ANNUAL REPORT 19 20 LOGOGEBRUIK POSITIEF - quadri of pantone NEGATIEF - quadri of pantone zwart-wit NEGATIEF 2019-2020IN BRIEF GEOGRAPHICAL DISTRIBUTION TYPE OF BUILDING COMMERCIAL ACTIVITIES OF GEOGRAPHICAL SPREAD CLUSTERS NEW RETAIL PARCS 2.92% 13.64% TENANTS IN THE NETHERLANDS 2019-2020 Other Individual 22.30% 30.12% 28.26% peripheral retail Clothes/shoes 21.52% Wallonia The Netherlands properties Commodities 1 Retail parc Breda Investment 63,69 million € 5.95% 11.43% Various 31 retail units Retail clusters 2 Groningen 39,932 m Friesland 8.73% 2 41.62% 72.01% 41.50% Food Retail parc Naaldwijk Retail parcs Voluminous Flanders 97.92% Investment 20,39 million € STABLE OCCUPANCY RATE Drenthe 16 retail units The current outlet renting 19,875 m2 market in the suburban Noord-Holland 3 RETAIL PROPERTIES NUMBER OF EMPLOYEES areas shows great stability 3 Retail parc Zaandam with respect to both Investment 13,42 million € Flevoland 969 RETAIL PROPERTIES investors and lessees. Overijssel 9 retail units The real estate portfolio of 15,054 m2 Retail Estates nv consists 4 4 of retail properties 15 20 Utrecht Gelderland Retail parcUtrecht located outside the largest 2 Investment 5,10 million € Zuid-Holland cities of Belgium 4 retail units 747 222 and the Netherlands 4,159 m² Retail properties Retail properties in Belgium in the Netherlands 1 Noord-Brabant NEW RETAIL PARCS 35 Zeeland IN BELGIUM 2019-2020 Employees Limburg 5 Retail parc Libramont Antwerpen Investment 5,57 million € GROWTH PORTFOLIO RETAIL ESTATES NV BETWEEN 2019 AND 2020 Oost-Vlaanderen 2 retail units Area m2 Fair value (in thousands EUR) West-Vlaanderen Limburg 2,847 m² Vlaams-Brabant Brussel Waals-Brabant Henegouwen Luik Namen ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15 ‘16 ‘17 ‘18 ‘19 ‘20 Luxemburg 5 1 136 492 m2 1 661 753 € RETAIL AREA FAIR VALUE Retail Estates invests in acquisitions, investments Retail Estates nv has concentrated on continuously in project developments and investments in improving the quality of its properties and the optimisation of its real estate portfolio. the expansion of its real estate portfolio. 1 RISK FACTORS 9 2 LETTER TO THE SHAREHOLDERS 33 3 MANAGEMENT REPORT 37 CONTENTS 4 RETAIL ESTATES ON THE STOCK EXCHANGE 106 5 REAL ESTATE REPORT 114 6 FINANCIAL REPORT 150 7 PERMANENT DOCUMENT 220 8 MISCELLANEOUS 240 4| RETAIL ESTATES - ANNUAL REPORT 2019-2020 RISK FACTORS | 5 EXPLANATORY NOTE COVID-19 During the first quarter of the calendar year 2020, the Where the valuation by our real estate expert is COVID-19 virus spread on an unprecedented scale concerned, we find that the valuations on 31 March 2020 in Europe. Public life came to an almost complete are represented on the basis of a “major uncertainty standstill and retail trade in particular was seriously relating to the valuation”. We refer to page 146 of this affected. In Belgium the government decided to close report for an overview of the reports of the real estate all non-essential businesses. The closure took effect experts. The real estate experts took into account a rent- on 19 March 2020 and ended on 11 May 2020. The free period of 1 month for the businesses affected by Dutch government decided to leave entrepreneurs the obligatory closure imposed by the government. freedom to take the initiative and limits itself to inciting citizens to display socially responsible behaviour. As a The evlution of these valuation in the next quarters is result, the businesses in the retail parks have remained something that cannot be predicted. Expectations are open, with some exceptions. There is a general concern that the vacancy rate in the sector, which is now relatively among entrepreneurs that the epidemic will return and low, may increase, causing pressure on rental price in particular that a new lockdown will be imposed. This levels. Moreover, it is not certain whether customers in is a risk that cannot be excluded as long as no vaccine all segments will be able to find sufficient financing to can be distributed on a large scale. rent and decorate vacant properties. This may have a negative influence on the valuations, which in turn will The compulsory closure has led to considerable pressure inevitably have an impact on the debt ratio in case of on liquidity with the tenants, leading to significant weak operational results. arrears in payment of the rent. In addition, it is to be expected that long-term temporary unemployment, Retail Estates closed its 2019-2020 financial year on 31 potentially followed by dismissals, will cause a loss of March with a strong operational basis, which was hardly confidence with the consumer. This means that it may affected by the corona crisis. The majority of the rents for take until October 2020 for the retail trade to experience March 2020 had