.9 3.8

5.5

7.9

2.14.0%

4.5%

0.0%

3.5%

5.0%

5.5%

7.0%

6.0%

6.5%

H1 20182009 2010 2011 2012 2013 2014 2015 2016 2017

RotterdamAmsterdam Eindhoven The Hague Utrecht

90

80

0

100

10

110

120

130

140

2015 H1 20182009 2010 2011 2012 2013 20172014 2016

RotterdamAmsterdam Eindhoven UtrechtThe Hague

12%

0%

14%

11%

13%

15%

201420112009 2010 2012 2013 20172015 2016

10.5%

H1 2018


Revaluations H1 2018

H1 2018 (€m)

Positive revaluation in H1 2018

• Total portfolio up 3.1%

• Driven by Offices in G4 and HNK

Polarisation in Offices valuation continues

• Positive revaluations Offices €24m of which €19m in Amsterdam

• G4 portfolio up 5%, Other Netherlands down 2%

Same picture at HNK

• HNK up €13m or 6.9%

• Positive revaluations of €15m in the G4

Small decline in “Other”

• Value down by 1.7%

3.1%

3.3%

6.9%

-1.7%

-50

-30

-10

10

30

50

70

Total Office HNK Other

Positive revaluation Negative revaluation Net revaluation


Acquisition Q1 2018 – Q-Port

Area: 12,709 sqm

Tenant: Multi-tenant

Vacancy: 24.7%

GIY / NIY (theoretical): 6.6% / 5.9%

WAULT: 3.4 years

Energy label: A

Acquisition price: €36.8m

Kingsfordweg 47, Amsterdam Impressions

Location


Acquisition Q3 2018 – “The Bentinck”

Area: 6,048 sqm

Vacancy: 100%

Yield on cost (including capex): above 7%

Energy label: D

Acquisition price: €13.9m

Lange Voorhout 7

Binnenhof

The Hague

Central station

Lange Voorhout 7, The Hague Impressions

Location


27.5%

40.3% 37.1%29.8% 28.2%

10%

50%

40%

0%

20%

60%

30%

20172014 2015 2016 H1 2018

NSI value add: HNK

HNK rents vs ERV (conventional offices; € psm)

HNK Amsterdam Schinkel

EPRA Vacancy rate HNK

141394

# HNK Properties

Overview

• EPRA vacancy down 2.6% on like-for-like basis compared to year

end 2017

• 14th HNK opened in June 2018 at Schinkel in Amsterdam

• Investments in expanding number of managed offices in Utrecht CS,

Amsterdam Houthavens, The Hague and Ede

• Increasing demand for combinations of flexible and conventional

office space

350

150

0

50

100

250

200

300

400

93%

Managed offices

25%

Conventional+

14

Additional HNK rent ERV


NSI value add: Development opportunities

Development opportunities Amsterdam development pipeline & take-up (‘000 sqm)

Source: JLL

Netherlands historic conversions (‘000 sqm)

500

300

200

100

700

600

0

400

51%

Total20212019

179

2018

79%

21%63%

37%

55

52%

2020

37%

63%

100%

258

188

2022

49%

112

183

118

646

48%

Minimum take-up (2009)

Amsterdam Pre-let Average take-up (2008-2016)

Amsterdam Speculative

-

100

200

300

400

500

600

700

800

900

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

H1

2018

€ 300m+ of development CAPEX, 7% Yield-on-Cost

Identified

opportunities

Project 1

earliest start

date Q2 2020

• Three opportunities in Amsterdam most

advanced:

- Project 1: 30,000sqm re-development

- Project 2: 40,000sqm re-development

- Project 3: 12,000sqm development

Subject to:

• Negotiations with ING

• Planning

• Balance sheet capacity

• View on the cycle


Development opportunity Laanderpoort Amsterdam

• In negotiations with ING

• Laanderpoort is part of the planned fintech campus envisaged by ING

• Replace the two existing buildings totaling 13,000 sqm

• Plan is to build two modern buildings totaling 30,000 - 35,000 sqm

• Earliest start date Q2 2020

• Estimated capex €120m+

Highlights


Table of contents

1. Introduction



Annex


5. Final remarks


H1 2018 H1 2017 Change % Comments

Gross rental income 42,372 45,640 -7.1% lower due to net disposals

Service costs not recharged -1,046 -1,237 -15.4% lower due to lower vacancy

Operating costs -8,040 -7,958 1.0% higher maintenance and higher letting costs

Net rental income 33,286 36,446 -8.7%

Administrative costs -4,023 -4,425 -9.1% Lower staff costs, but lower allocated costs

