Key developments

Portfolio Strategy

Growth and improving the quality of the investment portfolio

The Dutch residential investment market was very strong in 2017. Competition was fierce and several large portfolios were sold to local and foreign investors against sharp returns. Despite these challenging market conditions, our Acquisitions department was able to secure a number of exclusive transaction opportunities. This led to the acquisition of a total of 853 high-quality residential units, almost 70% of which are concentrated in the mid-rental segment in our core regions.

To continue to optimise the quality and performance of our investment portfolio, we have also (re)defined our tactics for each and every property in our investment portfolio based on our annual in-depth hold/sell analysis. The circle diagram below shows the tactics for the complexes in our investment portfolio in 2017. The tactic ‘operate’ applies to almost three-quarters of our investment portfolio. This translates into a focus on value creation through rental growth, optimal occupancy rates and effective and sustainable maintenance. Some 8% of our portfolio has been earmarked for the creation of additional value through refurbishments and investments in sustainability. We have designated roughly 14% of our portfolio for the tactic unit sales. This involves the generation of additional value through the sale of individual apartments and family houses. In 2017, we sold a total of 507 residential units through individual unit sales. We have classified around 5% of our investment portfolio as non-core. These are complexes that in our opinion and analysis have only limited potential in the medium and long-term due to their location and/or condition and/or particular product-market combination (PMC). During the course of 2017, Vesteda initiated a portfolio sale consiting of 19 complexes. Closing of the transaction is subject to certain conditions being met and is expected around the publication date of this annual report.

Current tactics (percentage of total portfolio in terms of value)

Vesteda invested a total of €4,8 million to improve the quality of kitchens, bathrooms and toilets. We also made significant progress in our sustainability goals for 2020. By the end of 2017, we had managed to gain a label C or higher for 81% of our portfolio through renovations and investments in the likes of solar panels.

Please see the section Key portfolio developments and the CSSR section of this report for a detailed explanation of the main changes in our portfolio.

New regional classification

Based on trends in the Dutch residential real estate market we also redefined the attractiveness of locations for investments. This resulted in an adjusted regional classification of primary, secondary and other regions. We will use this new classification from 2018 onwards. Within the primary region, we defined 14 so-called ‘focus areas’. In order to enhance our investment opportunities in these areas, we will invest in a better network of relevant decision- and policy makers in these municipalities.

Relative performance (MSCI benchmark)

In 2017, Vesteda outperformed the MSCI Netherlands “All Residential” benchmark in terms of both direct return (+0.2%) and indirect return (+0.8%).


Vesteda Residential Fund versus MSCI residential benchmark*
 

Annual average

 

Average of past

 

2017

2016

2015

2014

2013

3 yrs

5 yrs

Direct return

       

Vesteda Residential Fund

4.1

4.6

5.0

5.0

4.9

4.6

4.7

MSCI-benchmark

3.8

4.2

4.5

4.5

4.4

4.2

4.3

Outperformance

0.2

0.4

0.4

0.5

0.4

0.4

0.4

        

Indirect  return

       

Vesteda Residential Fund

13.5

10.6

5.0

0.8

(3.8)

9.6

5.0

MSCI-benchmark

12.6

10.5

6.3

0.6

(4.0)

9.8

5.0

Outperformance

0.8

0.0

(1.2)

0.1

0.2

(0.1)

0.0

        

Total return

       

Vesteda Residential Fund

18.1

15.7

10.2

5.8

0.9

14.6

9.9

MSCI-benchmark

16.9

15.2

11.0

5.2

0.2

14.3

9.5

Outperformance

1.0

0.4

(0.8)

0.6

0.6

0.2

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.

Percentages MSCI Netherlands "All Residential" benchmark, calculated using MSCI definitions.

Operations

The demand for rental homes remained as high as ever in 2017. Consequently, our overall vacancy was once again historically low in 2017. Thanks to the successful (re)letting of our standing portfolio and newly-acquired properties, we were able to maintain our high average occupancy rate of 97.9% in 2017. At 2.8%, like-for-like rental growth was well above inflation, once again proving the solid inflation hedge our portfolio offers.

