Interim Results Half Year 2018 July 2018
NSI will be the leading specialist in the Dutch office market, with a strong and efficient platform that will drive returns through pro-active asset management, value-add initiatives and active capital recycling. NSI will be the partner of choice for investors looking to team up with a best-inclass operator
Table of contents 1. Introduction 2. Progress and strategy update 3. Market and portfolio update 4. Financials update 5. Final remarks Annex NSI Half Year Results I 3
Key highlights first half 2018 Operational performance EPRA Vacancy Down 1.8% to 16.6% EPRA Vacancy LFL Down 0.6% (Offices and HNK down 1.0%) Asset rotation 2 acquisitions 1 ( 54m) and 13 disposals ( 26m) Development Announcement of negotiations with ING regarding Laanderpoort Valuation result Positive uplift of 3.1% (Amsterdam up 7.5%) Financial performance EPRA EPS 1.19 per share (net of 0.11 negative IFRS 9 effects) EPRA NAV per share up 4.9% to 38.44 Interim dividend stable at 1.04 per share US Private placement 40m note reflecting implied investment grade credit rating Balance sheet management New syndicated loan facility Improved margins and maturity Cost of debt down 0.4% to 1.9% Debt maturity Up to 5.1 years up from 3.1 years at FY17 1: Includes acquisition of Lange Voorhout in The Hague and transfer costs NSI Half Year Results I 4
Strong operational and financial performance Key metrics Revenue and earnings H1 2018 H1 2017 Change % Improved occupancy EPRA vacancy (%) Operating margin 78.6% 79.9% -1.3% Net rents like-for-like -0.4% 1.8% -2.2% 18.4% 16.6% -1.8% EPRA Earnings per share 1 ( ) 1.19 1.35-11.5% Interim dividend per share ( ) 1.04 1.04 0.0% Balance sheet 30 Jun 18 31 Dec 17 Change % EPRA Vacancy 16.6% 18.4% -1.8% Portfolio revaluation 3.1% 2.5% EPRA NAV per share ( ) 38.44 36.66 4.9% EPRA NNNAV per share ( ) 38.15 36.13 5.6% Average cost of debt 1.9% 2.3% -0.4% LTV 36.3% 36.9% -0.5% 31 Dec 17 30 Jun 18 Enhanced NAV per share EPRA NAV per share ( ) 38.44 36.66 +4.9% 31 Dec 17 30 Jun 18 1: EPRA Earnings per share H1 2018 net of 0.11 negative IFRS 9 effects NSI Half Year Results I 5
Table of contents 1. Introduction 2. Progress and strategy update 3. Market and portfolio update 4. Financials update 5. Final remarks Annex NSI Half Year Results I 6
Asset rotation H1 2018 Disposals # Assets # Tenants Market Value Dec-17 Net sales proceeds Book profit / loss Net contract rent Dec-17 NIY WAULT Dec-17 EPRA Vacancy Total Offices 12 47 20.5 19.8-0.7 1.1 5.3% 2.8 48.9% Total Other 1 1 6.6 1 6.5-0.1 0.5 8.0% 0.3 0.0% Total disposals 13 48 27.0 26.3-0.8 1.6 6.0% 2.2 38.1% Acquisitions # Assets # Tenants Market Value Jun-18 Total purchase cost Net contract Book profit / loss 2 rent Jun-18 3 NIY WAULT Jun-18 EPRA Vacancy Total Offices 1 9 36.9 39.3-2.4 1.6 4.1% 3.1 23.6% Total acquisitions 1 9 36.9 39.3-2.4 1.6 4.1% 3.1 23.6% Delta -12-39 9.9-13.0-3.2 0.0-1.9% 0.9 A more concentrated, higher quality portfolio of larger assets 1: Includes capex in H1 2018 2: Loss caused by transfer costs Q-port acquisition 3: Net contracted rent expected to increase to 2.3m when fully operational NSI Half Year Results I 7
