The Fund realised a total return of 18.1% in 2018 (plan: 9.2%; 2017: 15.6%) consisting of 2.6% income return (plan: 2.5%; 2017: 2.8%) and 15.6% in capital growth (plan: 6.7%; 2017: 12.8%). The total return came in at € 878.0 million (plan: € 429.5 million) up from € 637.6 million in 2017, while the Fund’s invested capital was 21.3% higher at € 5,762 million (plan: € 5,306 million), compared with € 4,752 million in 2017. The capital growth is less than the 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.
The Fund realised an income return of 2.6% compared to 2.5% in the Fund Plan (2017: 2.8%). The income return is the balance of increased net rental income from assets and increased Fund and finance costs. Net rental income of € 153.9 million was € 10.7 million higher than plan of € 143.2 million (2017: 137.3 million). Fund and finance costs came at € 28.5 million compared to € 26.3 million in plan (2017: € 23.3 million).
Existing assets at the start of 2018 contributed an additional € 7.9 million to the gross rental income. The addition of 12 assets to the investment portfolio added € 6.7 million to the gross rental income.
Fund costs (administrative expenses) were higher in 2018, mainly as a result of the higher management fee expenses, which is directly related to the growth of the Fund’s invested capital.
The Fund’s capital growth as percentage came in at 15.6% in 2018, compared to 6.7% in plan (2017: 12.8%). This capital growth is the result of 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 from 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 84% 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
The total property return came in at 19.1% in 2018 (plan: 9.9%; 2017: 16.7%) consisting of a 3.1% direct property return (plan: 3.0%; 2017: 3.3%) and a 15.6% indirect property return (plan: 6.8%; 2017: 13.0%), which was higher than the MSCI Netherlands Property Index return of 18.6%. The reason for these returns are explained above, under income return and capital growth.
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.
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 2018, 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 accordance with Bouwinvest's treasury policy in 2018, 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 2018, the Fund had € 25 million freely available in cash and € 20 million in a 30-day deposit.
In 2018, the Fund’s cash position declined by € 130.3 million compared to year-end 2017. In 2018, the Fund paid out € 121.9 million in dividend to its shareholders. In 2018, the Fund also made four capital calls for a total amount of € 254 million.
Interest rate and currency exposure
In 2018, 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 2018.
As the Fund had no external loans and borrowings, nor any foreign currency exposure in 2018, 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 Bouwinvest Board of Directors proposes to pay a dividend of € 94.99 per share for 2018 (2017: € 90.82), 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, 75.2% was paid out in 2018, with the interim quarterly instalment paid out on 5 March 2019. The remainder of the distribution over 2018 will be paid out in a final instalment on 2 May 2019, following approval by the Annual General Meeting of Shareholders to be held on 24 April 2019.
The Fund qualifies as a fiscal investment institution (FII) under Dutch law and is as such subject to corporate tax at a rate of zero percent. Being an FII, the Fund is obliged by law to distribute one hundred percent of its distributable result annually.
The Fund met its obligations related to value added tax, transfer tax and other applicable taxes in their entirety in 2018.