Foreword Managing Board

Residential market very dynamic in 2017

Last year was once again an extremely good year for investors in the Dutch residential real estate market. This was thanks to a strong economy, confidence in the residential market and low mortgage interest rates. As in 2016, the value growth in Vesteda’s portfolio was significantly higher than the long-term average. Largely thanks to the strong market development, the value of our portfolio increased by 13.6% to €4.8 billion in 2017. This strong increase in value took the average value of the homes in our portfolio back to levels last seen in 2007, just before the start of the financial crisis. The demand for rental homes also remained very strong last year. As a result, we maintained our relatively high occupancy rate, in line with the trend seen over the past few years. The realised result excluding one-offs for 2017 was slightly higher when compared with the result for the previous year, while the realised return declined as a result of the sharp increase in the value of our portfolio.

In the markets for both owner occupier homes and for rental homes we are observing the development of bottlenecks, the likes of which were unimaginable in the years immediately after the financial crisis. The main topics in the current discussions on the residential market are the lack of mid-segment rental homes and the difficult position of middle-income households.

Serious housing shortage in the mid-segment

The number of liberalised sector rental homes is much smaller than the number of owner occupier homes and regulated (social) sector rental homes. This situation is the result of 50 years of government policies and incentives aimed at the owner occupier and government-regulated social rental sectors. On top of this, the demand for liberalised sector rental homes has also increased due to demographic trends such as the ageing of the population, an increase in the number of one and two-person households, ongoing urbanisation and increasing mobility on the labour market. The country’s 1.5 million middle-income households are therefore increasingly dependent on the liberalised rental sector.

How can we increase the supply of mid-segment rental homes, so we can offer this target group suitable homes? This is a major task for Vesteda, just as it is for other residential investors. Dutch residential investors invest largely on behalf of major institutional investors with a long-term investment horizon and based on a high degree of corporate social responsibility. Not only do we provide good homes and a good living climate, we also enable our institutional investors to make stable and inflation hedged payments for pension fund participants and (life) insurance policy holders.

Rental homes remain a highly popular investment product, due to the low risk profile and stable returns of residential real estate. But due to the lack of supply, we are seeing both the returns for institutional investors and affordability for tenants coming under increasing pressure.

A very significant challenge for the years ahead will be to find a sustainable balance between supply and demand on the Dutch residential market. The huge demand we are now seeing does seem to have short-term benefits for residential investors, but in the long term this trend carries the risk of a stagnating market. The sector will have to take measures quickly to help keep the market active. If the sector fails to take these measures in time, there is a danger of an uptick in government-driven legislation. We have to work together as a sector and do everything we can to realise more homes in the mid-rental segment. Only if we do so we will be able to offer suitable homes to this very large group of middle-income households, who constitute a major bastion of our society.

2017: Continued optimisation of our residential portfolio and services

In 2017, we recorded major progress in the continuing optimisation of our portfolio, by means of targeted acquisitions, the sale of assets and investments.

Last year, we added 853 homes to our acquisition pipeline. At end-December 2017, our acquisition pipeline stood at 2,272 residential properties. Virtually all of these homes are located in and around the largest Dutch cities and in the scarce mid-rental segment and they will all be added to our portfolio in the years ahead.

We also improved our homes thanks to a range of energy-saving measures, increasing the percentage of homes assigned a green energy label (A, B or C) to 81% at year-end 2017, from 75% a year earlier. This puts us well on track to achieve our target to have at least 80% of our homes assigned a green energy label and a maximum of 20% of our homes with energy label D before the end of 2020.

Last year, we also centralised our three head offices in a single office adjacent to Amsterdam’s Zuidas business district. Having all the various disciplines from our core departments Portfolio Strategy, Operations and Acquisitions under one roof will enable us to further improve reciprocal cooperation and the services to our tenants.

CSSR rooted more deeply in the organisation

In 2017, Vesteda took a number of major steps in the field of Corporate Sustainability and Social Responsibility (CSSR) and we once again improved our performance on the sustainability front. We have further increased awareness and engagement and taken additional steps in the professionalisation of our reporting on our CSSR-related activities and the progress we have made. The extra attention we have devoted to sustainability also had a positive impact on our total Global Real Estate Sustainability Benchmark (GRESB) score, which climbed to 76 points in 2017, up from 67 points a year earlier. Thanks to this, we were rated Green Star with four stars out of a maximum of five.

Feel at home: On our way forward

Our mission is to make sure that all our stakeholders feel at home with us. That is especially true for our tenants, the investors who invest in our fund and our employees. We have set ambitious targets for 2018 and these will help us achieve our overall ambition to become the preferred Dutch residential fund.

This year, we face a number of major challenges, including our continuing efforts to increase the sustainability of our portfolio and the roll-out and implementation of our new ERP system. This platform will, among others, rationalise the current landscape and ensure more efficient business processes and support the growth ambition of Vesteda. We will continue full steam ahead with our ongoing efforts to optimise our portfolio and our organisation, so we can improve our services to our tenants and our investors. We have every confidence that we will continue to make progress in 2018.

We would like to conclude by thanking all our stakeholders for their commitment and making 2017 another successful year.

Vesteda Managing Board

Gertjan van der Baan (CEO) and Frits Vervoort (CFO)