The Fund realised a total return of 20.5% in 2016 (2015: 12.5%), consisting of 3.4% income return (2015: 3.8%) and 17.1% in capital growth (2015: 8.6%). The total return in euros increased to € 666.3 million from € 347.5 million in 2015, while the Fund’s NAV was 26.8% higher at €3,995 million, from € 3,151 million in 2015. The growth of the total return is less than the nominal growth, as the nominal growth was partly absorbed by the growth of the Fund’s NAV due to additional capital called. The main driver of growth in the total return was capital growth, which is explained in more detail below.
The income return in euros increased to € 110.0 million from € 106.9 million in 2015, an increase of € 3.1 million or 2.9%. This growth is the balance of increased net rental income from assets and increased fund and finance costs. A total of € 6.5 million of the higher net rental income came from existing assets and from assets added to the portfolio during 2016. € 3.3 million of the net rental income growth was absorbed by higher fund and finance costs. Assets already in the portfolio at the start of 2016 contributed € 2.3 million, or 2.0%, to the net rental income growth. The addition of 15 assets to the investment portfolio added € 4.3 million to the net rental income, a growth of 3.5% compared to 2015. In 2016, the Fund incurred € 0.3 million in costs, mainly advertising and letting costs, for properties that are due to come into operation in 2017. These costs had a negative impact of 0.2% on net rental income.
The increase of net rental income from existing assets is the net result of the yearly rent increase per July 2016, which came in at an average of 2.9%, the increase in rent as result of the uplift in market rent levels at tenant changes, a slight increase of the occupancy rate and cost controls related to property operating expenses. The greatest impact of cost controls was seen in maintenance costs. By tendering maintenance activities, the Fund was able to keep the maintenance costs at the lowest possible level, enabling the Fund to maintain the quality level of the investments. Fund costs (administrative expenses) were higher in 2016, mainly as a result of the higher management fee, which is related to the growth of the Fund’s NAV.
The Fund’s income return as percentage fell to 3.4% from 3.8% in 2015. This was largely on account of the high starting balance of the Fund’s NAV, due to the large inflow of capital in 2015 and the substantial capital growth of the portfolio in 2015. The inflow of capital in 2016, which amounted to € 290 million, also had a negative impact on the income return, albeit to a lesser extent. The capital inflow in 2016 was needed to pay for the properties under construction. Without capital inflow, the income return would have been 3.5%.
The capital growth increased to € 563.1 million from € 240.6 million in 2015, a growth of 134%. This growth exceeded the expectations cited in last year's annual report. This capital growth is the result of the valuation gains on the portfolio. The latter is the result of a combination of increased net rental income as described above, higher vacant values driven by higher demand from the owner-occupier market and higher investor appetite leading to yield compression. In addition to the increased value of investment properties, properties under construction also contributed to the valuation gain on the portfolio. Value growth in the Netherlands was highest in the Randstad. The fact that almost 85% of the Fund’s portfolio is located in the Randstad region played a major role in the higher valuations. At the same time, areas outside the Randstad have also started to show significant value growth.
The Fund’s capital growth as percentage increased to 17.1% in 2016, from 8.6% in 2015. This was largely due to the above-mentioned valuation gain on the portfolio.
The total property return for 2016 came in at 21.8% (2015: 13.7%), consisting of a 3.9% direct property return (2015: 4.5%) and a 17.4% indirect property return (2015: 8.9%), which was higher than the IPD Property Index return of 15.3%.
The fund return (INREV) and property return (IPD) are different performance indicators. The fund return is calculated according to the INREV Guidelines as a percentage of the net asset value (INREV NAV) and the property return is calculated according to the IPD methodology as a percentage of the value of the investment properties. INREV e.g. includes cash, the fee costs and administrative costs in the calculation of the income return (INREV). Furthermore the amortisation of acquisition is treated differently by INREV and IPD.
In accordance with the Information Memorandum, the Fund will be financed solely with equity and will have no leverage, but may borrow a maximum of 3% of the balance sheet total for liquidity management purposes.
In 2016, the Fund was financed solely with equity and did not use any loan capital for liquidity management purposes.
For treasury management purposes, the Fund acted in 2016 in accordance with its treasury policy, in order to manage the Fund’s liquidity and financial risks. The main objectives of the treasury management activities were to secure shareholders’ dividend pay-out, and to manage the Fund’s cash position.
At year-end 2016, The Fund had € 14.2 million freely available in cash and € 100 million in a 30-day deposit.
In 2016, the Fund’s cash position fell by € 15.6 million, as compared to year-end 2015. In 2016, the Fund paid out € 112.5 million in dividend to its shareholders. Also in 2016, the Fund made four capital calls for a total amount of € 290 million.
Interest rate and currency exposure
In 2016, the Fund’s bank balances were affected by negative interest rate developments. In order to minimise the impact of the negative interest rates on its bank balances, in 2016 the Fund used 30-day bank deposits.
As the Fund had no external loans and borrowings, nor any foreign currency exposure in 2016, the Fund had no exposure to interest rate risks or currency exposure risks.
Dividend and dividend policy
The Bouwinvest Board of Directors proposes to pay a dividend of € 94.03 per share for 2016 (2015: € 98.33), which corresponds to a pay-out ratio of 100%. It is proposed that the dividend be paid in cash, within the constraints imposed by the company’s fiscal investment institution (FII) status. Of this total dividend, 79.8% was paid out in 2016, with the final quarterly instalment paid out in March 2017. The remainder of the distribution over 2016 will be paid out in a final instalment on 25 April 2017, following approval by the Annual General Meeting of Shareholders to be held on 12 April 2017.
The Fund is structured as a fiscal investment institution (FII) under Dutch law and is therefore not subject to corporate tax. Being an FII, the Fund is obliged by law to maintain a pay-out ratio of 100% of the Fund’s distributable profit; as stated above, the Fund proposed to pay out 100% of its distributable profit. The Fund met its obligations related to value added tax, transfer tax and other applicable taxes in their entirety in 2016.
Bouwinvest is the fund manager of the Residential Fund and has an AIFMD licence. Under this licence, Intertrust Depositary Services B.V. acts as the Fund’s independent depositary.