Foreword Managing Board

Dear stakeholders,

We are pleased to present to you our Annual Report for 2018. In this report, we update you on the developments in the Dutch housing market over the past year and Vesteda’s contribution to that market as an active residential real estate investor. We also look ahead and introduce to you our plans for 2019.

A dynamic and successful year

Last year was in many ways a very dynamic and successful year. It was a year in which we took major steps towards the realisation of our strategic objectives. And a year in which Vesteda booked a record result, driven partly by the increase in the value of our residential portfolio and the acquisition of the former Delta Lloyd portfolio. However, 2018 was also a year in which we saw the availability of residential properties in the Netherlands’ major cities come under increasing pressure, and a year in which the Dutch government’s new Climate Agreement expressed the ambition to disconnect the entire Dutch housing supply from natural gas by 2050.

Vesteda boosts position in mid-market segment and cities

In the first half of 2018, Vesteda bolstered its position in its core regions and the mid-market segment of the Dutch residential market with two major transactions. In April, we sold part of our portfolio, totalling 1,872 homes (90% of which is in the government-regulated segment) and at the end of June we acquired the former Delta Lloyd portfolio of 6,777 homes from NN Group.

Our portfolio, including the committed acquisition pipeline of 1,433 homes, comprised a total of 29,242 homes at year-end. Our exposure to the mid-market segment and the primary regions increased to 73% and 91% respectively.

Focus on sustainable living

In 2018, we have made good progress on our ESG objectives. Our sustainability programme is on schedule, and we invested in various new projects in the year under review. These projects relate among other things to resource consumption, portfolio sustainability, stakeholder engagement and Health & Well-being. For instance, we registered our ‘Aan de Rijn’ apartment complex in Arnhem for a WELL Building Standard certificate. WELL is a certification system aimed at improving the impact of a building on the health, comfort and well-being of its users and is a perfect fit with our ambition to play a leading role in the field of sustainable living.

We also started a collaboration with Dutch Society for the Protection of Birds (Vogelbescherming Nederland) to make our complexes more sustainable and bird friendly. In 2019, we will engage our tenants and hope that they will also become involved.

Vesteda endorses the Dutch government’s decision to terminate the exploration of natural gas in the province of Groningen in 2030. We are also supportive of the decision that newly built homes are not connected to our gas network.

About 20% of our current portfolio is already natural gas-free, so we do have some experience with alternative systems, such as central city heating and thermal energy storage systems. It seems likely that within the next 32 years other alternatives will become available with better conditions than currently available. We will therefore make sure we keep up to date on all the options available and we will occasionally participate in pilot studies, but we will not act as a frontrunner in this operation. In the meantime, we will anticipate this future energy transition in all our large maintenance projects in our current portfolio.

Project Milestone – 3D-printed concrete houses

In May of last year, the Eindhoven local council, the Eindhoven University of Technology and the companies Van Wijnen, Vesteda, Saint Gobain-Weber Beamix and Witteveen+Bos announced plans to realise the first fully habitable home to come directly from a 3D printer. The home will be the first of five homes to be built with 3D-printed concrete, which will be built in Eindhoven in the years ahead. The innovation of 3D printing has the potential to revolutionise the future of residential building in terms of speed, affordability and freedom of form and choice. We are proud that Vesteda is involved in this project and that we will include the first 3D-printed concrete home in our investment portfolio in 2019.

Continuing pressure in the Dutch housing market

The Dutch population will increase by one million people between now and 2040. One of the fastest-growing groups in this period will be the elderly (65+), who will account for 25% of the population by 2040.

At the same time, the increasing pressure on the housing market in the major cities in the Netherlands is pushing more and more people out to the suburbs and the satellite cities near major urban centres. The demand from investors for housing stock in the large cities is also very high, which is resulting in lower yields and increasing risk.

The national government is aiming for an annual net addition of 75,000 houses, but the number of new building permits has never even approached this figure in recent years. Not even in 2017 and 2018, when we did see an increase in the number of building permits.

On top of this, construction companies do not have anywhere near the capacity they need to build these houses. Plus, the disconnection of Dutch homes from natural gas will probably lead to a temporary delay in the start-up phase of new projects. The continuing scarcity of homes and the sharp increase in construction costs will push housing prices to even higher levels, which will put additional pressure on the affordability of homes.

Even though expectations are that house price growth will moderate, this will continue to be a matter of concern and it continues to dominate the public and political debate on the housing market. A lot of attention is being devoted to potential regulatory measures. Some cities, such as Amsterdam and Utrecht, have already taken measures. On a national level, the Dutch government is considering implementing legislation that would give municipalities with tight housing markets the power to cap prices for new rental contracts at a certain percentage of a government-set property value, the so-called emergency button. These (impending) measures may actually be counterproductive and lead to increasing scarcity of affordable housing and segregation.

To prevent further rent hikes in the over-stretched housing market, we believe the government should be encouraging investments from long-term investors. The only real way to remedy shortages in the housing market is to build more homes. What we need in the housing market is cooperation between local councils and long-term residential investors. They have the resources to build large numbers of new rental homes and to renovate and make existing mid-market segment homes more sustainable. This is a market in which these parties should be able to book an acceptable return on the social capital they have been entrusted with.

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 2019 and realising these targets will help us achieve our overall ambition to become the preferred Dutch residential fund.

We would like to conclude by thanking all our stakeholders for their commitment and for helping to make 2018 another successful year for Vesteda.

Vesteda Managing Board

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