Key developments

Tenants

Introduction

The demand for rental homes remained high in 2018. Consequently, our overall vacancy rate was once again low this year. Thanks to the successful (re)letting of our standing portfolio and newly-acquired properties, we were able to maintain a high average occupancy rate of 97.5% in 2018. At 2.7%, like-for-like rental growth was well above inflation, once again proving the solid inflation hedge our portfolio offers.

Following the acquisition of the former Delta Lloyd portfolio, the Operations department put together a seventh regional team. This portfolio is managed by external real estate managers under the supervision of Vesteda. Vesteda will gradually phase in the external operational management in 2019 and 2020, after the implementation of the new ERP system.

The issue of affordability received a lot of attention last year. We have participated in several initiatives to ensure sufficient qualitative mid-rental segment projects and also voluntarily capped our annual average rent increase to CPI plus 2% in 2018.

Focus on tenant satisfaction

We see more and more possibilities to improve tenant satisfaction at the intersection of Operations and CSSR. This goes beyond sustainable homes, complexes and surrounding areas, to sustainable relationships, both between tenants and between Vesteda and our tenants.

The annual benchmark survey and our own continuous research provide us with ample feedback and suggestions from our tenants to continue to optimise our services and processes. For more information about the tenant satisfaction survey and score, please refer to the Tenant Survey section of this report. The digitalisation of standard processes creates room for customised solutions and personal contact with our tenants. For instance, last year we launched group deliveries in new-build residential complexes.

Tenant satisfaction developments 2018

Last year, we launched a number of new initiatives to enhance our services to tenants. We created the new role of programme manager tenant satisfaction, to ensure that tenant satisfaction is rooted more deeply in the organisation. Using the feedback from the tenant surveys, this programme manager will help create a centralised approach to tenant satisfaction. Following the creation of this role, we incorporated the following initiatives in our daily operations:

Minor maintenance

We decided to make minor maintenance and repairs easier for our tenants. A number of minor repairs that are often difficult for tenants previously fell under tenant maintenance. These included the likes of replacing a tap washer or a wall socket. Starting in 2018, tenants can now report these minor repairs via the MijnVesteda (my Vesteda) portal. Our suppliers will carry out the repairs and Vesteda will cover the costs.

Welcome package for new tenants

What better way to start a sustainable relationship with a new tenant than with a small gift. The welcome package is personally handed over to the tenant during the key transfer and is filled with bird-friendly gifts. We put together this gift in partnership with the Dutch Society for the Protection of Birds (Vogelbescherming Nederland). This organisation has been advocating and promoting the creation of bird-friendly cities for many years. The collaboration with Vesteda is a seamless fit with this mission.

Rental anniversaries

We are proud of our loyal tenants. This is why as a thank you for their loyalty, in 2018 we gave some 1,200 tenants a gift to celebrate their rental anniversary. In cooperation with DIY chain Praxis, our tenants celebrating 10, 20, 30, 40 or even 50 years of renting from Vesteda received a gift voucher they can spend at Praxis.

Customer Contact Centre

We updated and optimised our telephone menu to make us more accessible. We revised the whole menu, including the text, order and options and made it fully available in English. Optimising the customer contact centre reporting tool gives us much better insight into how well our customer contact system is working.

Portfolio

Last year was another very strong year for the Dutch residential market. Investors continued to seek out residential real estate and several large portfolios were sold at low yields. Vesteda played a prominent role in the high investment volumes in the Netherlands, by selling off 1,872 units and acquiring 6,777 units in the bricks-for-shares deal of the former Delta Lloyd portfolio from NN Group. So we made significant progress in both the optimisation and the growth of our portfolio in line with our strategy.

The competition for high-quality product remains fierce. Despite this, our Acquisitions department, was able to sign a number of exclusive transaction opportunities. This led to the acquisition of 6,863 residential units (including the former Delta Lloyd portfolio). In 2018, we saw the inflow of 1,598 units from our existing pipeline (excluding the former Delta Lloyd portfolio), with 231 of these units in our largest development, the Leidsche Rijn Centrum.

