Letter to the shareholders
Befimmo closed its 2016 fiscal year by again posting strong results in an economic environment that is not only challenging but also, it must be acknowledged, increasingly uncertain.
We expected a very turbulent 2016 and unfortunately this proved to be the case with the attacks in Brussels, which were not only a human tragedy but also impacted the image and international reputation of Brussels and Belgium.
The vote in favour of Brexit, and the result of the US election, herald a period of uncertainty and hence of volatility, which is sure to weigh on the economy. There is more to come this year with elections in particular in France, the Netherlands and Germany.
Against this background, our team, Management Committee and Board of Directors are inclined and determined to cope with and even take advantage of this changing environment.
As its priority, Befimmo is focusing, more than ever, on diligently managing its portfolio, while maintaining its high level of quality, by developing its potential value, and managing its revenues to pursue a healthy dividend policy. Befimmo is preparing to succeed with its main challenges, notably in the North area, but also the more general issue of the accelerating pace of changes in working methods. Finally, Befimmo is of course remaining attentive to growth opportunities, even though such “conventional” operations (acquisition of properties let long-term) are currently generally picked up by investors willing to find a return "at any price" in an environment of low interest rates.
Confident in the course it has set, Befimmo is particularly grateful for once again placing your trust in the Company at the time of the capital increase in September 2016. This will enable Befimmo to begin confidently its promising "landmark" project, the Quatuor, in early 2018, while retaining the flexibility to seize potential growth opportunities.
2016 was very successful in terms of take-up of our Brederode 9 and Triomphe projects, both now substantially occupied by leading companies. More generally, Befimmo signed leases for over 37,000 m², 30% up on the previous year. In particular, outgoing tenants in our Axento, Blue Tower and Schuman buildings were readily replaced by new ones, which once again confirms the prime importance of the quality and attractiveness of the buildings. And of course, 2016 saw the completion of the Gateway project (38,000 m²) and its take-up by Deloitte for an 18-year fixed term.
We have also worked hard to prepare our North area projects.
At the time of writing, after more than two years of proceeding for our Quatuor project, we passed the last consultation Committee, thereby opening the way to obtain the permit in the near future. As announced at the time of the capital increase in September 2016, we intend to begin demolishing the existing “Noord Building” as soon as the current occupants leave in early 2018, and then start building this elegant 60,000 m² project, which faces the city while enjoying all the advantages of the North area: it will be flexible in use and offer excellent environmental performance.
We are also actively preparing the multifunctional project that is due to replace Tower II of the WTC complex when the Government departments currently occupying the tower leave at the end of December 2018. We expect to be able to present a specific outline to you in the coming months.
On reading the above, you will have understood, dear Shareholders, that our Company revealed its fine challenges, as several of its large buildings in the North area are reaching the end of their lives after decades of earning good returns. There is nothing surprising in this; it stands to reason that we are redeveloping them. This will bring them perfectly in line with current and future market needs. We are convinced that a local player as Befimmo, armed with over 20 years’ experience as a "pure player" in this market, will be among the best placed to seize opportunities. Befimmo has great potential to create value.
During this period of intense redevelopment activity, Befimmo will continue to benefit from its assets under leases with a duration of around 9 years.
Moreover, we confirm our firm ambition to continue to deliver strong results in the coming years, in line with the quality of the buildings in the portfolio. Regarding the level of the dividend, and even if it doesn’t represent a commitment, we would again recall that Befimmo has significant distributable reserves which could complement potentially more modest results during these interim years of intense redevelopment.
Another challenge is the structural change in ways of working, more specifically the use of office space. We live in a period of exponentially accelerating change. Offices are becoming mainly an open space for meeting and dialogue, a change which Befimmo is fully embracing by transforming its headquarters into office space that stimulates creativity and gives priority to facilitating exchanges between team members, not only for its own good but also as a showcase for its customers.
This will entail a need for less office space, but Befimmo has no reason to fear this with its portfolio of quality properties located mainly in city centres near major public transport hubs. On the contrary, Befimmo is especially well placed to respond to these developments, especially as it is actively continuing to strengthen its relationships with its tenants, offering them an ever-broader range of integrated services to enhance their comfort.
Befimmo has also continued its substantive work to continuously improve its properties, especially in terms of environmental performance, to bring them in line with ever-higher standards, also making sure to set long-term targets for cutting greenhouse gas emissions, in line with the COP21 agreement and the Sustainable Development Goals developed by the United Nations.
In this way, Befimmo strives to earn the loyalty of its tenants and make itself attractive and competitive for prospective new ones.
In 2016 the EPRA earnings (cash flow) was in line with the forecast we announced at the time of the capital increase in September. It is €3.68 per share (€3.66 forecast). Meanwhile, the net result per share was €3.82, holding steady while the continuing decline in interest rates brought about a significant drop in the IAS 39 value of our hedging products.
Following the capital increase, borrowings are also well under control, with a “Loan-to-value” (LTV) ratio of 42.3%, while an interim dividend of three quarters of the annual dividend was distributed in December 2016.
As planned, we will therefore be proposing a final dividend of €0.90 gross per share to the General Meeting on 25 April. As forecast, with the interim dividend of €2.55 per share existing before the capital increase, paid out in December 2016, the dividend for the year will be €3.45 gross per share.
More than ever, in an increasingly complicated environment, we rely on our exacting and professional multidisciplinary team to successfully meet the major challenges we face.
Thank you again for your continued confidence.
Brussels, 14 February 2017.
Benoît De Blieck Alain Devos
Managing Director Chairman of the Board of Directors
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