kfn annual report 2006
kfn translates your requirements into an office space that perfectly suits your needs, with tailored solutions for high-quality work足 spaces. kfn provides the quality that may be expected from an office investment company that ranks among the top 10 in the netherlands and that is also a wholly owned subsidiary of stichting pensioenfonds abp. with specialists whom you may consider as committed partners. for services such as furnishing, ict and facility support, we can refer you to our network of preferred suppliers.
jelle mensonides
paul vismans
supervisory board
management board
wim borgdorff
dick de beus
supervisory board
supervisory board
frank hendriksen
frans boons
management board
supervisory board
report of the chairman of the management board report of the supervisory board strategy report of the management board key value drivers corporate governance consolidated annual accounts company annual accounts
key figures
2006
2005
2004
2003
2002
Balance sheet figures (x € 1 million)
Property
1,285.4
1,282.6
1,236.4
1,265.3
1,239.1
Shareholders’ equity
832.4
778.4
743.6
755.8
749.8
Total debt (interest-bearing)
585.0
535.0
525.0
484.6
466.6
Results (x € 1 million)
Gross rental income
98.9
97.8
98.3
91.8
83.7
Net rental income
79.5
81.6
81.7
76.7
71.2
Net profit
87.4
63.4
10.0
34.0
65.2
Direct result
57.5
56.9
31.5
52.3
52.1
Indirect result
29.9
6.5
-21.5
-18.3
13.1
Earnings before interest and tax (EBIT)
102.2
80.2
52.1
53.1
80.0
Financial ratios
Equity to balance sheet total (%)
57.2
57.5
57.2
58.8
59.7
Debt to equity ratio (%)
70.3
68.7
70.6
64.1
62.2
Loan to value ratio (%)
45.5
41.7
42.5
38.3
37.7
Interest Cover Ratio
4.2
4.2
3.2
3.0
3.0
Per share (x € 1,-)
Net profit
4.36
3.16
0.50
1.70
3.25
Dividend
2.62*
2.49
1.25
1.10
1.40
Shareholders’ equity
41.52
38.82
37.09
37.70
37.40
Number of shares at end of period (x 1,000)
20,049
20,049
20,049
20,049
20,049
Return on equity
Net profit (%)
10.9
8.3
1.3
4.5
9.1
Direct result (%)
7.2
7.5
4.2
6.9
7.3
Indirect result (%)
3.7
0.8
-2.9
-2.4
1.8
Other ratios
Investment property (m )
495,500
552,500
543,500
550,000
499,000
Pipeline projects (m2)
94,500
46,000
32,000
36,500
91,500
90.8
94.0
2
Occupancy rate average (financial) (%)
90.1
89.0
87.9
Organisational ratios
FTE’s
46
42
48
45
43
Net rental income / property (%)
6.2
6.4
6.6
6.1
5.7
58
48
Management expenses / property in bps
56
62
66
ROZ/IPD-property index (standing investments)
KFN
t.b.a.
7.9
4.8
5.6
9.0
ROZ/IPD-property index Offices
t.b.a.
7.0
5.5
5.2
8.3
*
Proposed dividend
The comparative figures 2002-2003 have not been restated to IFRS. Presented here are the audited figures from the Annual Accounts 2002-2003 stated in conformity with Dutch GAAP.
9
report of the chairman of the management board
In 2006, recovery was the overall theme, in particular in the Dutch office market. This market once again proved to be cyclical, offering opportunities in both the rising and declining environments. The KFN team always finds a challenge in making the best possible use of those opportunities. This annual report first presents the way in which the changing
Rien van Gendt stepped down as a member of the Supervisory
market conditions were utilised, both in the property market
Board, and Dick de Beus was appointed to that Board at the
(rental) and the investment market (acquisition and property
General Meeting of Shareholders. In anticipation of the future
sales). Furthermore, the report discusses KFN’s strategic,
developments at KFN, an Audit Committee was set up in
organisational and financial developments during the past year.
