Annual financial report 2013

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Strategy \

Management Report

INVESTMENT CRITERIA

With 30 years of experience in property acquisitions, Cofinimmo only

selects those acquisitions which pass the test of offering favourable finan-

cial prospects in terms of performance and risk profile and which comply

with the policy of dividend distribution to the shareholders.

Decisions are based on rigorous valuation models that use precise finan-

cial criteria. The decision to purchase buildings which investment value is

within the portfolio average and for which there is no specific financing

is made based on the discounted value, at the weighted average cost of

equity and debt, of the long-term cash flow generated by operating the

property and of its residual value, compared to the purchase price, costs

included.

Other than when Cofinimmo is not the owner in perpetuity of the property

and where the plan is to transfer the property free of charge or at a fixed

value to a third party at the end of the lease (as, for example, in the major-

ity of Public-Private Partnerships), a conservative estimate is used for the

residual value. For large-scale operations (>7% of the portfolio value) or

those associated with a special financing arrangement, the company also

examines the combination of the average accretions over five years in the

net current result and in the revalued net asset value per share.

Moreover, in addition to the routine due diligence inspections, each build-

ing under consideration is allocated a score based on its intrinsic prop-

erties (for office buildings, this may mean the size and divisibility of the

floors, the parking ratio, the ceiling heights, the natural light, etc.), its energy

performance, its location (vehicle access, public transportation, submarket

rental activity, level of local taxes, etc.) and its environment (nearby shops,

hotels, nice view, etc.).

The investment policy is set out in the company’s Articles of Association,

which also contain a certain number of restrictions on this matter. Any

change to this policy would require an amendment of the Articles of

Association decided by the shareholders at an Extraordinary General

Meeting.

GEOGRAPHICAL PRESENCE

Operating exclusively in Belgium until 2006, Cofinimmo went on to obtain

footholds in the Netherlands in 2007 (part of the Pubstone portfolio) and in

France in 2008 (healthcare real estate), in both cases through long-term

partnerships with tenant operators.

The company’s strategy favours an expansion into Belgium’s neighbouring

countries with a rate of establishment which enables it to acquire sound

knowledge of the foreign property markets it has targeted.

The existence in these countries of the Real Estate Investment Trust (REIT)

fiscal regime, similar to that of the Sicafi/Bevak regime, acts as a further

incentive.

IN-HOUSE PROPERTY AND OPERATIONAL

MANAGEMENT

In the case of offices, this management is done in-house by the personnel

of Cofinimmo, rather than being subcontracted, in the interest of the clients

with whom a lasting relationship is thus created.

Across all of the investment segments, the strategy is implemented thanks

to the expertise of the Project and Property Management teams, which

work exclusively for its tenant clients.

The company also has in-house commercial, legal, accounting, financial,

human resources and communication teams. All these activities are based

on an SAP integrated IT system and a quality control and internal audit

division.

FINANCIAL STRATEGY

The profitable growth of the Group and the stable, proactive relationship

forged with the clients contribute to its financial result, to the benefit of its

shareholders.

Maintaining a good occupancy rate, reducing the costs of having vacant

premises and investing in quality projects all allow the Group to achieve

reasonably foreseeable operational performances, which in turn serve to

boost its operational cash flow. Furthermore, Cofinimmo closely monitors

the company’s structural costs.

Cofinimmo’s investment capacity is based on its ability to raise new equity

and on its borrowing capacity.

While its Sicafi/Bevak status allows a debt ratio of up to 65% (debt to

total assets), Cofinimmo’s policy, defined with its partner banks, con-

sists in keeping its debt ratio

below 50% (see the chapter “Management

of Financial Resources” of this Annual Financial Report). This choice was

made primarily in view of the long residual lease term of the properties

in the portfolio and goes hand-in-hand with prudent interest rate hedging

measures so as to present an overall consistent financial profile, a highly

predictable net current result and a low risk exposure, save for extreme

external events.

In accordance with the principles governing its status as a Real Estate

Investment Trust and the Sicafi/Bevak regime, Cofinimmo distributes most

of its current results to its shareholders in the form of dividends.

The economic depreciation on the buildings is not deducted in the calcula-

tion of the current results. It is included implicitly in the result on the portfo-

lio through the fact that the real estate experts, taking into account the age

of the buildings and the date of their next renovation, will incorporate the

cost of the latter in their valuations. At a time when market rents are stag-

nating, this economic depreciation has a greater impact on the experts’

valuations and, consequently, on Cofinimmo’s result on the portfolio.

CORPORATE SOCIAL RESPONSIBILITY

STRATEGY

When it comes to corporate social and environmental responsibility,

Cofinimmo strives to integrate both social and environmental elements into

its overall strategy. Beyond its mere legal obligations, Cofinimmo endeav-

ours to adopt a proactive approach towards improving its physical environ-

ment, in particular by reducing its carbon footprint and favouring social and

responsible projects. As a major player in the property market, Cofinimmo

demonstrates its social responsibility through its relationships with its cli-

ents, suppliers and partners alike.

In order to implement its social and environmental policy, Cofinimmo has

set up a Green Committee which role is to propose specific measures for

improving the company’s environmental performance.

For more information, see the chapter “Corporate Social Responsibility” of

this Annual Financial Report.

This year’s investment strategy also applies to future years.

Financial and other debts divided by total assets of the consolidated balance sheet.