Increased focus on Dutch Offices Breakdown of portfolio by GAV (%) Office BE 18% 20% 21% 17% 16% 36% 33% Retail 29% 27% 26% 5% Other 12% 14% 20% 83% 84% 59% 67% Office NL 41% 39% 34% 2012 2013 2014 2015 2016 2017 H1 2018 NSI GAV 2.1bn 1.8bn 1.7bn 1.2bn 1.2bn 1.1bn 1.2bn In recent years NSI has focused its portfolio, with full divestment of Belgian activities and most retail assets NSI Half Year Results I 8
Increased focus on Offices in economic growth centres Sector split evolution since 2016 Share of Amsterdam in Offices portfolio (excluding HNK) 1.2bn 1.1bn 1.2bn Other 34% 17% 16% 16% 13% 45% 53% Other NL Other Randstad 18% 8% 10% 20% 10% 20% 24% +43% 35% Other G4 17% 36% 41% 13% Amsterdam 23% 2016 2017 H1 2018 2014 2015 2016 2017 H1 2018 Asset rotation on track with portfolio moving towards Amsterdam and 85% of Offices and HNK in target cities NSI Half Year Results I 9
Heading to a more concentrated portfolio Location overview H1 18 (portfolio value 1.2bn) Number of assets Average asset value ( m) 350 12 300 10 10.2 250-65% 8 +122% 200 6 150 100 114 4 50 2 0 2012 2013 2014 2015 2016 2017 H1 2018 0 2012 2013 2014 2015 2016 2017 H1 2018 NSI Half Year Results I 10
Table of contents 1. Introduction 2. Progress and strategy update 3. Market and portfolio update 4. Financials update 5. Final remarks Annex NSI Half Year Results I 11
Dutch office market Investment volumes Offices Netherlands ( bn) 3.9 3.8 5.5 7.9 Prime Yields 7.0% 6.5% 6.0% 5.5% 5.0% 4.5% 1.7 2.1 1.3 1.2 1.7 2.1 4.0% 3.5% 2009 2010 2011 2012 2013 2014 2015 2016 2017 H1 2018 0.0% 2009 2010 2011 2012 2013 2014 2015 2016 2017 H1 2018 Amsterdam Eindhoven Rotterdam The Hague Utrecht Vacancy rate Offices Netherlands Prime rental growth (1) 15% 14% 13% 12% 11% 140 130 120 110 100 90 80 0% 2009 2010 2011 2012 2013 2014 2015 2016 2017 10.5% H1 2018 10 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 H1 2018 Amsterdam Eindhoven Rotterdam The Hague Utrecht 1: Indexed (2009 = 100) Source: JLL NSI Half Year Results I 12
Revaluations H1 2018 H1 2018 ( m) Positive revaluation in H1 2018 70 Total portfolio up 3.1% Driven by Offices in G4 and HNK 50 30 3.1% 3.3% Polarisation in Offices valuation continues Positive revaluations Offices 24m of which 19m in Amsterdam 10 6.9% G4 portfolio up 5%, Other Netherlands down 2% -10-30 -1.7% Same picture at HNK HNK up 13m or 6.9% Positive revaluations of 15m in the G4-50 Total Office HNK Other Positive revaluation Negative revaluation Net revaluation Small decline in Other Value down by 1.7% NSI Half Year Results I 13
Acquisition Q1 2018 Q-Port Kingsfordweg 47, Amsterdam Impressions Area: Tenant: 12,709 sqm Multi-tenant Vacancy: 24.7% GIY / NIY (theoretical): 6.6% / 5.9% WAULT: Energy label: Acquisition price: 3.4 years A 36.8m Location NSI Half Year Results I 14
Acquisition Q3 2018 The Bentinck Lange Voorhout 7, The Hague Impressions Area: 6,048 sqm Vacancy: 100% Yield on cost (including capex): above 7% Energy label: Acquisition price: D 13.9m Location Lange Voorhout 7 The Hague Central station Binnenhof NSI Half Year Results I 15
NSI value add: HNK Overview HNK Amsterdam Schinkel EPRA vacancy down 2.6% on like-for-like basis compared to year end 2017 14 th HNK opened in June 2018 at Schinkel in Amsterdam Investments in expanding number of managed offices in Utrecht CS, Amsterdam Houthavens, The Hague and Ede Increasing demand for combinations of flexible and conventional office space EPRA Vacancy rate HNK 60% 50% 40% 30% 20% 10% 0% 4 27.5% 9 40.3% 13 37.1% 29.8% 28.2% 2014 2015 2016 2017 H1 2018 14 # HNK Properties 14 HNK rents vs ERV (conventional offices; psm) 400 350 300 250 93% 200 25% 150 100 50 0 Managed offices Conventional+ Additional HNK rent ERV NSI Half Year Results I 16