November 2006, consisting of Supervisory Board members Jelle Mensonides and Dick de Beus.
Value creation In 2005, a great deal of attention was devoted to building up the
Valuation and market developments
KFN team, structuring and improving processes and control, and
The demand for high-quality property on the part of investors,
increasing transparency. The year 2006, conversely, was the year
which remained high in 2006, forced the level of the gross initial
in which the key value drivers could be deployed primarily for
yields in the market further downward. In light of the fact that
KFN’s core business: lease, purchase and sale.
those yields are approaching the levels of other European markets, and taking into account the slight increase in the interest
Thanks to the recovery of the office market mentioned earlier,
rate level, the yields are expected to drop further under pressure
and above all to the great efforts on the part of the team, KFN was
from capital forces (the so-called Wall of Money) and lack of
able rapidly to increase the occupancy of the portfolio, including
suitable products; however, that drop will be slight and the yields
that for buildings for which initial vacancy resulting from major
will eventually stabilise. At year-end 2006, the average gross
expansion projects (WTC Amsterdam) or timing issues regarding
initial yield of the KFN portfolio was 8.6% (2005: 8.8%).
the completion (Braingate in Capelle aan den IJssel) caused KFN difficulties in 2005. The perception of buildings and services
These developments caused a 2.6% increase (2005: 1.2%) in
among KFN’s clients also improved to an average appreciation
the value of the standing portfolio.
score of 6.9 (2005: 6.6) during the reporting period.
Management Board and Supervisory Board The Management and Supervisory Board both experienced a number of changes during the year. In January 2006, Jeroen den Otter was appointed Director Finance and as such assigned to KFN’s Management Board. He joined KFN in 2003, and he has proved himself to be a specialist in all aspects of Finance, Treasury and Control.
‘In 2006, recovery was the overall theme, in particular in the Dutch office market.’
report of the chairman of the management board
13
january 2006 kfn appoints jeroen den otter as director finance
report of the chairman of the management board february 2006
kfn renews flexible supply contract with eneco
In 2006, recovery was the overall theme, in particular in the Dutch office market. This market once again proved to be cyclical, offering opportunities in both the rising and declining environments. The KFN team always finds a challenge in making the best possible use of those opportunities. This annual report first presents the way in which the changing
Rien van Gendt stepped down as a member of the Supervisory
market conditions were utilised, both in the property market
Board, and Dick de Beus was appointed to that Board at the
(rental) and the investment market (acquisition and property
General Meeting of Shareholders. In anticipation of the future
sales). Furthermore, the report discusses KFN’s strategic,
developments at KFN, an Audit Committee was set up in
organisational and financial developments during the past year.
November 2006, consisting of Supervisory Board members Jelle Mensonides and Dick de Beus.
Value creation In 2005, a great deal of attention was devoted to building up the
Valuation and market developments
KFN team, structuring and improving processes and control, and
The demand for high-quality property on the part of investors,
increasing transparency. The year 2006, conversely, was the year
which remained high in 2006, forced the level of the gross initial
in which the key value drivers could be deployed primarily for
yields in the market further downward. In light of the fact that
KFN’s core business: lease, purchase and sale.
those yields are approaching the levels of other European markets, and taking into account the slight increase in the interest
Thanks to the recovery of the office market mentioned earlier,
rate level, the yields are expected to drop further under pressure
and above all to the great efforts on the part of the team, KFN was
from capital forces (the so-called Wall of Money) and lack of
able rapidly to increase the occupancy of the portfolio, including
suitable products; however, that drop will be slight and the yields
that for buildings for which initial vacancy resulting from major
will eventually stabilise. At year-end 2006, the average gross
expansion projects (WTC Amsterdam) or timing issues regarding
initial yield of the KFN portfolio was 8.6% (2005: 8.8%).
the completion (Braingate in Capelle aan den IJssel) caused KFN difficulties in 2005. The perception of buildings and services
These developments caused a 2.6% increase (2005: 1.2%) in
among KFN’s clients also improved to an average appreciation
the value of the standing portfolio.
score of 6.9 (2005: 6.6) during the reporting period.
