NSI Strategy update and full year results Roadshow Tel Aviv 7 & 8 April
Equity issue: full focus on operations Successful equity issue 300 million equity raised in a private placement to qualified investors New high quality, long term investors added to the shareholders register Solid balance sheet Loan to value (LTV) ratio reduced from 60% to 45% Proceeds of equity issue used to reduce debt facilities and to lower outstanding hedges Management focus on optimising portfolio and organisation Financial capacity to fund capex in portfolio Organisation further geared towards a customer centric approach Balance sheet issues resolved: focus on business 2
Market view: economy is improving, but.. Economic fundamentals GDP growth turned positive in 2 nd half of 2013; more robust than previously forecasted Unemployment rate still rising, but is expected to stabilize in 2014 Housing market is moving in positive direction Consumer confidence is growing, though still sub-zero Position the Netherlands remains fundamentally strong: The Netherlands still score favorably on many social economic parameters; Ranks 3rd in Europe in GDP per capita; 28% above European average (source: eurstat) Still in the lowest regions of unemployment rates in Europe Strong competitive position (8th according to WEF) Quality infrastructure is among the best in the world; Maritime (1 st ) railroad (2 nd ) air (6 th ) and road (5 th ) (source: WEF) Ranks 5th worldwide in terms of Wealth (source: Allianz Global Wealth report) 3
.fundamentals Real Estate markets are still weak Office market Structural changes in the tenant market Declining demand, especially for large space/long leases Increasing demand for smaller and more flexible space Persistent oversupply and structural vacancy First portfolio investments, entry of new market participants Property values seem attractive, but a strong letting platform is a prerequisite to achieve good returns Retail market Weak consumer spending and confidence Increasing share of internet sales Resilience of supermarket-anchored convenience centres NSI still operates in challenging markets, which are not expected to improve in 2014 4
Profile NSI: Space to perform 1. Providing SME s affordable and inspiring space Inspiring and affordable space in the Netherlands with a focus on growing cities and sectors Strong balance sheet and cash flow: Capacity to invest in current portfolio Improving occupancy in Dutch office portfolio 2. Strongest letting platform in Dutch market Pro-active and tenant-focused platform: Sales-driven organisation (CRM, business intelligence, incentivised staff) Proven track record (improved occupancy in Dutch offices, outperforming the market for new leases in terms of take-up) All required real estate competences integrated in an active asset management strategy In-house property management to optimise information flow between leasing team and property management team to deliver superior service and nurture tenant relations 3. New business capabilities Business Intelligence to identify opportunities in the Dutch fragmented micro market; directing leasing and marketing efforts in most efficient way Marketing to drive direct conversion and increase visibility Business development to drive innovations; innovative concepts to target new customer groups and to increase profitability and occupancy Innovative leasing concept HNK (flexibility in space and time, additional services); roll-out to 10-15% of portfolio Portfolio and organisation ready to outperform competition 5
Contents 1 Portfolio strategy 2 Operational performance 3 Financial 4 Conclusion 5 Appendix 6
1 PORTFOLIO STRATEGY 7
Portfolio strategy: NSI s approach Portfolio c 1,200m portfolio in the Netherlands consisting of 149 office and 42 retail properties c 600m portfolio in Belgium consisting of 16 office and 17 logistics properties Asset management Segmentation Client focus Investment Asset rotation Split in core, value-add and non-core segments Customer-centric approach to optimise occupancy Finance capex to facilitate customers and upgrade portfolio Dispose of assets where maximum value is reached or that structurally underperform Maximise total return 8