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 H1 2018 NSI value add: Development opportunities Development opportunities Identified opportunities Three opportunities in Amsterdam most advanced: - Project 1: 30,000sqm re-development - Project 2: 40,000sqm re-development - Project 3: 12,000sqm development Amsterdam development pipeline & take-up ( 000 sqm) 700 600 500 400 300 258 200 183 179 188 112 37% 118 100 21% 63% 48% 55 79% 63% 52% 37% 100% 0 2018 2019 2020 2021 2022 646 49% 51% Total Project 1 earliest start date Q2 2020 Subject to: Negotiations with ING Planning Balance sheet capacity View on the cycle Amsterdam Pre-let Average take-up (2008-2016) Amsterdam Speculative Minimum take-up (2009) Netherlands historic conversions ( 000 sqm) 900 800 700 600 300m+ of development CAPEX, 7% Yield-on-Cost 500 400 300 200 100 - Source: JLL NSI Half Year Results I 17
Development opportunity Laanderpoort Amsterdam Highlights In negotiations with ING Laanderpoort is part of the planned fintech campus envisaged by ING Replace the two existing buildings totaling 13,000 sqm Plan is to build two modern buildings totaling 30,000-35,000 sqm Earliest start date Q2 2020 Estimated capex 120m+ NSI Half Year Results I 18
Table of contents 1. Introduction 2. Progress and strategy update 3. Market and portfolio update 4. Financials update 5. Final remarks Annex NSI Half Year Results I 19
EPRA Earnings Revenue and earnings ( 000) H1 2018 H1 2017 Change % Comments Gross rental income 42,372 45,640-7.1% lower due to net disposals Service costs not recharged -1,046-1,237-15.4% lower due to lower vacancy Operating costs -8,040-7,958 1.0% higher maintenance and higher letting costs Net rental income 33,286 36,446-8.7% Administrative costs -4,023-4,425-9.1% Lower staff costs, but lower allocated costs Net financing result -7,315-7,834-6.6% lower LTV and lower interest rate Includes one off 2.1m write off of non-amortised costs of old loan facility due to IFRS 9 Direct investment result before tax 21,948 24,187-9.3% Corporate income tax -51-12 Direct investment result / EPRA earnings 21,897 24,175-9.4% Direct investment result / EPRA earnings per share 1.19 1.35-11.5% H1 18 includes negative one offs of 0.11 Lower EPRA EPS reflecting net disposals, improved portfolio quality and one-off IFRS 9 effect NSI Half Year Results I 20
EPRA Earnings (I) ( per share) 1.60 1.50 1.40 1.35 1.30-0.18 1.20 0.01 0.00 0.02 0.03-0.03 1.19 1.10 0.10 0.00 EPRA EPS H1 2017 Gross rental income Service costs not recharged Operating costs Administrative costs Net financing result Other EPRA EPS H1 2018 NSI Half Year Results I 21
EPRA NAV ( per share) 39.5 39.0 38.5 0.04 0.00 38.44 38.0 37.5 1.19 1.12 1.70 37.0 36.5 36.66 0.05 36.71 0.00 0.0 EPRA NAV 31 Dec 17 Adj. IFRS 9 EPRA NAV 1 Jan 18 EPRA Earnings Dividend Effect of stock dividend Revaluation Result on sales Other EPRA NAV 30 Jun 18 NSI Half Year Results I 22