Net financing result -7,315 -7,834 -6.6%

lower LTV and lower interest rate

Includes one off €2.1m write off of non-amortised

costs of old loan facility due to IFRS 9

Direct investment result before tax 21,948 24,187 -9.3%

Corporate income tax -51 -12

Direct investment result / EPRA earnings 21,897 24,175 -9.4%

Direct investment result / EPRA earnings per share 1.19 1.35 -11.5% H1 18 includes negative one offs of €0.11

Revenue and earnings (€ ‘000)

EPRA Earnings

Lower EPRA EPS reflecting net disposals, improved portfolio quality and one-off IFRS 9 effect


EPRA Earnings (I)

(€ per share)

0.03

1.40

1.60

1.10

0.00

0.10

1.20

1.30

1.50

Net financing resultOperating costs Administrative

costs

EPRA EPS

H1 2017

Other

0.00

1.35

0.02

EPRA EPS

H1 2018

Gross rental

income

1.19

0.01

Service costs

not recharged

-0.03

-0.18


EPRA NAV

(€ per share)

1.19 1.12

1.70

37.0

37.5

38.5

0.0

39.0

38.0

36.5

39.5

Revaluation

38.44

EPRA NAV

31 Dec 17

36.66

Result on sales

36.71

0.04

Adj. IFRS 9

0.00

DividendEPRA NAV

1 Jan 18

0.00

Other

0.05

Effect of stock

dividend

EPRA NAV

30 Jun 18

EPRA Earnings


Balance sheet de-risked, implied investment grade credit rating

Loan-to-value Cost of debt

5.2%4.9%

3.7%

2.8%

2.3%

1.9%

2013 20162014 2015 Jun 182017

-3.3%

Lower leverage and better quality portfolio resulting in lower financing costs

43.3%44.1%

48.9%

Jun 18

45.4%

36.9% 36.3%

57.0%

20122011

58.0%

20142013 2015 20172016

-21.7%

40%

35%


Extending maturities to prepare for next phase

Refinancing highlights 2018

Loans maturity profile Feb 2018 (€m)

Strategy 2018+

• Further extend and diversify maturities

• Further diversify funding

• Prepare balance sheet for growth

Loans maturity profile June 2018 (€m)

180

134

69

166

400

200

400

600

2018 2019 2020 2021 2022 2023 2024 2025 2026

Average maturity of 5.1 yrs

Term Loan RCF Secured Loan Head room US PP

220

40 40

133 133

6940

0

50

100

150

200

250

2018 2019 2020 2021 2022 2023 2024 2025 2026

Term Loan RCF Head room Secured Loan US PP

Average maturity 3.6 yrs

• Most debt refinanced in 2018

• New €40m 8 year unsecured facility with Pricoa signed Jan-18

• New €480m 5 year unsecured syndicated loan facility signed Apr-18

• Average loan maturity up to 5.1 yrs, no maturities until Apr-23

• Cost of debt down to 1.9%

• 84% fixed rate debt or hedged with swaps


Changes to the FBI (REIT) regime

Oct 2017

Sep 2018More clarity expected as part of the Government tax

budget for 2019

2019 Transition / implementation guidelines

2020 FBI’s no longer allowed to invest directly in Dutch

real estate

Potential timeline

• NSI is liaising with its listed peers on FBI matters

• Ongoing discussions with all relevant stakeholders

• Preference to maintain current FBI (REIT) status

Government coalition agreement on the subject of

dividend withholding tax

Too early to make predictions on outcome

Timeline

Nov / Dec 2018 Parliamentary vote on tax budget 2019


Table of contents

1. Introduction



Annex


5. Final remarks


Final remarks

• Acquisition of Lange Voorhout 7, The Hague to be completed 25 July 2018

• Further disposals of smaller office assets

• Investor interest in retail assets improving

• € 100m+ in acquisitions in 2018

• Further progress negotiations with ING on Laanderpoort development

• Improved EPRA EPS guidance 2018 of €2.50 - €2.55


Table of contents

1. Introduction



Annex


5. Final remarks


Key figures half year 2018

€1.2bnGAV

114Assets

€42m Revenue

€22m EPRA Earnings

100%Netherlands

€1.19EPRA Earnings

per share

€1.04Interim dividend

per share

36.3%Net LTV

€710m EPRA NAV

€38.44EPRA NAV

per share


• Sector focus – Larger office assets

• Location focus – Economic growth centers

(Amsterdam, The Hague, Rotterdam, Utrecht,

Eindhoven, Den Bosch, Leiden and selective others)