already been paid. The occupancy rate a reasonable recovery. The company concluded of 97.92% is also a sign of the health of the portfolio. commercial agreements granting payment facilities The start of the corona crisis affected the company at a with its client for a period of three months (April – May time when the operational results were strong. This will – June 2020). For the period of compulsory closure, give the company the resilience and flexibility required agreements were concluded on a selective basis with a to face this crisis, more than other real estate companies view to partially reduce the rental charches. This effort in the same sector. In addition, the company had the is currently clear and can be delivered by the company. financial means that were required to complete the Based on the information currently available, this will announced acquisition of two retail parks at Den Bosch be a temporary effort. It is nevertheless impossible to (completed on 7 April 2020) and Maastricht (executed assess how the liquidity and solvency of our customers on 2 June 2020) respectively. The proceeds of the € 75 will evolve over a period of twelve months and to what million bond loan issued in December 2019 had been extent they will benefit from government aid. That is reserved for that purpose. In the light of the above, why the company has cut its variable costs wherever Retail Estates confirms its dividend prognosis of € 4,4 possible. for the closed 2019-2020 financial year. 6| RETAIL ESTATES - ANNUAL REPORT 2019-2020 RISK FACTORS | 7 O1 MARKET RISKS 11 O2 OPERATIONAL RISKS 15 O3 FINANCIAL RISKS 18 O4 REGULATORY RISKS 21 RISK FACTORS 8| RETAIL ESTATES - ANNUAL REPORT 2019-2020 RISK FACTORS | 9 1. MARKET RISKS DESCRIPTION OF THE RISK POTENTIAL IMPACT LIMITING FACTORS AND CONTROL INVESTMENT MARKET FOR OUT-OF-TOWN RETAIL PROPERTIES AND RETAIL PARKS The reduced demand The value of the portfolio is The value of out-of-town retail property from investors for out-of- estimated each quarter by is mainly determined by the commercial town retail properties. independent real estate experts. value of the property’s location. Due to A decrease in valuation leads the scarcity of good locations, supply and to a decrease in shareholder’s demand tend to exert upward pressure in equity (“NAV”) and, consequently, both the private and institutional investor an increase in the debt markets. The values are generally ratio of the company. inflation-proof due to indexation of the rent, but they are interest rate sensitive due to the high debt ratio of many investors. The willingness to invest on the part of institutional investors can temporarily decrease due to macroeconomic factors that affect the availability and cost of credit. Experience shows that the private investor market, which still represents a major part of investments, is less sensitive to this. The debt ratio amounts to 53.10% on 31 March 2020 (the BE-REIT legislation set the maximum debt ratio at 65%). INFLATION RISK The Group’s lease agreements The Group’s exposure to inflation The company seeks to reduce the contain indexation clauses on mainly concerns costs related to the risk of cost increases by entering into the basis of the health index lease, including those with respect contractual agreements with its suppliers. (Belgium) or the consumer price to renovation and investment works, index (the Netherlands), so that which may be linked to an index annual rental income evolves other than the health index, which with the (indexed) inflation rate. could cause these costs to increase more quickly than the increase in The main risks facing the company are listed below. For each of the rents. This may have an impact on the operational margin. If real listed risks, measures and procedures are in place to assess, control estate costs increased 1% faster and monitor the effects as much as possible. These measures and than the rental prices, this would procedures are also discussed below. have a 0.08% impact on the Group’s operational margin (on the basis of The board of directors regularly evaluates the company’s exposure the data of 31 March 2020). Based to risks, the financial impact of these risks and the actions that must on the data of 31 March 2020, the rental income variation can be be taken to monitor these potential risks, to avoid the risks and/or estimated at EUR 0.99 million on an (where relevant) to limit the impact of these risks. annual basis for each percentage point variation of the health index. This list of risks is based on the information that was known at the time of preparation of this report. Other unknown and unlikely risks or risks that are not expected to have a significant adverse effect on the company, its activities and its financial situation may exist.