Annual financial report 2013

In the 2012 Annual Financial Report, you mentioned in your letter to the

shareholders the need to spread economic market risks. Were you able

to make concrete progress in this regard in 2013?

Jean-Edouard Carbonnelle:

Our portfolio currently consists of 46% offices,

37% facilities for healthcare and accomodation of elderly people, 16% small

properties in distribution networks and five buildings in Public-Private

Partnerships. In recent years, healthcare real estate and distribution

networks have been our main areas of growth in Belgium, France and

the Netherlands. In 2013 we acquired, built or rebuilt 19 new healthcare

facilities in Belgium, France and the Netherlands, for a total amount of

€41 million. All of these properties are let under long-term leases. Our

expansion in this sector is dependent on the development programmes of

the tenants that operate these establishments, accommodating residents

and patients. The long-term leases provide us with a stable cash flow that

is indexed to inflation, but the functionally- and energy-efficient buildings

are yet to be built, which requires time.

André Bergen:

I would add that while we were forerunners among

professional investors in Belgium, investing in nursing homes as early as

2005, we are now seeing a real interest in this sector, which is leading us

to expand our market research efforts to acquire additional properties in

other countries and in other healthcare real estate segments. Hence our

recent acquisitions of two

independent medical treatment centres in the

Netherlands.

The office sector, for which you are active only in Belgium, remains your

main area of investment. How is this sector performing now, five years

after the start of the global financial crisis?

Jean-Edouard Carbonnelle:

Demand for office space is negatively impacted

by the almost non-existent economic growth. To varying degrees, the effect

of new working methods and money-saving efforts undertaken by the

occupant companies and administrations is also being felt. The number of

square metres per workstation is decreasing and organisations no longer

systematically provide a fixed workstation for each employee. In this con-

text, it is imperative for owners of office buildings to significantly adapt their

offer, both quantitatively and qualitatively.

André Bergen:

The Belgian market entered a stabilisation phase in 2013,

with rental vacancy still high (11%) but slightly decreasing since several

months. This improvement is mainly due to the withdrawal of properties

from the rental market in view of their renovation or reconversion.

What are the initiatives then being taken by Cofinimmo in this sector?

Jean-Edouard Carbonnelle:

The commercial and technical management

of the operational office portfolio mobilises our teams in order to retain

our tenants by responding quickly to their demands and to acquire new

clients. Between now and 2020, 15% of our office buildings (just 6% of

the overall portfolio) will undergo large-scale renovations or will be rebuilt,

thus boosting their performance to a level well above the market average

and competing buildings in terms of functionality, flexibility, sustainability

and connectivity.

André Bergen:

More than half of our planned investment expenditures

during that period will be allocated to the office sector. In addition, we are

currently helping stabilise the market by transforming, when the location

and configuration of a building are suitable, office space into apartments

that we then put up for sale. We carried out two such projects in 2013

and they are already 74% and 50% reserved respectively, although their

delivery is scheduled for the beginning of 2015.

You appear to be one of the only listed real estate companies in Europe

to enter into Public-Private Partnerships in real estate. Why?

Jean-Edouard Carbonnelle:

We currently have five operational buildings in

this category: a courthouse, a fire station, two police stations, a student

housing residence, and we are having a prison built that is expected

to be delivered in the first half of 2014. These buildings are the result of

public contracts that we have been awarded. They are leased for very long

periods, up to 36 years, which provides us with cash flows that are fully

predictable. At the end of the contracts, the properties are transferred

free of charge to the public authority. Alternately, the public authority has

the option to purchase the properties at a price corresponding to the

amortised value of the building.

André Bergen:

We can therefore calculate the internal rate of return of

these investments from the outset, without having to make an assumption

as to the residual value at the end of the lease, and this considerably

decreases the level of uncertainty and the risk of assessment error. Finally,

the experience gained through these partnerships and specific buildings

improves the expertise of our teams for other real estate projects.

MESSAGE TO

THE SHAREHOLDERS

An agreement for the acquisition of a third property located in Eindhoven has been signed. For more details, see page 39.

INTERVIEWWITH THE CHIEF EXECUTIVE OFFICER

AND THE CHAIRMAN OF THE BOARD OF DIRECTORS

Management Report

/ Message to the Shareholders