Balance sheet de-risked, implied investment grade credit rating Loan-to-value Cost of debt 57.0% 58.0% 5.2% 4.9% 48.9% -21.7% 3.7% -3.3% 45.4% 43.3% 44.1% 2.8% 36.9% 36.3% 40% 2.3% 1.9% 35% 2011 2012 2013 2014 2015 2016 2017 Jun 18 2013 2014 2015 2016 2017 Jun 18 Lower leverage and better quality portfolio resulting in lower financing costs NSI Half Year Results I 23
Extending maturities to prepare for next phase Refinancing highlights 2018 Most debt refinanced in 2018 New 40m 8 year unsecured facility with Pricoa signed Jan-18 New 480m 5 year unsecured syndicated loan facility signed Apr-18 Average loan maturity up to 5.1 yrs, no maturities until Apr-23 Cost of debt down to 1.9% 84% fixed rate debt or hedged with swaps Strategy 2018+ Further extend and diversify maturities Further diversify funding Prepare balance sheet for growth Loans maturity profile Feb 2018 ( m) Loans maturity profile June 2018 ( m) 250 Average maturity 3.6 yrs 600 Average maturity of 5.1 yrs 200 150 400 166 69 100 133 220 133 200 134 50 0 40 40 69 40 2018 2019 2020 2021 2022 2023 2024 2025 2026 0 180 40 2018 2019 2020 2021 2022 2023 2024 2025 2026 Term Loan RCF Head room Secured Loan US PP Term Loan RCF Secured Loan Head room US PP NSI Half Year Results I 24
Changes to the FBI (REIT) regime Timeline NSI is liaising with its listed peers on FBI matters Ongoing discussions with all relevant stakeholders Preference to maintain current FBI (REIT) status Oct 2017 Sep 2018 Government coalition agreement on the subject of dividend withholding tax Potential timeline More clarity expected as part of the Government tax budget for 2019 Nov / Dec 2018 Parliamentary vote on tax budget 2019 Too early to make predictions on outcome 2019 Transition / implementation guidelines 2020 FBI s no longer allowed to invest directly in Dutch real estate NSI Half Year Results I 25
Table of contents 1. Introduction 2. Progress and strategy update 3. Market and portfolio update 4. Financials update 5. Final remarks Annex NSI Half Year Results I 26
Final remarks Acquisition of Lange Voorhout 7, The Hague to be completed 25 July 2018 Further disposals of smaller office assets Investor interest in retail assets improving 100m+ in acquisitions in 2018 Further progress negotiations with ING on Laanderpoort development Improved EPRA EPS guidance 2018 of 2.50-2.55 NSI Half Year Results I 27
Table of contents 1. Introduction 2. Progress and strategy update 3. Market and portfolio update 4. Financials update 5. Final remarks Annex NSI Half Year Results I 28
Key figures half year 2018 114 Assets 42m Revenue 22m EPRA Earnings 1.2bn GAV 100% Netherlands 1.19 EPRA Earnings per share 1.04 Interim dividend per share 36.3% Net LTV 710m EPRA NAV 38.44 EPRA NAV per share NSI Half Year Results I 29
New strategy 1 of more focus Positioning A more concentrated office portfolio Sector focus Larger office assets Location focus Economic growth centers (Amsterdam, The Hague, Rotterdam, Utrecht, Eindhoven, Den Bosch, Leiden and selective others) Execution Value add asset management Strong platform Better processes, stronger team Total return Portfolio management and value add activities driven by total shareholder return Control Operational and financial leadership Cost efficiency Improved EPRA cost ratio Transparency Improved reporting 1: Presented in February 2017 NSI Half Year Results I 30