Dutch portfolio: segmentation drives activities Full portfolio analysed asset-by-asset to set priorities, provide insights and support decision-making Segment Characteristics Approach Core Well-performing properties Sell or maintain Value-add Properties with upside potential Invest and sell Non-core Underperforming properties Reduce Aim is to add value supported by stable cash flow from core portfolio 9
Office portfolio: extracting value from current portfolio Offices Asset Characteristics Qualitative Occ.* /sqm* Approach Core (Nearly) fully let properties Good location: large cities Multi-tenant (potential) High cash flow certainty >85% >1,500 Pro-active tenant retention and optimal property management Improve tenant mix and WALL Hold for income, sell when upside is fully realised Valueadd (Potential) vacancy Fair location, or good location with high vacancy Potential cash flow certainty Potential to upgrade, redevelop, transform <85% >1,000 Re-double leasing efforts Invest to improve Implement HNK formula or other relevant concept Re-develop or transform Non-core Significant long term vacancy Poor location and accessibility <65% Minimise all specific propertyrelated costs Redevelop or transform No use to upgrade, redevelop or transform Reduce * Indicative segmentation criteria 10
Dutch office portfolio: overview Offices Label Portfolio NSI In # Occupancy rate Financial occupancy Value In per sqm Area In sqm Passing rent 2013 In m p.y. Bookvalue In m Core 39 77.8% 1,503 184,451 23.3 277.4 Value-add 95 69.6% 1,013 376,050 35.0 381.1 Non-core 15 17.1% 377 54,866 1.0 20.7 Total 149 72.1% 1,104 615,367 59.3 679.2 3% 41% 56% Core Value-add Non-core 11
Case study: Grontmij in Rotterdam and NSI Head Office in Hoofddorp Offices Grontmij moved from Roozendaal to Rotterdam NSI s assisted the relocation, using its large scale Grontmij Rotterdam Active (tenant-)management led to success A viable leasing offer in the new location was provided Grontmij is retained as a tenant New tenants for Roozendaal were signed in parallel Temporary vacancy minimised 1,000 sqm difficult-to-let office Buyitdirect Hoofddorp NSI invested 0.4m in lay-out, energy systems and interior styling NSI moved in its own head office Property was re-let to Buyitdirect within 2 years 12
HNK: concept for new way of working Offices Het Nieuwe Kantoor ( HNK ) caters the growing need for full service, space and flexibility, targeting SMEs desk desk desk desk desk desk HNK offers membership, managed offices, offices and meeting rooms Pantry desk desk desk HNK results in desk Higher take-up (take-up/supply ratio of 30%) Quick re-letting (HNK Utrecht 50% occupied in 3 months) Higher effective rents/sqm (HNK Rotterdam: 238/sqm)* Storage Toilets Meeting room Tenant saves space and 25% of the monthly costs Higher return on investment (HNK Rotterdam 2013: >10% in start-up phase) Conventional offices HNK Objective is to transform c10-15% of the portfolio into an HNK office in 2014-2015 * For managed offices only 13
HNK roll-out: where we stand and going forward Offices Groningen Current roll-out in 4 locations Rotterdam Hoofddorp Utrecht Amsterdam Houthavens 18,000 sqm 3,500 sqm 3,000 sqm 10,000 sqm Amsterdam Apeldoorn Hoofddorp Utrecht Den Haag Ede Rotterdam Eindhoven NSI intends to strengthen commitment to the concept, leading to higher incomes NSI will invest in total c 31.0m in the concept up to 2016, of which 6.4m has already been invested, and expects rental income of 6.5m as of 2016 Investment in k 60,000 Income in k 12,000 HNK in operation HNK transformation in progress HNK transformation planned for 2014/2015 40,000 20,000 8,000 6,500 4,000 0 0 2012 2013 2014 2015 2016 2017 2018 2019 Cumulative investment Annual income 14
Retail portfolio: opportunities & challenges on a property-by-property level Retail Core Valueadd Non-core Asset Characteristics Qualitative Occ.* (Nearly) fully let properties Dominant in local retail hierarchy Long-term leases Anchored by (two) supermarket(s) (Potential) vacancy Low WALL, rents not at market level Medium-term leases Potential to upgrade, redevelop/ transform Significant long term (expected) vacancy Poor location and accessibility Little opportunity to upgrade, redevelop or transform /sqm* >95% >2,000 <95% >1,500 <80% Approach Maintain relationship with tenants Maintain property quality Improve WALL and tenant mix Hold for income, sell when upside is realised Grow food formulas to drive traffic Expand zoning permissions (LSR) Attract retailers in sub-sectors that show growth Redevelop or significantly improve Attempt to change zoning plans Transform into other asset class Divest in case no potential * Indicative segmentation criteria 17
