Annual Report 2013 • Retail Estates • 1
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15Annual report years 2013 Summary RISK MANAGEMENT 2 LETTER TO THE SHAREHOLDERS 10 MANAGEMENT REPORT 14 RETAIL ESTATES NV ON THE STOCK EXCHANGE 54 RETAIL ESTATE REPORT 62 FINANCIAL REPORT 90 PERMANENT DOCUMENT 158 MISCELLANEOUS 180 INFORMATION SHEET 185 THE FINANCIAL YEAR OF RETAIL ESTATES NV STARTS ON 1 APRIL AND ENDS ON 31 MARCH. THE KEY FIGURES BELOW ARE CONSOLIDATED FIGURES. REAL ESTATE PORTFOLIO 31/03/13 31/03/12 31/03/11 Total shop premises 499 451 448 Total lettable area in m² 521,452 428,548 419,346 Estimated fair value in EUR (incl fixed assets held for sale) 683,081,000 550,631,000 516,365,000 Estimated investment value in EUR (incl fixed assets held 698,845,000 564,777,000 528,815,000 for sale) Total annual rental income in EUR on 31 March 2013 45,144,885 37,154,000 34,260,000 Average rent prices per m² 87.16 86.85 84.76 Occupancy rate 98.13% 98.19% 98.15% Balance sheet information Shareholders' equity 269,588,000 241,336,000 229,607,000 Debt ratio R.D. 21 June 2006 (max 65%) in % 55.75% 51.08% 53.38% RESULTS Net rental income 41,402,000 35,473,000 33,845,000 Property result 40,959,000 35,203,000 33,469,000 Property charges -2,549,000 -2,165,000 -2,204,000 General costs and other operating cost and income -2,263,000 -2,194,000 -2,067,000 Operating result before result on the portfolio 36,147,000 30,844,000 29,199,000 Result on the portfolio 8,902,000 9,346,000 10,400,000 Operating result 45,029,000 40,191,000 39,599,000 Financial result -14,771,000 -12,977,000 -12,623,000 Net result 29,582,000 27,360,000 26,692,000 Net current result (excl result on the portfolio) 20,700,000 18,014,000 16,292,000 DATA PER SHARE Number of shares 5,813,122 5,437,074 5,061,663 Number of shares entitled to dividend (weighted average) 5,813,122 5,395,408 4,981,959 Net asset value (fair value) 46.38 44.39 45.36 Net asset value (fair value) excl dividend 43.48 41.59 42.66 Net asset value (investment value) 49.09 46.99 47.82 Gross dividend per share 2.9 2.8 2.7 Net dividend per share 2.175 2.212 2.295 Gross dividend yield on closing price 5.27% 6.03% 5.79% Net dividend yield on closing price 3.95% 4.77% 4.92% Closing price on closing date 57.98 49.21 49.36 Average price 52.12 49.29 44.79 Evolution of share price during the financial year 17.13% 0.33% 16.28% Over-/undervaluation on net asset value (fair value) excl 33.35% 18.32% 15.71% dividend (in %) Annual report 2013 • Retail Estates • 1 INVESTING IN PERIPHERAL RETAIL INVESTING IN RETAIL ESTATES NV PROPERTIES As in other countries, the owning and letting of Retail Estates NV, with its team of 15 staff peripheral retail properties has become a mature members, is specifically committed to the nice niche market, with increasingly professional lessors of peripheral retail properties and has become a and tenants. Peripheral retailing is constantly reference in the sector over the last 15 years. Retail growing its market share at the expense of other Estates NV has a strong defensive profile in terms retail channels. The properties are let out on an of investment and financing strategy. Shareholders unfitted (‘casco’) basis, with clearly defined and enjoy the value that this type of real estate controllable maintenance obligations. This, and continues to generate as well as a stable dividend the fact that the sector has few vacancy or rent policy with an annually increasing dividend. collection problems, explains why property values have remained so far very stable even in difficult economic times. >15 years >15 years Retail Estates • 1 > Annual report 2013 >98,13 % OCCUPANCY RATE Risk management Retail Estates NV limits its “risks thanks to its intensive specialisation and know-how of out-of-town retailing „ know-how >15 years Retail Estates • 3 > Risk management Letter to the shareholders Management report Retail Estates NV on the stock exchange Real estate report Risk management 1. MARKET VALUE OF THE REAL work. Institutional investors’ willingness to invest PROPERTY can suffer sharp temporary falls, due to macro- economic factors influencing the availability and The value of the portfolio is assessed by cost of credit. Experience shows that the private independent real estate experts on a quarterly investor market, which continues to represent basis. A fall in value leads to a decrease in the over 60 % of investments, is less sensitive in this company’s equity and a rise in value leads to an respect. increase in the company’s equity. 