Improve the quality and sustainability of our portfolio

Improving the quality of our portfolio is one of our top priorities. We have carefully identified properties that we believe will ensure steady growth and a favourable risk/return ratio over a longer operational horizon. In addition, we are also actively enhancing the quality of the existing portfolio through targeted investments. These investments both increase the sustainability and quality of the portfolio, while also improving tenant satisfaction and future marketability.

We devote constant attention to the sustainability of our portfolio. We have committed ourselves to outperform the Dutch government’s Energy agreement. In 2016, we set goals for 2020 and we are on track to realise those goals. A total of 84% of the portfolio has an energy label A, B or C, 10% has energy label D and 6% of the portfolio has energy label E, F or G. Following the acquisition of the Delta Lloyd portfolio, we have an additional 24 complexes that will be improved before the end of 2020.

We divested properties that no longer met our key investment criteria, with 81% of the units sold not located in primary regions, and 90% not in the mid-rental segment. Furthermore, we have taken maximum advantage of the current attractive market conditions to reduce our stake in what we see as more volatile and higher risk properties (high operating and capital expenditures and limited rental upside).

For more information, please refer to the section Key portfolio developments.

Ensure a stable growth of rental income and MSCI outperformance

In 2018, Vesteda outperformed the three-year MSCI IPD Netherlands Residential Benchmark both in terms of direct return (+0.2%) and capital growth (+0.5%).

Vesteda Residential Fund versus MSCI residential benchmark*
 

Annual average

 

Average of past

 

2018

2017

2016

2015

2014

 

3 yrs

5 yrs

Direct return

        

Vesteda Residential Fund

3.5

4.1

4.6

5.0

5.0

 

4.0

4.4

MSCI-benchmark

3.4

3.8

4.2

4.5

4.5

 

3.8

4.1

Outperformance

0.0

0.2

0.4

0.4

0.5

 

0.2

0.3

         

Capital growth

        

Vesteda Residential Fund

15.9

13.5

10.6

5.0

0.8

 

13.2

9.0

MSCI-benchmark

14.7

12.6

10.5

6.3

0.6

 

12.6

8.8

Outperformance

1.0

0.8

0.0

(1.2)

0.1

 

0.5

0.1

         

Total return

        

Vesteda Residential Fund

19.9

18.1

15.7

10.2

5.8

 

17.7

13.7

MSCI-benchmark

18.6

16.9

15.2

11.0

5.2

 

16.9

13.3

Outperformance

1.1

1.0

0.4

(0.8)

0.6

 

0.7

0.4

* Direct return and indirect return might not add up to total return as a result of time weighted averages on a monthly basis.

Participants

The strongly increased prices and values of (residential) real estate have resulted in historically high total returns on equity in recent years. However, the high valuation gains have simultaneously put pressure on the fund’s direct returns. We also see the risk of further regulation, which could potentially lead to decelerating rent increases.

Vesteda has a strong and supportive investor base. Apart from the two new entrants in 2015, the bricks-for-shares transaction with NN Group in 2018, and ASR Utrecht Real Estate Investment Netherlands entering the fund following a secondary transaction with one of our existing participants, there have been no significant changes in the composition of our participant base over the past few years.

Ahead of the fund’s liquidity review date in the first quarter of 2019, management had various discussions with participants. The liquidity review date triggers the mechanism by which participants are given the opportunity to re-evaluate their respective participations in the fund and to indicate if and to what extent they would like to redeem all or a portion of their participation rights or increase the number of their participation rights. Based on the conversation with participants, management assessed that it would be likely no participant would submit a redemption request in accordance with the liquidity review process. In line with the above, participants have not made use of their right under the liquidity review date to reduce their stake in the fund. As a result, the liquidity review process was completed in February 2019.

For more information, please refer to the Equity paragraph in the section Notes to the results.