Retail portfolio Retail Label Portfolio NSI In # Occupancy rate Financial occupancy Value In per sqm Area In sqm Passing rent 2013 In m p.y. Bookvalue In m Core 16 89.8% 2,383 83,681 14.2 199.5 Value-add 20 84.3% 1,628 144,714 17.2 235.6 Non-core 6 83.9% 924 42,058 3.5 38.9 Total 42 87.2% 1,752 270,453 34.9 474.0 8% 42% 50% Core Value-add Non-core 18
Targets 2014-2016 Office Retail Core Core Value-add Value-add Non-core 41% Non-core 42% 46% 70% 56% 50% 46% 30% 3% 8% 8% 2013A 2016E 2013A 2016E Occupancy 72% >80% Occupancy 87% >90% # HNK 3 20 19
2 OPERATIONAL PERFORMANCE 20
Offices: operational highlights Financial Occupancy Improved to 72.1% per year-end 2013 vs 71.3% per year-end 2012 1% decrease in Q4 mainly due to a large single tenant expiry (4,400 sqm), after 4 consecutive quarters of improvement Rent Effective rental level of new leases over last 12 months: 106/sqm ( 112/sqm in Q4 2013), reflecting market trend, full portfolio: 144 per sqm Like-for-like rental growth y-o-y: -4.6%, q4-o-q3: -0.8% Take-up Continued outperformance Better take-up/supply ratio than market: 19% vs. 13%, HNK at 30% Take-up of 3.5%, market share of 1.2%: 6th consecutive quarter overperformance Total take-up: 14,982 sqm in Q4, 35,594 sqm in 2013 HNK represents approx. 10% of NSI s take up in 2013 Other Third HNK office opened in Utrecht; 40% let (to date) in two months 6,030 sqm, and 0.9m annualised rent has been sold in 2013 21
Offices: take-up Market share Take up 2.6% 4.0% 3.0% 2.7% 3.7% 3.5% 1.3% 1.3% 1.3% 1.2% 1.2% 1.2% Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 NSI has outperformed the market in terms of take-up for 6 consecutive quarters Market share of Dutch office market around 1.2% Significantly higher portion of new lettings go to NSI offices 22
Retail: operational highlights Financial Occupancy Decreased to 87.2% per year-end 2013 vs 92.5% per year-end 2012 1.1% due to disposal fully let retail centers 1.6% due to terminated contracts home furniture stores Reflecting increased challenging retail environment, in particular large scale Rent Like for like rental growth y-o-y: -6.0%, q-o-q: -4.8% Effective rent level 152 per sqm Take-up New contracts with strong tenants, including Primark (4,375 sqm) and Big Bazar (900 sqm) in Zuidplein in Rotterdam Contract with Ahold regarding all Albert Heijn supermarkets long-term extended (10,000 sqm) Other 21,600 sqm, and 2.2m annualised rent has been sold in 2013 Pressure on occupancy expected to continue, especially in large scale retail 23
Belgium: operational highlights Financial Occupancy Decreased to 85.0% per year-end 2013 vs 86.6% per year-end 2012 Improvement in logistics (to 91.3%), offset by a decline in offices (to 81.5%) Rent Effective rent level of 135 per sqm in the office portfolio; 46 per sqm in logistics Take-up Improved performance new lettings despite challenging office market; 4,572 sqm take-up versus 3,200 in 2012 New concepts paying off: Re-Flex and Turn-Key Solutions Other Strong position in logistics market enhanced; logistics portfolio grew to 42% of total portfolio, progressing towards target of 50% Development of Neerland in Neerwijk on track; first phase completed in December 2013 Extension in Oevel (5,000 sqm) delivered and operational since June Tenant Peugeot moved into new workplace and showroom in Wilrijk in December 2013. 24
3 FINANCIAL 25
Financial highlights x 1,000 FY 2013 FY2012 Q4 2013 Q3 2013 Gross rental income 144,564 160,545 35,160 35,792 Service costs not recharged to tenants -4,723-4,754-1,375-984 Operating costs -18,050-18,457-4,884-4,384 Net rental income 121,791 137,334 28,901 30,424 Administrative costs -6,458-6,469-1,910-1,461 Financing costs -57,565-55,846-13,812-15,569 Direct investment result before tax 57,768 75,019 13,179 13,394 Corporate income tax -121-327 -29-26 Direct result att. to minorities -11,375-11,287-2,954-2,763 Direct investment result 46,272 63,405 10,196 10,605 Indirect investment result -180,347-166,522-55,791-55,835 Total result -134,075-103,117-45,595-45,230 GRI down due to asset disposals ( 9.0m), vacancy and lower reversionary rent levels Service costs stable y-o-y, but up q-o-q due to settlement and fragmented vacancy Operating costs down y-o-y due to disposals, but up q-o-q, mainly due to higher letting costs and bad debt provisions Administrative costs stable y-o-y, up q-o-q due to crisis tax and severance payments Financing costs down strongly in Q4 following the debt and derivative redemption after equity issue in November Indirect result reflects continued downward revaluations: 192.3m for FY 2013 and 53.0m for Q4 2013, slightly compensated by upward revaluation of swaps: 25.7m 26