We considerably improved the lettability of the properties in question by making investments in new kitchens, bathrooms and toilets. We also made considerable progress in our efforts to make the homes in our portfolio more sustainable. Please see the CSSR section of this report for more information on this subject. The gross/net ratio increased to 25.7%, which was in line with our target.

In 2017, we successfully completed the integration of three head offices into one head office in Amsterdam. We set up the Commercial Support department, which was previously located in Maastricht, and this is now based in our new head office. Last year, we also assumed full management of the North Netherlands portfolio, which consists of around 1,200 residential units in Friesland, Groningen and Drenthe. This means that Vesteda now manages its entire portfolio in-house.

The Operations department conducted a digital rental pilot in the first half of last year, at De Generaal in Amsterdam and De Goudsbloem in Den Bosch. In this pilot, the entire rental process, from registration to the signing of the rental contract was conducted digitally. Using this new system, Vesteda has made it possible for its future tenants to run through the entire rental process in a user-friendly and efficient manner. Potential tenants were even able to view the home remotely using virtual reality. This initial pilot was very successful and gave a number of valuable insights into the digital rental process. On the basis of this pilot, Vesteda will now continue with the roll-out and optimisation of the digital rental process.

Focus on tenant satisfaction

Vesteda sees increasing tenant satisfaction as one of its main priorities. The annual tenant satisfaction benchmark survey and the continuous research we conduct on our services in the fields of intake, repair requests and complaint handling provide us with a range of important insights and potential improvements. Please see the section Tenant Survey for more information. On top of this, in 2017 we surveyed a representative sample of all our tenants to measure how much they felt ‘at home’ in our rental units. Our tenants gave that ‘at home’ feeling an average score of 6.7 out of 10. One example of an initiative we launched as a result of the feedback from this survey is the DoeGroen dagen (GoGreen days). Vesteda employees and tenants are working together to clean up and add to the green in the local environment (gardens, trees and back alleys) to make it more attractive. In 2017, we organised these ‘GoGreen days’ in two regions. We have also put together a task force to brainstorm continuously on potential improvements (on process and policy fronts) to increase our tenant satisfaction. One example of a new initiative is getting our tenants more involved in kitchen, bathroom and toilet renovations

Acquisitions

In the years ahead, Vesteda will continue to focus on increasing the size of its investment portfolio through acquisitions. Our primary focus is on the Randstad, the Brabant metropolitan area and the strong cities in the peripheral regions of the Netherlands. In these regions, Vesteda targets high-quality residential units in the mid-rental price segment of the liberalised rental market. The acquisition of new build projects forms the foundation of our growth strategy. Thanks to our involvement in the early stages of these projects, which will flow into the portfolio in the years ahead, we can exert a relatively large influence on the design, life-cycle costs and sustainability of the product. In addition, we aim to acquire existing real estate, residential buildings or entire portfolios, which we can then add to the investment portfolio and generate immediate returns.

In 2017, Vesteda once again expanded its Acquisitions team. At year-end 2017, the team consisted of 12 (2016: 10) dedicated commercial and technical professionals and support staff.

Competition for the acquisition of residential projects was fierce last year. Prices are high and the majority of the residential buildings offered were sold through public or private tenders and in most cases pricing was the sole selection criterion. Despite this competition, Vesteda managed to secure a number of exclusive transaction opportunities, thanks to our entrepreneurship and operational excellence in sourcing, selection and the execution of transactions. Vesteda acquired a total of 11 projects last year, including 853 residential units (2016: 1,147 units). All of these projects are turnkey acquisitions of new build properties, which we have added to our pipeline. Virtually all of these projects are located in or around major Dutch cities in the increasingly scarce mid-rental segment and will be added to our portfolio in the next few years. Family houses accounted for 46% of the volume last year.

Additions to the investment portfolio in 2017

In 2017, Vesteda added a total of 332 residential units to its investment portfolio. We refer to the table below for an overview. The majority of these units were recently completed new build properties acquired in previous years.