Strategic History of NSI 1992 1998 2000 2011 2013 2015 2016 2017 H1 2018 Corporate Highlights NSI founded NSI Listed Dutch REIT status Merger with Vastned O/I Successful 300m recapitalisation 550m Refinancing Significant reduction in secured assets 8-year unsecured USPP; Implied IG 1 credit rating Successful 480m new syndicated loan facility Investment Highlights Exit from Switzerland Partial exit Belgian IOW stake Sale of 85% of industrial assets 2 cm (total 45m) Sale of 60% of retail assets (total 225m) Sale of 13 assets (total 26m) Acquisition of 8 office assets (total 169m) Acquisition of Glass House ( 61m) Acquisition of 5 office assets (total 139m) Acquisition of 2 office assets (total 54m) Further progress: New, leaner organisation; Upgrading IT systems and processes; Lower EPRA cost ratio 1: IG = Investment Grade NSI Half Year Results I 31
Key portfolio metrics Jun 18 Dec 17 Offices HNK Other 1, Total Total Number of properties 82 14 18 114 126 Market value ( m) 2 778 202 183 1,163 1,108 Market value ( psm) 1,887 1,588 1,690 1,796 1,639 Annual contracted rent ( m) 3 57 15 15 88 87 ERV ( m) 66 22 16 104 105 Lettable area ( 000 sqm) 412 127 108 648 676 EPRA Vacancy rate 13.6% 28.2% 13.4% 16.6% 18.4% WAULT (years) 4.7 3.1 5.5 4.6 4.7 Average rent/sqm ( p.a.) 171 180 178 174 169 EPRA net initial yield 5.5% 3.6% 6.2% 5.2% 5.5% 1: Keizerslanden in Deventer was sold in April 2017 and is included as asset held for sale in Other, with delivery and transfer set for H2 2018 2: At market value; reported in the balance sheet at book value excluding lease incentives and part of NSI HQ in own use 3: Before free rent and other lease incentives NSI Half Year Results I 32
Offices split H1 2018 G4 Other Randstad Other NL Total Offices Number of properties 34 23 25 82 Market value ( m) 2 547 105 126 778 Market value ( psm) 2,714 1,185 1,032 1,887 Annual contracted rent ( m) 3 35 10 12 57 ERV ( m) 41 12 14 66 Reversion (%) 6.6% -6.7% -12.6% 0.2% Lettable area ( 000 sqm) 202 89 122 412 EPRA Vacancy (%) 9.2% 16.3% 24.5% 13.6% WAULT (yrs) 5.3 3.7 3.9 4.7 Average rent/sqm ( p.a.) 200 144 135 171 EPRA net initial yield (%) 4.7% 7.7% 6.7% 5.5% 1: At market value; reported in the balance sheet at book value excluding lease incentives and part of NSI HQ in own use 2: Before free rent and other lease incentives NSI Half Year Results I 33
Expiries and reversion Total portfolio ( m) HNK portfolio ( m) Offices portfolio ( m) Other portfolio ( m) NSI Half Year Results I 34
Yields EPRA Net Initial Yield Reversionary Yield Jun 18 Dec 17 Jun 18 Dec 17 Offices 5.5% 5.8% 8.5% 9.1% HNK 3.6% 3.9% 10.8% 11.9% Other 6.2% 6.0% 8.7% 8.6% Total 5.2% 5.5% 8.9% 9.5% NSI Half Year Results I 35
Impression of dispositions H1 2018 Amersfoort (958 sqm) Apeldoorn (3,360 sqm) Arnhem (5,863 sqm) Breda (3,187 sqm) Deventer (3,427 sqm) Doetinchem (2,281 sqm) Houten (1,045 sqm) Meppel (6,500 sqm) Tilburg (2,756 sqm) Zutphen (2,954 sqm) Zwaagdijk (2,099 sqm) Diemen (7,510 sqm) NSI Half Year Results I 36
Dec 17 Jan 18 Feb 18 Mar 18 Apr 18 May 18 Jun 18 Share price performance 40 38 36 34 32 10% 5% 0% -5% -10% -15% 200 180 160 140 120 100 80 60 40 20-60% P/NAV-1 (rhs) Last Price (lhs) 40% EPRA NAV (lhs) Median price (lhs) 20% 0% -20% -40% -60% P/NAV-1 (rhs) Last Price (lhs) EPRA NAV (lhs) NSI Half Year Results I 37