Equity issue: proceeds used to repay debt and lower hedges 300.0 Overview of use of proceeds of equity issue (in m) 11.1 288.9 149.5 18.4 1. Placing and underwriting fees, expenses and applicable taxes 2. Structural decrease of term loans and RCFs 3. Unwinding of swaps with aggregate nominal value of 347m 4. Reduce debt on RCFs and WC facilities for future flexibility 121.0 Gross proceeds Transaction costs Net proceeds Structural debt reduction Unwinding of swaps Reduced RCF/WC 1 2 3 4 27
Balance sheet highlights x 1,000 FY 2013 Q3 2013 FY2012 Real estate investments 1,808,768 1,863,908 2,106,091 Total shareholders equity 932,915 686,639 789,788 Shareholders equity of NSI Debt to credit institutions (excl. derivatives) 801,159 557,899 666,850 821,854 1,110,237 1,226,432 Average cost of debt (%) 4.8 5.3 4.8 Net loan to value (%) 45.4 59.6 58.2 Average debt maturity (years) 2.2 2.6 2.3 Fixed interest debt (%) 85.0 95.3 88.5 Interest coverage ratio 2.1 2.1 2.5 NAV ( /share) 5.59 8.18 9.78 Value real estate portfolio down by 297.3m mainly due to revaluations ( 192.3 million) sales ( 123.7 million) and investments ( 18.2 million) Net proceeds of equity issue ( 288.9 million) used to reduce long-term debt, unwind derivatives and increase flexibility LtV significantly decreased, aim to maintain below 50% Net debt level reduced by 33% to c 822m Improved balance sheet resulted in more favourable financing terms to lower average costs of funds Outstanding shares increased by 75.0m from 68.2m ultimo 2012 to 143.2m shares EPRA NAV ( /share) 5.85 9.03 10.95 28
Maturity schedules Debt maturity calendar 315 Swap maturity calendar 150 134 96 225 60 20 92 106 147 85 25 59 220 31 118 117 45 5 40 40 40 50 50 92 90 114 2014 2015 2016 2017 2018 a.b. 2014 2015 2016 2017 2018 a.b. BE ( 262m) NL ( 554m) BE ( 120m) NL ( 347m) Interest on swaps 2.9% 2.9% 2.8% 2.8% 3.1% 29
Financing targets 2014-2016 Target Funding diversification Increase the number of funding sources Debt maturity Extend and maintain average debt maturity to over 3 years Refinancing risk No more than 25% of loans maturing in any single year Loan to value Maintain LTV below 50%, peak-to-trough between 40-50% 30
Dividend: proposal and policy going forward x 1,000 Q4 2013 Q3 2013 FY 2013 FY 2012 Direct result 10,196 10,605 46,272 63,405 # Shares outstanding Period end 143,201,841 68,201,841 143,201,841 68,201,841 # Shares outstanding Period average 98,364,884 68,201,841 75,804,581 64,288,818 Direct result / share Period end 0.07 0.16 0.32 0.93 Direct result / share Period average 0.10 0.16 0.61 0.99 Dividend per share Period end 0.09-0.28 0.86 Current policy LTV-dependent pay-out ratio allowing capital retention to strengthen balance sheet Pay-out of direct result 85%-100% in cash, if LTV < 55% 50% in cash, if 55% < LTV < 60% 50% in shares, if LTV > 60% Quarterly distribution Proposed new policy Balance sheet strengthened by equity issue, no more need for LTV-dependent pay-out Proposed pay-out of direct result At least 75% in cash, allowing financing of capex Bi-annual distribution 31
4 CONCLUSION 32
Conclusion Balance sheet issues resolved LTV significantly lowered to 45% Cost of debt lowered to 4.8% NSI still operates in challenging markets Rents not expected to improve in 2014, limited NRI decline foreseen in 2014 NSI outperforming markets: 2013 average take-up 19% (HNK 30%) vs 15% Markets expected to improve from 2015-2016 onwards Focus on maximising total returns Add value by strong letting platform and selective investments in the portfolio Supported by stable cash flow from core portfolio Reduce non-core assets Targets for 2016 defined Improvements in portfolio quality and occupancy Solid financials: funding diversification, debt maturity, refinancing and LTV NSI fully focused on operations 33
