Total return
The Fund realised a total return of 11.5% in 2019 (plan: 9.7%; 2018: 18.2%) consisting of 2.3% income return (plan: 2.5%; 2018: 2.5%) and 9.1% in capital growth (plan: 7.2%; 2018: 15.4%). The total return came in at € 671.2 million (plan: € 550.8 million), 206.8 million down from € 878.0 million in 2018, while the Fund’s invested capital was 13.3% higher at € 6,529 million (plan: € 6,222 million), compared with € 5,762 million in 2018. Capital growth is less than nominal growth, as the nominal growth also consists of additional capital called. The main drivers for income return and capital growth are explained in more detail below.
Income return
The Fund realised an income return of 2.3% compared to 2.5% in the Fund Plan (2018: 2.5%). The income return is the balance of increased net rental income from assets and increased Fund and finance costs. Net rental income of € 168.9 million was € 3.5 million less than plan of € 172.4 million (2018: € 153.9 million). Fund and finance costs came at € 32.2 million compared to € 30.7 million in plan (2018: € 28.5 million).
Existing assets at the start of 2019 contributed an additional € 11.8 million to the gross rental income. The addition of 24 assets to the investment portfolio added € 11.0 million to the gross rental income.
Fund costs (administrative expenses) increased in 2019, mainly as a result of the higher management fee expenses, which is directly related to the growth of the Fund’s invested capital.
Capital growth
The Fund’s capital growth as percentage came in at 9.1 % in 2019, compared to 7.2% in plan (2018: 15.4%). This capital growth was driven by the value growth of the portfolio, which is the result of a combination of increased net rental income as described above, higher vacant values driven by higher demand in the owner-occupier market and continued high investor appetite leading to yield compression. Value growth in the Netherlands was the highest in the Randstad. The fact that 86% 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 shown significant value growth.
Property performance
The total property return came in at 12.4% in 2019 (plan: 10.4%; 2018: 19.1%) consisting of a 2.8% income return (plan: 3.0%; 2018: 3.1%) and a 9.3% capital growth (plan: 7.2%; 2018: 15.6%). The total return is 1.2% lower than the MSCI Netherlands Property Residential Index return (13.6%), mainly due to the relative concentration of the portfolio in Amsterdam accompanied with higher capital growth in previous years.
The Fund return (INREV) and property return (MSCI) 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 MSCI methodology as a percentage of the value of the investment properties. For example, INREV includes cash, fee costs and administrative costs in the calculation of the income return (INREV). Furthermore, the amortisation of acquisition costs is treated differently by INREV and MSCI.
Capital Management
Funding
In 2019, the Fund welcomed one new investor and one new commitment holder. We closed new commitments worth € 75 million and additional commitments of € 115 million. Last year, we managed to make € 230 million in capital calls, putting the committed capital of our investors to work.
Leverage
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 2019, the Fund was financed solely with equity and did not use any loan capital for liquidity management purposes.
Treasury management
For treasury management purposes, the Fund acted in accordance with Bouwinvest’s treasury policy in 2019, to manage the Fund’s liquidity and financial risks. The main objectives of the treasury management activities were to secure shareholders’ dividend pay-out, ensure other obligations could be met and to manage the Fund’s cash position.
At year-end 2019, the Fund had € 80.2 million freely available in cash and € 20.0 million in a 30-day deposit.
In 2019, the Fund’s cash position increased by € 55.2 million compared to year-end 2018. In 2019, the Fund paid out
€ 133.5 million in dividend to its shareholders.
Interest rate and currency exposure
In 2019, the Fund’s bank balances were affected by negative interest rate developments. To minimise the impact of the negative interest rates on its bank balances, the Fund used 30-day bank deposits in 2019.
As the Fund had no external loans and borrowings, nor any foreign currency exposure in 2019, the Fund had no exposure to interest rate risks or currency exposure risks. The interest rate risk related to bank balances is limited for the Residential Fund.
Dividend and dividend policy
The Executive Board of Directors proposes to pay a dividend of € 135.4 million for 2019 (2018: € 125.4 million), which corresponds to a pay-out ratio of 100%. It is proposed that the dividend will be paid in cash, within the constraints imposed by the company’s fiscal investment institution (FII) status. Of this total dividend, 75.6% was paid out in the course of 2019. The fourth instalment was paid on 25 February 2020. The rest of the distribution over 2019 will be paid in one final instalment following the Annual General Meeting of shareholders on 15 April 2020.
Tax
The Fund qualifies as a fiscal investment institution (FII) under Dutch law and as such is subject to corporate tax at a rate of zero percent. Being an FII, the Fund is obliged to annually distribute its entire fiscal result. In 2019 the Fund complied with the FII requirements.
The Fund met its obligations related to value added tax, transfer tax and other applicable taxes in their entirety in 2019.