• Strong platform – Better processes, stronger team

• Total return – Portfolio management and value add

activities driven by total shareholder return

• Cost efficiency – Improved EPRA cost ratio

• Transparency – Improved reporting

New strategy1 of more focus

Control

Operational and

financial leadership

Positioning

A more concentrated

office portfolio

Execution

Value add asset

management

1: Presented in February 2017


Strategic History of NSI

1992 1998 2000 2011 2013 2016 2017 H1 20182015

Investment Highlights

Exit from

Switzerland 2 cm

Sale of 85%

of industrial

assets

(total €45m)

Acquisition

of Glass

House

(€61m)

Sale of 60%

of retail

assets (total

€225m)

Acquisition

of 5 office

assets (total

€139m)

Partial exit

Belgian IOW

stake

Acquisition

of 8 office

assets (total

€169m)

Partial exit

Belgian IOW

stake

Corporate Highlights

NSI founded NSI ListedDutch REIT

status

Merger with

Vastned O/I

Successful

€300m

recapita-

lisation

Significant

reduction in

secured

assets

8-year

unsecured

USPP;

Implied IG1

credit rating

€550m

Refinancing

Successful

€480m new

syndicated

loan facility

Further progress: New, leaner organisation; Upgrading IT systems and processes; Lower EPRA cost ratio

Acquisition

of 2 office

assets (total

€ 54m)

Sale of 13

assets (total

€ 26m)

1: IG = Investment Grade


Key portfolio metrics

Jun 18 Dec 17

Offices HNK Other1, Total Total

Number of properties 82 14 18 114 126

Market value (€m)2 778 202 183 1,163 1,108

Market value (€ psm) 1,887 1,588 1,690 1,796 1,639

Annual contracted rent (€m)3 57 15 15 88 87

ERV (€m) 66 22 16 104 105

Lettable area (‘000 sqm) 412 127 108 648 676

EPRA Vacancy rate 13.6% 28.2% 13.4% 16.6% 18.4%

WAULT (years) 4.7 3.1 5.5 4.6 4.7

Average rent/sqm (€ p.a.) 171 180 178 174 169

EPRA net initial yield 5.5% 3.6% 6.2% 5.2% 5.5%

1: Keizerslanden in Deventer was sold in April 2017 and is included as asset held for sale in “Other”, with delivery and transfer set for H2 2018

2: At market value; reported in the balance sheet at book value excluding lease incentives and part of NSI HQ in own use

3: Before free rent and other lease incentives


Offices split H1 2018

G4Other

Randstad

Other

NLTotal Offices

Number of properties 34 23 25 82

Market value (€m)2 547 105 126 778

Market value (€ psm) 2,714 1,185 1,032 1,887

Annual contracted rent (€m)3 35 10 12 57

ERV (€m) 41 12 14 66

Reversion (%) 6.6% -6.7% -12.6% 0.2%

Lettable area (‘000 sqm) 202 89 122 412

EPRA Vacancy (%) 9.2% 16.3% 24.5% 13.6%

WAULT (yrs) 5.3 3.7 3.9 4.7

Average rent/sqm (€ p.a.) 200 144 135 171

EPRA net initial yield (%) 4.7% 7.7% 6.7% 5.5%

1: At market value; reported in the balance sheet at book value excluding lease incentives and part of NSI HQ in own use

2: Before free rent and other lease incentives


Expiries and reversion

Total portfolio (€m)

Offices portfolio (€m)

HNK portfolio (€m)

Other portfolio (€m)


Yields

EPRA Net Initial Yield Reversionary Yield

Jun 18 Dec 17 Jun 18 Dec 17

Offices 5.5% 5.8% 8.5% 9.1%

HNK 3.6% 3.9% 10.8% 11.9%

Other 6.2% 6.0% 8.7% 8.6%

Total 5.2% 5.5% 8.9% 9.5%


Impression of dispositions H1 2018

Amersfoort (958 sqm) Apeldoorn (3,360 sqm) Arnhem (5,863 sqm) Breda (3,187 sqm)

Deventer (3,427 sqm) Doetinchem (2,281 sqm) Houten (1,045 sqm) Meppel (6,500 sqm)

Tilburg (2,756 sqm) Zutphen (2,954 sqm) Zwaagdijk (2,099 sqm) Diemen (7,510 sqm)


