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2014 elections quickly lead to the creation of a government, these uncer-
tainties could disappear in the coming months and it would contribute
to boost investments in the nursing home sector. Finally the yields tight-
ening and the increasing bed prices have led some investors to explore
investment possibilities abroad. This is the case for Cofinimmo, which has
acquired clinics in the Netherlands.
Although, recent demographic previsions made by the Federal Planning
Bureau confirm the population growth and the expected reversal of the
age pyramid in Belgium over the next 20 to 40 years. These factors are the
main future growth reasons in the sector of nursing homes as nearly 30%
of the population should be aged over 60 years in 2050 and nearly 10%
over 80 years. According to the scenarios, the required growth in terms
of available beds should amount between 1,800 and 3,500 beds a year to
compensate the growing demand. However, over the past ten years, the
annual increase turned at a rate under 1,000 beds a year, mainly because
of limitation imposed by the Federal Government in the matter of the num-
ber of bed accreditations. The pressure between the demand and the lim-
ited supply results in occupancy rates close to 100%.
2014 should be an important year for the nursing home sector as the
reform of the state should bring some answers to uncertainties having
heavily affected the sector in 2013. Investors such as Cofinimmo wish
indeed to continue investing in this sector. Cofinimmo has set the ambi-
tion to reach a value of 40% in this sector in the years to come.
PROPERTY OF DISTRIBUTION NETWORKS
(PUBSTONE AND COFINIMUR I)
The distribution network properties represent today about 16% of
Cofinimo’s real estate portfolio which intends to maintain this share stable
over the next two to three years. Cofinimmo’s subsidiaries, Pubstone for
the cafés and restaurant sector and Cofinimur I for the retail and agencies
sector, represent a diversified risk profile between commercial real estate
and investment properties with redevelopment potential into residential
functions (Pubstone) or local agencies (Cofinimur I).
The two portfolios have remained relatively stable throughout 2013, as
Cofinimmo decided to sell some non-core assets of the two aforemen-
tioned subsidiaries. The fair value of assets held in the distribution net-
work portfolio reaches €533 million and slightly appreciated during the
year.
Cofinimmo seeks investments in this sector characterised by long-term
leases with relatively low rental income and fairly attractive acquisition
prices per square metre. Sale and leaseback operations for assets with
attractive locations, allowing a multiplicity of future uses are preferred.
However assets from this part of the portfolio could also be sold on an
individual basis to small local investors.
OPINION
We confirm that our valuation has been done in accordance with national
and international market practices and standards (International Valuation
Standards issued by the International Valuation Standards Council, the
Red Book of the Royal Institute of Chartered Surveyors, Global Edition
March 2012) and their application procedures, in particular for the assess-
ment of Belgian real estate investment funds (Sicafis/Bevaks).
The market value is defined as the amount most likely to be obtained
at normal conditions of sale between willing and well-informed parties,
inclusive of transactions costs (mainly transfer taxes) to be paid by the
acquirer. It does not reflect the costs of future investments that could
improve the property or the benefits associated with such costs.
VALUATION METHODOLOGY
The valuation methodology adopted is mainly based on the following
methods:
METHOD OF ESTIMATED RENTAL VALUE CAPITALISATION
(ERV CAPITALISATION)
This method consists in capitalising the estimated rental value of the
property by using a capitalisation rate (‘yield’) in line with the investment
market. The choice of the capitalisation rate used is linked to the capital-
isation rates applied in the real estate investment market, which takes
into account the property location, the quality of the buildings and that
of the tenant, and the quality and duration of the lease at the valuation
date. The rate corresponds to the rate anticipated by potential investors
at the valuation date. To determine the estimated rental value, one takes
into account the market data, the location of the property and the quality
of the building.
The resulting value must be adjusted if the passing rent generates oper-
ational income higher or lower than the estimated market value used for
capitalisation. The valuation takes into consideration the charges that will
need to be incurred in the near future.
DISCOUNTED CASH FLOW METHOD (DCF)
Under this method, it is required to assess the net rental income gener-
ated by the property on a yearly basis for a specific period and discounted
at today’s value. The projection period generally varies between 10 and
18 years. At the end of the period, a residual value is calculated using a
capitalisation rate that takes into account the anticipated condition of the
building at the end of the projection period, discounted at today’s value.
RESIDUAL VALUE METHOD
The value of a project is determined by defining the development poten-
tial on site. This implies that the intended use of the project is known or
foreseeable in a qualitative (planning) and quantitative manner (number
of square metres that can be developed, future rents, etc.). The value is
obtained by deducting the costs upon completion of the project from its
anticipated value.
APPROACH BY MARKET COMPARABLES
This method is based on the principle that a potential purchaser will not
pay more for the acquisition of a property than the price recently paid on
the market for similar properties.
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