Segment information Segment split H1 2018 ( 000) Offices HNK Other Corporate 1 Total Gross rental income 27,292 7,363 7,718 42,372 Service costs not recharged -440-398 -208-1,046 Operating costs -3,536-2,931-1,574-8,040 Net rental income 23,316 4,035 5,936 33,286 Revaluation of investment property 21,637 12,997-3,348 31,286 Net result on sale of investment property -699-36 -735 Net result from investment 44,254 17,031 2,553 63,838 Administrative costs -4,023-4,023 Other income and costs -41-41 Net financing result -10,002-10,002 Result before tax -14,006 49,772 Corporate income tax -51-51 Total result for the year -14,116 49,721 Other comprehensive income Total comprehensive income for the year -14,116 49,721 1 The segment Corporate reflects costs and revenues that are not directly tied to properties NSI Half Year Results I 38
Balance sheet Balance sheet ( 000) 30 June 2018 31 December 2017 Real estate investments 1,128,037 1,072,180 Assets classified as held for sale 27,338 28,791 Other assets 10,454 10,472 Cash and cash equivalents 1,525 6,827 Total assets 1,167,354 1,118,269 Shareholders' equity 706,954 672,688 Interest bearing loans 420,956 404,708 Debts to credit institutions 2,342 9,873 Other liabilities 37,102 31,001 Total liabilities 460,400 445,582 Total shareholders' equity and liabilities 1,167,354 1,118,269 NSI Half Year Results I 39
Why the Netherlands GDP growth YoY Q1 2018: 2.8% Consumer spending growth 1.7% (2017, highest since 2000) CPI YTD 2018: 1.7% (2017A: 1.4%) Budget deficit: 0.5% (top 5 EU) Unemployment 4.0% (May 2018) 7 th highest GDP per capita (ascending; worldwide) 7 th place in Education Index (worldwide) 5 th richest country (EU) 2 nd best payable healthcare (EU) 2 nd highest purchasing power (EU) 8 th place in Global Competitiveness Index (144 countries) 7 th best quality of life (worldwide) 20 th biggest economy (worldwide) 5 th place in Global Innovation Index (143 countries) 1 st place quality of healthcare (Europe) 2 nd best pension system (Europe) 4 th place happiest children (worldwide) 7 th happiest population (worldwide) 4 th lowest amount of suicides (EU) 5 th place in Human Development Index (worldwide) 2 nd place in Freedom Index (worldwide) 10 th place in Democratic Index (worldwide) Budget deficit ( bn) 30 25 20 15 10 5 0 2011 2012 2013 2014 2015 2016 2017 Source: CBS NSI Half Year Results I 40
European office market European commercial property investment volumes 1, 2017 YoY change 60% Portugal More attractive 40% Hungary Austria Russia Denmark Netherlands 20% Germany UK Norway 0% Luxembourg Poland Spain France Czech Republic Italy -20% Belgium Switzerland Sweden -40% Ireland -60% Less attractive 1 10 100 Investment volumes ( bn.) European prime office rental growth, 2017 Stockholm Berlin Amsterdam Madrid Brussels Milan Paris Prague Budapest Dublin Frankfurt Munich Bucharest London (City) Vienna Warsaw London (West end) Moscow -10% -5% 0% 5% 10% 15% The Netherlands is currently one of the most attractive markets for commercial property investment 1: Graph shows growth in comparison to 2016 Source: Knight Frank NSI Half Year Results I 41
Randstad vs other cities in Europe Largest office markets Europe (sqm m) 60 50 40 30 20 10 0 Paris Randstad London Munich Moscow Berlin G4 Madrid Hamburg Brussels NSI Half Year Results I 42
Randstad NSI Half Year Results I 43