5 APPENDIX 34
Vacancy development Dutch portfolio Financial vacancy in % 35% Offices Occupancy Dutch Office Portfolio improved year end 2013 (72.1%) vs 2012 (71.3%) 30% Retail 27 28 30 29 28 27 27 28 Expiration calendar shows challenges ahead in the office portfolio for 2014 25% 20% 15% 10% 13 12 13 13 14 15 17 23 8 8 8 10 13 Decreased occupancy in retail portfolio from 92.5% per 2012 to 87.2% per 2013, due to the disposal of fully-let assets and increasingly challenging retail environment, in particular in large-scale retail 5% 4 5 5 5 4 5 5 5 5 5 6 0% Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 35
Rent development Dutch portfolio Average effective rent/sqm in NL 200 Effective rents (adjusted for incentives) have shown a slight decline over 2013 compared to 2012 for both retail and offices 175 172 178 183 185 186 188 186 187 186 189 183 New office leases are coming in at lower levels, in line with market development 150 154 153 157 150 146 148 148 146 145 146 144 Alternative leasing strategies (e.g. HNK) aim at higher income per sqm 125 Office Retail (excl large scale retail) 100 2009 2010 2011 Q1 Q2 Q3 Q4 Q1 Q2 2012 2012 2012 2012 2013 2013 Q3 2013 Q4 2013 36
Lease expirations Dutch Portfolio GRI in m 18 17 16 Offices Retail 15 Industrial 14 23% 13 21% 12 11 17% 10 28% 9 15% 14% 8 22% 7 18% 6 10% 5 14% 4 11% 3 7% 2 26% 20% 17% 12% 12% 12% 1 0 2014 2015 2016 2017 2018 2018< Total lease expirations coming up for 2014 encompass c 14m in rental income, or 14% of the total portfolio Lease expirations for 2014 and 2015 are most notable in offices, where 38% is set to expire in this period Spread 2014 expiries in contract size offices 20% < 1,000 sqm 50% 1,000-5,000 sqm 30% >5,000 sqm Most prominent contracts expiring in 2014 include Office Prorail (9,200 sqm) RGD Goes (5,300 sqm) ROC Amsterdam (5,000 sqm) Retail Chesterfield (3,500 sqm) C&A Heerlen (1,850 sqm) 37
Property values Dutch portfolio Herwaardering in m 20 10 0-10 -20-30 -40-50 -60-70 -80-90 -100-110 -120-130 -140-38 -8 2009 Kantoren -21-1 2010-31 -1 2011 Retail -102-16 2012-33 -5 Q1 2013-29 -12 Q2 2013-37 -16 Q3 2013-31 -17 Q4 2013-132 -50 FY 2013 Total negative revaluation since 2009 is 401m, of which 324m in the office portfolio Revaluations are primarily driven by vacancy and pressure on market rents In Q4 2013, 54.3m of negative revaluation was incurred Kantoren-38-59 -91-193 -226-256 -293-324 Cumulatief Retail -8-9 -10-26 -31-43 -59-76 Totaal -46-68 -100-219 -258-299 -352-401 In % 11% 17% 25% 55% 64% 75% 88% 100% 38
Acquisition and disposal overview Revaluation in m 275 250 225 200 175 150 125 100 75 275 Portfolio Philips Pensioenfonds and Swiss assets 67 72 Excluding acquisition VNOI ( 971m) 101 Acquired Disposed 124 Divesting non-core assets and assets of which the value potential under NSI s management has been optimised is part of NSI s strategy to create value in its portfolio In 2013 NSI completed its exit from the Swiss market Other asset sales in 2013 included 5 office buildings, 5 retail properties and 2 industrial properties in the Dutch portfolio, and an semiindustrial property and a land plot in Belgium 50 25 38 11 11 24 5 30 3 2008 2009 2010 2011 2012 2013 Cumulative numbers ( m) Acquired 275 286 358 382 412 415 Disposed 38 105 116 121 222 346 39
Operating costs x 1,000 FY 2013 FY2012 Q4 2013 Q3 2013 Municipal taxes 3,935 4,600 982 1,109 Insurance premiums 730 764 171 179 Maintenance costs 3,801 3,927 905 1,031 Contribution to owner s associations 548 476 183 161 Property management 5,060 4,816 1,231 1,253 Letting costs 2,557 2,167 919 507 Other expenses 1,419 1,707 493 144 Total operating costs 18,050 18,457 4,884 4,384 40
Debt structure x 1,000,000 NL BE Total Fixed-rate debt 170.3 75.0 245.3 Floating-rate debt 383.8 187.2 571.0 Total long-term 554.0 262.2 816.2 Working capital 0 21.2 21.2 Total debt 554.0 283.4 837.4 Hedged 346.6 120.0 486.6 All Dutch loans are bank term loans, working capital facilities and RCFs were repaid following the equity issue Belgian loans are bank term loans, a retail bond and RCFs The Belgian 75m retail bond matures in 2015 Average interest is expected to come down in 2014 after recapitalisation % Fixed 93.3% 68.8% 85.0% Maturity 2.3 1.9 2.2 Average interest rate 5.2% 4.0% 4.8% 41