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Report of the Board of Directors

Outlook

Multifunctional and sustainable - the future of the office sector

The Fund's main focus in the years ahead will be to optimise its portfolio, by investing in sustainable and multifunctional buildings that can accommodate multiple tenants or can be refitted to do so. These office buildings will be in good locations with sufficient other facilities, such as day-care centres, shops, cafes, and other leisure facilities. They will also offer easy access by road, public transport and by bike. The Fund will only make an acquisition when it may rely on stable and predictable returns or if it believes it can add value. It does this through its active asset management approach and through renovations and refits aimed at making buildings more sustainable, environmentally, socially and in terms of their fit with changing business needs.

Economy may boost demand for office space

The recovery of the Dutch economy firmed up in 2015 and according to forecasts is set to book steady growth of 1.5% to 2% in the years ahead. On top of this, unemployment continues to fall and consumer confidence is returning to pre-crisis levels. All of these trends are likely to have a positive impact on business activity and growth, which will in turn increase quantitative demand for office space in A1 locations in the main cities of the Netherlands. We do expect to see a continuation of the polarisation in the office market in 2016 and beyond, as secondary locations suffer the most from the growing surplus in office space. On a brighter note, we are seeing an increasing willingness in both the public and private sectors to consider the conversion of surplus office space to other uses, such as residential accommodation. This may help to reduce office vacancies in the long term.

Major differences between region and locations

Occupancy rates are expected to remain high in locations in the Randstad urban conurbation, such as the Beatrixkwartier and the city centre of The Hague, Amsterdam city centre, Amsterdam Zuidas and the IJ riverside location, the Utrecht Central Station area and the Rotterdam Central Business District. Although there is evidence of a growing risk appetite among foreign investors, due to the shortage of prime assets, most transactions still involve assets with safe long lease terms in established and thriving office locations. The Fund considers depreciated assets in prime locations with short remaining lease terms attractive new investments, as they are an opportunity to add value through targeted investments and active asset management.

Rental growth on the horizon

We expect to see a return to rental growth in 2016 and beyond on the back of rising occupancy rates in top locations thanks to the expected demand for high-quality offices in the major cities of the Randstad. Competition for prime office real estate may become even fiercer over the next year, as tenants pro-actively try to lock in leases at current competitive rates.

Building value

The Fund’s focus will be on its occupancy rate, which will require heavy investments in a number of recent acquisitions, such as WTC Rotterdam and the Citroën buildings in Amsterdam, to improve their letting potential. The Fund’s active asset management approach and targeted investments in the creation of future proof office buildings is how we build value for all our stakeholders, including our shareholders and our tenants. The year under review was a year of optimisation and consolidation, with the divestment of what we considered non-core assets and the ongoing renovation and refitting of the office buildings in our portfolio. We now expect an upward trend in both occupancy levels and direct and indirect returns from 2016 onwards.

Pro-active lease extensions

We will be keeping a very close watch on the expiration of significant leases throughout the portfolio and expiring leases, more specifically in WTC The Hague, WTC Rotterdam, De Lairessestraat and the Olympic Stadium in Amsterdam. We are in constant contact with our tenants to discuss their current and future office needs.

Thanks to the continuing recovery of the Dutch economy, the recovery in prices in our core regions, the quality of our portfolio, the Fund's optimisation strategy through acquisitions and divestments, as well as active management of our assets, the Fund expects to realise its long-term average annual target return of 7%.

Amsterdam, the Netherlands, 14 March 2016

Bouwinvest Real Estate Investment Management B.V.

Dick van Hal, Chairman of the Board of Directors and Statutory Director
Arno van Geet, Managing Director Finance
Allard van Spaandonk, Managing Director Dutch Investments
Stephen Tross, Managing Director International Investments

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