Cofinimmo - Annual Financial Report 2014

Report by the real

estate experts

Context

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

as of

31 December 2014

with a view to finalising its financial state-

ments at that date.

DTZ Winssinger et Associates (DTZ), PwC Entreprise Advisory cvba/

scrl (PwC) and JLL sprl/bvba have each separately valued a part of

the portfolio of offices and other properties

DTZ Winssinger and PwC have each separately valued part of the

portfolio of nursing homes in Belgium. DTZ Eurexi and JLL France

have each separately valued part of the portfolio of nursing homes

and other care facilities in France.

The portfolio of clinics in The Netherlands has been valued by DTZ

Zadelhof and by PwC Netherlands.

The portfolios of pubs in Belgium and the Netherlands have been

valued by DTZ Winssinger and DTZ Zadelhof, respectively.

The portfolio of insurance agencies in France has been valued by

DTZ Eurexi.

DTZ, PwC and JLL 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, they 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 factors 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 properties in a professional way and performs

technical and legal due diligence before acquiring each property.

The office market

In Belgium, the office investment market recorded around €1.7 bn

invested in 2014 (the total invested volumes in the commercial real

estate reached €3 bn in 2014). This represents an increase of 40%

compared to 2013.

Brussels concentrates the great majority of investments in the

office sector as more than €1.5 bn have been invested in 2014,

50% more than in 2013. The economic recovery, the importance of

available equities, and historically low interest rates contributed

to boost investors’ appetite for real estate and for office assets in

particular. The office sector represents more than 55% of invested

volumes. The growing appetite for office assets led to a yield com-

pression in 2014. Prime office yields for assets with 6/9 year lease

contracts stand currently at 5.75% (compared to 6.35% mid-2013)

and they are below the psychological cap of 5% for long-term let

assets (compared to 5.15% at the beginning of 2014).

Investors continue to focus on secured assets (North Galaxy,

Covent Garden, headquarters of Brussels-Environment in Tour &

Taxis) but also tend to invest in assets with available spaces or in

assets in the middle of their life cycle (Platinum, Montoyer 47, Lloyd

George). Investors also adopt opportunistic behaviors and tend

to take more risks; the acquisition of assets such as the Pegasus

Park constitutes a good example of this strategy. We also observe

a growing interest for bigger lot-size investments, the average size

of deals stands at €35m. The two biggest transactions of the year

2014 are the purchase of the North Galaxy for €475m and the acqui-

sition of the Covent Garden for more than €260m.

Conversely to previous years, foreign investors were the most

active in the office investment market in 2014. They represent close

to 75% of the invested volumes. German investors remain particu-

larly active, both on the purchase and the sell sides. They mainly

focus on highly secured assets. On the other hand, US investors,

who returned to the investment market, adopt a more opportunistic

behavior with « add-value » acquisitions such as the Pegasus Park.

US investors benefit from the exchange rate which reinforces the

Dollar compared to the Euro. Asian investors, mainly Chinese inves-

tors, confirm their interest for Belgium and Brussels in particular.

Investments coming from the US and Asia are important and should

rise in the coming months. Apart from these international investors,

domestic investors are mainly insurance companies or REITs.

Although the investment market witnessed a strong upward

movement in 2014, the situation is more contrasted on the occupier

market. Brussels has observed a slight increase in the take-up

while the regional office markets revealed rather faded perfor-

mances in 2014.

In Brussels, the take-up has increased by 10% in 2014, mainly

thanks to important restructuration movements recorded in the

public sector, at national, regional and European levels. The trend

remains nevertheless on the downside with space reduction per

employee. Combined with important ongoing restructuration pro-

cess in the banking sector, the take-up should tend to decrease in

the coming months.

Other properties: semi-industrial, retail, leisure and residential.