Additions to the investment portfolio in 2017

Residential building

Location

Total number of units

Apartments/Family houses

Region

Rental segment

Quarter of completion/delivery

CZAN, De Hagen II

Amsterdam

32

Apartments

Primary

Mid

Q1

De Diemer

Diemen

98

Apartments

Primary

Mid

Q1

De Generaal

Amsterdam

56

Apartments

Primary

Mid

Q2

De Goudsbloem

Den Bosch

25

Apartments

Primary

Mid

Q2

Dunantstraat

Amsterdam

73

Apartments/Family houses

Primary

Mid

Q4

Seattle-Boston

Rotterdam

48

Apartments

Primary

Mid

Q4

Total inflow

 

332

    

Pipeline year-end 2017

In 2017, Vesteda added a total of 11 new build projects with a total of 853 residential units to its pipeline. All projects are fully in line with Vesteda’s portfolio strategy in terms of region, rental segment and energy label. The majority of the projects are located in urban expansion sites of the larger cities in the Netherlands, where Vesteda can benefit from the promising continued development of the area.

In the first half of 2017, Vesteda signed turnkey agreements for three family house projects in Arnhem (Schuytgraaf, 54 units), Breda (Bouverijen, 36 units) and Assen (Diepstroeten, 45 so-called ‘nul-op-de-meter’ (NOM or Zero-energy) family houses).

In the second half of 2017, Vesteda acquired 139 apartments in Groningen (Kolenpark) and 202 apartments in Diemen (Punt Sniep). With an average Energy Peformance Coefficient (EPC) of -0.107, Diemen (Punt Sniep) will make a major contribution to Vesteda’s high sustainability ambitions.

In addition, at the end of last year Vesteda acquired a total of six projects including 377 units, in a single transaction with construction firm Heijmans (“Heijmans portfolio”). These projects include 119 apartments in Zutphen and a total of 258 family houses in Berkel-Enschot (65 units), Culemborg (42 units), Gorinchem (40 units), Pijnacker (39 units), Voorhout (65 units) and Zutphen (7 units). This acquisition has enabled Vesteda to expand its portfolio in an efficient manner, adding affordable rental homes in attractive locations in or around major Dutch cities.

Pipeline year-end 2017

Residential building

Location

Total number of units

Apartment/Family house

Region

Rental segment

Completion/delivery

Aan de Rijn

Arnhem

94

Apartments

Primary

Mid

2018

Alpha

Leiden

134

Apartments

Primary

Mid

2018

Amstel Tower

Amsterdam

192

Apartments

Primary

Mid

2018

Apollo

Purmerend

84

Apartments

Primary

Mid

2018

Bouverijen

Breda

36

Family houses

Primary

Mid

2018

Diepstroeten

Assen

45

Family houses

Secondary

Mid

2018

Leidsche Rijn (for sale)

Utrecht

121

Apartments

Primary

Mid

2018

Leidsche Rijn Centrum (for rent)

Utrecht

440

Apartments

Primary

Mid

2018

Parijsch

Culemborg

42

Family houses

Secondary

Mid

2018

Parnassushof

Arnhem

54

Family houses

Primary

Mid

2018

Schinkelhof

Amsterdam

64

Apartments

Primary

Regulated - Higher

2018

Tango

Haarlem

55

Apartments

Primary

Mid

2018

De Staatsmannen

Utrecht

235

Apartments

Primary

Mid

2019

Hoog Dalem

Gorinchem

40

Family houses

Primary

Mid

2019

Hooghkamer

Voorhout

65

Family houses

Secondary

Regulated - Mid

2019

Keijzersveste

Pijnacker

39

Family houses

Primary

Mid

2019

Kolenpark

Groningen

139

Apartments

Primary

Mid

2019

Koningsoord

Berkel-Enschot

65

Family houses

Primary

Mid

2019

Punt Sniep

Diemen

202

Apartments

Primary

Mid

2019

Noorderhaven

Zutphen

126

Apartments/Family houses

Other

Mid

2020

Total committed pipeline

 

2,272