2. DEVELOPMENTS IN THE RENTAL The value of the out-of-town retail properties is MARKET mainly determined by the commercial value of the property locations. Owing to a shortage of It goes without saying that there are various risks sites in good locations, the supply and demand is in this area. Risks may take the form of vacant exerting upward pressure, both in the market for properties, but can also pertain to rentability, private investors and among institutional investors. tenant quality, building ageing, and the trend Values are generally inflation-proof due to rent in supply and demand in the rental market. In indexing, but are also interest-sensitive because the first instance, these risks are reflected in of the high level of debt with which many investors the evolutions of letting values. In this context, special attention should be given to the evolution of the relative importance of the various sales channels available in retail business. They consist of traditional channels such as stores in central locations and shopping malls, local shops, hypermarkets and supermarkets and large-scale peripheral stores, as well as distance selling through catalogue houses or internet sales. The relative importance of each of these individual channels constantly changes. On balance, the peripheral retail business and particularly the store premises of the type Retail Estates invests in are part of the successful concepts of the past 25 years. Several of Retail Estates’ tenants have integrated the trumps of distance selling in their shopping concept, sometimes even in their stores, which is good for their market position. If the sales • 4 Annual report 2013 • Retail Estates • 5 channels where Retail Estates invests in would 4. FINANCIAL RISKS become less important, this will inevitably have an adverse impact on the profitability of its tenants DURATION OF THE LOANS and put the rental value under pressure. Of course Financing is concluded on a long-term basis in the there are also payment risks, despite precautions form of “bullet loans”, i.e. loans whose capital must taken by the management, which tries to do be repaid in a single instalment after a period of everything possible to review the creditworthiness 4 to 7 years. During the duration of the loan, the and reliability of tenants in advance. However, the ‘SICAF’ (i.e. real estate investment trust) only pays creditworthiness of tenants can change drastically the interest. As of 31 March 2013 the average term during the course of the lease agreement, and of its credit agreements is 3.4 years. the lessor cannot terminate the relationship unilaterally. A decline in the turnover of retail trade USE OF FINANCIAL INSTRUMENTS in one or several sectors may significantly harm Changing interest rates may expose the company to the profitability of the tenants. In such cases, the risk of increased interest charges. The company even the customary 3 to 6 month bank guarantee implements a conservative policy, which keeps the is insufficient to cushion all risks. The legislation interest risk to a minimum. on commercial lease agreements and the law on the continuity of companies provide tenants For covering the interest rate risk on long-term with extensive, long-term protection. In case of loans negotiated on a floating rate basis, Retail disputes, this legislation is often interpreted flexibly Estates NV uses of Interest Rate Swaps. The terms by judges, in favour of the tenant. In addition, of these instruments are aligned with those of the tenants, contrary to the lessor, are legally entitled underlying credits. If the Euribor interest rate (the to terminate the lease agreement unilaterally, every interest rate for short-term loans) falls sharply, three years. the market value of these instruments goes down. This drop does not, however, impact the net profit 3. STRUCTURAL STATE OF THE of Retail Estates NV, given that this constitutes BUILDINGS effective hedging within the scope of IAS 39. Cash flow hedge accounting is, therefore, applied to The management does everything within its power these swaps. As a result, variations in the value of to anticipate these risks. To this end, it implements these swaps are taken directly into equity and do a consistent policy on major repairs that fall under not appear in the income statement of the ‘SICAF’. the lessor’s responsibility. In practice, these repairs are mainly limited to the renovation of car parks In an interest rate swap, the floating interest rate and roofs. is exchanged for a fixed interest rate. Under the interest rate policy conducted by the company, >15 years Retail Estates • 5 > Risk management Letter to the shareholders Management report Retail Estates NV on the stock exchange Real estate report 95 % of the current loans (with a remaining term of of the loans.