Annual financial report 2013

REPORT BY THE REAL ESTATE EXPERTS

CONTEXT

We have been engaged by Cofinimmo to value its real estate assets as

of 31.12.2013 with a view to finalising its financial statements at that date.

DTZ Winssinger & Associates (DTZ) and PricewaterhouseCoopers

Entreprise Advisory cvba/scrl (PwC) have each separately valued approx-

imately half the portfolio of offices and other

properties.

DTZ Winssinger and PwC have each separately valued part of the portfolio

of healthcare real estate in Belgium.

DTZ Eurexi and Jones Lang LaSalle France have each separately valued

part of the portfolio of healthcare real estate in France.

The portfolio of healthcare real estate in the Netherlands has been valued

by DTZ Zadelhof.

The property portfolios of distribution networks in Belgium and the

Netherlands have been valued by DTZ Winssinger and DTZ Zadelhof,

respectively.

The property portfolio of distribution netwroks in France has been valued

by DTZ Eurexi.

DTZ and PwC have in-depth knowledge of the real estate markets in which

Cofinimmo is active and have the necessary, recognised professional

qualifications to perform this assessment. In conducting this assessment,

we have acted with complete independence.

As is customary, our assignment has been carried out on the basis of

information provided by Cofinimmo regarding tenancy schedules, charges

and taxes borne by the landlord, works to be carried out and all other fac-

tors that could affect property values. We assume that the information

provided is complete and accurate.

Our valuation reports do not in any way constitute an assessment of the

structural or technical quality of the buildings or an in-depth analysis of

their energy efficiency or of the potential presence of harmful substances.

This information is well known to Cofinimmo, which manages its proper-

ties in a professional way and performs technical and legal due diligence

before acquiring each property.

THE OFFICE MARKET

The market for offices becomes again attractive for investors in 2013.

An increase in invested volumes of almost 50% is noticeable over the last

year. The Belair transaction (80,000m² offices) purchased at a price of

about €300 million by a German (Hannover Leasing) and Chinese consor-

tium (Gingko Tree Investment, sovereign fund) has obviously influenced

the picture, but it is not the only factor involved. Several other major trans-

actions have taken place, such as GDF Suez, AMCA, Blue Tower, Loi/Wet 15,

Royal/Koning 60-68, Montoyer 47, etc. Most of them have been completed

at rather hard yields, pushing values upwards. At the end of the year, there

was even one transaction in Brussels signed at a yield below 5% on a new

building with a long-term lease. For more standard leases, the prime yield

is estimated to be below the threshold of 6%.

This renewed interest for the office investment market comes for the vast

majority from local players (some 75%) and from German funds (15%), even

though the latter do a lot of arbitrages (purchase and sale). For the first

time, Asian investors reached the podium. One should however bear in

mind that this is linked to one single transaction and it will be interesting

to observe whether they maintain their presence in the future.

Among local investors, mainly insurance companies take the lion’s share.

Insurance companies are driven by their long-term commitments and by

their objectives to cover these commitments over the same long term by

reinvesting the premiums cashed in top-quality products, with long-term

leases secured by first-ranking tenants. Sicafis/Bevaks are encouraged

by the very low interest rates that are still prevailing on the market and

that make their financing cost attractive, even with respect to increasingly

hard yields.

The rental market remains tough and very competitive. The take-up in

2013 has been less encouraging than in 2012 and the level falls somewhat

below the one of 2011, with somewhat more than 325,000m². The vacancy

rate, which falls from 10.4% to 10.1%, shows a more favourable evolution,

thanks notably to the attitude of the banks in the last years that refuse to

finance projects that are not preleased. The pipeline of speculative pro-

jects hence considerably dropped, which is positive for the existing stock.

THE HEALTHCARE REAL ESTATE MARKET

The fair value of Cofinimmo’s healthcare real estate portfolio amounts cur-

rently up to €1,228 billion, representing a slight increase compared to the

portfolio value in 2012. The healthcare sector represents ±37% of the total

value of Cofinimmo’s portfolio.

After an exceptional year 2012 with a total of more than €260 million

invested, the year 2013 has registered an important decrease in terms of

volumes invested as only €100 million were recorded. The investments in

nursing homes added up to 5% of the total volume invested on the Belgian

market of commercial real estate against 14% in 2012.

In 2013, Cofinimmo has also been active on the market by investing

±€40 million in extensions and redevelopments of nursing homes in

Belgium. Apart from a relatively low investment level in 2013, this sector

continues to generate interest since it provides stable and secure income

in the long term. The trends of the nursing home operators to outsource

the aspects related to real estate in order to focus on their core business

has also been confirmed in 2013 and is expected to continue in the com-

ing years.

This sector could be negatively impacted by various factors including

the complexity and the financial constraints in the nursing home sector,

which requires specialised knowledge and specific skills, resulting in rel-

atively important barriers for new potential players to enter the sector. We

should also mention that the sixth reform of the Federal State adopted in

2013 brings uncertainty on the nursing home sector as the skills in elderly

healthcare become a regional matter. Differences in governance could

therefore emerge in the future between the communities, which probably

has led to a more cautious behavior on the part of investors, waiting for

clarifications on the intentions and ambitions of each community. If the

The category “Other” includes semi-industrial buildings, a leisure infrastructure and a police station.

Management Report /

Property Report

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