-60%

-40%

-20%

0%

20%

40%

60%

-

20

40

60

80

100

120

140

160

180

200

P/NAV-1 (rhs) Last Price (lhs) EPRA NAV (lhs)

Share price performance

-15%

-10%

-5%

0%

5%

10%

32

34

36

38

40

De

c 1

7

Ja

n 1

8

Feb

18

Ma

r 1

8

Ap

r 1

8

Ma

y 1

8

Ju

n 1

8

P/NAV-1 (rhs) Last Price (lhs)

EPRA NAV (lhs) Median price (lhs)


Segment information

Segment split H1 2018 (€ ‘000)

1 The segment “Corporate” reflects costs and revenues that are not directly tied to properties

Offices HNK Other Corporate1 Total

Gross rental income 27,292 7,363 7,718 42,372

Service costs not recharged -440 -398 -208 -1,046

Operating costs -3,536 -2,931 -1,574 -8,040

Net rental income 23,316 4,035 5,936 33,286

Revaluation of investment property 21,637 12,997 -3,348 31,286

Net result on sale of investment property -699 -36 -735

Net result from investment 44,254 17,031 2,553 63,838

Administrative costs -4,023 -4,023

Other income and costs -41 -41

Net financing result -10,002 -10,002

Result before tax -14,006 49,772

Corporate income tax -51 -51

Total result for the year -14,116 49,721

Other comprehensive income

Total comprehensive income for the year -14,116 49,721


Balance sheet

Balance sheet (€ ‘000)

30 June 2018 31 December 2017

Real estate investments 1,128,037 1,072,180

Assets classified as held for sale 27,338 28,791

Other assets 10,454 10,472

Cash and cash equivalents 1,525 6,827

Total assets 1,167,354 1,118,269

Shareholders' equity 706,954 672,688

Interest bearing loans 420,956 404,708

Debts to credit institutions 2,342 9,873

Other liabilities 37,102 31,001

Total liabilities 460,400 445,582

Total shareholders' equity and liabilities 1,167,354 1,118,269


Why the Netherlands

• GDP growth YoY Q1 2018: 2.8%

• Consumer spending growth 1.7% (2017, highest since 2000)

• CPI YTD 2018: 1.7% (2017A: 1.4%)

• Budget deficit: 0.5% (top 5 EU)

• Unemployment 4.0% (May 2018)

• 7th highest GDP per capita (ascending; worldwide)

• 7th place in Education Index (worldwide)

• 5th richest country (EU)

• 2nd best payable healthcare (EU)

• 2nd highest purchasing power (EU)

• 8th place in Global Competitiveness Index (144 countries)

• 7th best quality of life (worldwide)

• 20th biggest economy (worldwide)

• 5th place in Global Innovation Index (143 countries)

• 1st place quality of healthcare (Europe)

• 2nd best pension system (Europe)

• 4th place happiest children (worldwide)

• 7th happiest population (worldwide)

• 4th lowest amount of suicides (EU)

• 5th place in Human Development Index (worldwide)

• 2nd place in Freedom Index (worldwide)

• 10th place in Democratic Index (worldwide)

0

5

10

15

20

25

30

2011 2012 2013 2014 2015 2016 2017

Budget deficit (€bn)

Source: CBS


European office market

European commercial property investment volumes1, 2017

1: Graph shows growth in comparison to 2016

Source: Knight Frank

1 10 100

20%

-60%

-20%

-40%

60%

0%

40%

Czech Republic

Belgium

Portugal

HungaryAustria

NetherlandsRussia Denmark

UK

Poland

Germany

Switzerland

Norway

Ireland

FranceSpain

Italy

Luxembourg

Sweden

YoY change

Investment volumes (€ bn.)

More attractive

Less attractive

The Netherlands is currently one of the most attractive markets for commercial property investment

European prime office rental growth, 2017

-10% -5% 0% 5% 10% 15%

Berlin

Stockholm

Milan

Madrid

Amsterdam

London (City)

Brussels

Paris

Prague

Budapest

Dublin

Frankfurt

Munich

Bucharest

Vienna

Warsaw

Moscow

London (West end)


Randstad vs other cities in Europe

Largest office markets – Europe (sqm m)

0

10

20

30

40

50

60

Paris Randstad London Munich Moscow Berlin G4 Madrid Hamburg Brussels


Randstad

interim results half year 2018 - nsi · nsi half year results i 4 key highlights first half 2018...

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