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Message from the Chairman

Dear stakeholders,

Last year was very much a year of transition for the Office Fund. The performance may seem a little disappointing, we failed to outperform the IPD index in 2015, but we took some significant steps towards achieving a portfolio composition that will truly reflect the office market of the future. One of the reasons for the underperformance this year was the devaluation of the CentreCourt building in The Hague, due largely to the fact that there is a risk that one of the current tenants, the Dutch government, will vacate the premises in 2017 or 2018. That said, we are still very positive on this building and we have already started looking for new tenants and planning investments in further improvements.

The office real estate market is currently undergoing a major shakeout as investors and office users look for the right balance. We have to accept that there is simply too much office space and that much of the current stock will never be used as office space again. A good deal of the current stock will either be demolished or put to some other use and this will take time. We expect this process to continue in the years ahead.

At the same time, there will always be a need for office space. The question is what kind of office space will be needed and where will it be in the future? We are firmly convinced that the best and most popular offices of the future will be in multi-tenant buildings in multifunctional environments in the four or five biggest cities in the Netherlands. This is due to the ongoing urbanisation trend. And in part to the demands of modern working environment, or the so-called New World of Work. Companies and people now need more flexibility. Employees can now work in a hotel, at home or at the office. But we believe that companies will always need a central point where people can meet each other face-to-face, as that is the only way to come up with the best creative and innovative ideas.

These offices also need to be in inspiring environments, which we believe will be multi-tenant buildings with additional facilities, such as restaurants, meeting rooms, parking facilities and good public transport links. And they will be in the kind of dynamic environments you find in centres of the bigger cities, or places like Amsterdam’s Zuidas district. This is why we still believe in CentreCourt; it is a multi-tenant building in a multifunctional environment with excellent transport links.

And that is exactly where we are focusing with the Office Fund. We increased that focus last year, with the disposal of a package of office buildings we no longer see as core assets. And we invested a great deal of time and money in upgrades to a number of key properties in the portfolio, especially the World Trade Centres in The Hague and Rotterdam. Plus we worked on the plans for the Citroën buildings in Amsterdam. These are properties well worth investing in, because they are the future of the office sector: multi-tenant buildings in multifunctional and dynamic locations. This is how we build value in our portfolio, by investing in the right properties and then making them as future-proof as possible.

Once we have completed the optimisation of our office portfolio, we will return to solid direct returns, with rent increases around inflation rate, due to our focus on sustainable buildings in excellent locations. And of course our investments will boost indirect returns. Thanks to our continued commitment to this sector, we are one of the very few office funds available for investors who want to invest in a portfolio of Dutch offices without leverage, with a long-term focus, high sustainability requirements, and outstanding governance. Because we invest in our buildings, in the surrounding environment, in local infrastructure and we plan to stay invested for the next 20 years or more. This is why local authorities find us such an interesting partner.

We will see a rebalancing of the office market in the next few years, and our portfolio will be a very good reflection of that new balance. We will see a lot of office space disappear or change use in the shakeout, while top-notch offices in the right locations will be even more popular. But to take advantage of the opportunities in this market, you have to be a little anti-cyclical. If you wait too long, you miss the best opportunities, like the WTC in Rotterdam. Being ahead of the market puts you in a much better negotiating position for high-quality assets.

Many investors are still reluctant to invest in this market until they see where it is going. We believe we know where it is going and some investors share our faith in this market. This is something attested to by the fact that we welcomed our first foreign investor in the Office Fund last year. Major institutional investors – Dutch and international – are regaining their faith in the office market and once they do they will want to invest in solid portfolios of future-proof offices. That is exactly the kind of portfolio we will have.

I would like to close by thanking everyone who worked on the office portfolio for their hard work, dedication and their excellent performance last year. It was a real team effort and something we can all be proud of.

Dick van Hal

Chairman of the Board of Directors

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