Management Board and Supervisory Board The Management and Supervisory Board both experienced a number of changes during the year. In January 2006, Jeroen den Otter was appointed Director Finance and as such assigned to KFN’s Management Board. He joined KFN in 2003, and he has proved himself to be a specialist in all aspects of Finance, Treasury and Control.
‘In 2006, recovery was the overall theme, in particular in the Dutch office market.’
report of the chairman of the management board
13
Rental Overview (m2)
Vacancy
80,000
KFN rented out 80,000 m² of rentable floor area of office space in 2006. At year-end 2006, KFN operated over 495,500 m²
70,000
rentable floor area. The physical vacancy (in terms of m² rentable floor area) at year-end 2006 was slightly above 7.8% (2005:
60,000
9.0%), while the financial vacancy for the year 2006 was 9.9% (2005: 11.0%).
50,000
The physical vacancy in the core portfolio (property I) was 7.5%. 40,000
The physical vacancy in the core-plus portfolio (property II), in which the largest object is the 50% participating interest in
30,000
WTC Amsterdam, was 9.0% at year-end 2006.
20,000
Portfolio, acquisitions and property sales
10,000
KFN realised two major acquisitions in 2006. The purchase of two office buildings let to Statistics Netherlands, CBS,
0
(average duration of the lease contracts of over 10 years) in 2005
2006
vacancy
2005
2006
terminations
2005
2006
new lease contracts
The Hague and Heerlen, totalling 30,650 m² and 18,000 m² respectively, means that the pipeline of premises to be transferred in 2007 and 2009 can be expanded to a total of 94,500 m². These investments match KFN’s portfolio strategy, which is focused entirely on rejuvenating the portfolio and acquiring office buildings situated at urban nodes in areas with strong local economies. Another factor contributing to reducing the average age of the
‘In 2006, the average age of the standing portfolio was reduced to nine years.’
portfolio was the sale of a series of older buildings, while several objects in towns in which KFN’s relative presence is too large were also sold. In addition to a 13,260 m² office building in Groningen and a 1,322 m² building in Maastricht, a portfolio of 12 office buildings, with a total gross lettable area of 42,860 m², was also sold toward the end of 2006. In 2006, the average age of the standing portfolio was reduced to nine years, which is a drop of one year compared with 2005.
Financing The interest rate risk policy which was developed and implemented in 2004 remained unchanged in 2006 after having been set to a new baseline.
14
kfn annual report 2006
Strategy At the strategic level, KFN targeted two main areas. The portfolio strategy for the period from 2006 to 2010 was defined and approved by the Supervisory Board and the Shareholder. The main lines of this strategy are as follows: • To continue to focus on the portfolio as well as on clients; • To focus on sixteen towns and cities offering prospects; • To conduct a proactive acquisition policy with a balanced risk profile; • To acquire single-tenant buildings of >2,500 m² and multitenant buildings of >10,000 m²; • To conduct active portfolio management aimed at continually improving the quality and rejuvenation of the portfolio. It is KFN’s intention to expand its current (Dutch) portfolio during the period concerned (acquisitions and property sales) to € 1.5 billion at year-end 2010. The mentioned growth plans were already taken into account in the future scenarios defined in 2006. KFN is currently engaged in an intensive process of weighing several future scenarios and studying the associated options. In 2007 KFN, in conjunction
‘The mentioned growth plans were already taken into account in the future scenarios defined in 2006.’
with its shareholder, aims to work out the practical details of the steps that need to be taken to further optimise its future strategy.
Results KFN achieved a total result of € 87.4 million (2005: € 63.4 million). The operating result was € 79.5 million (2005: € 81.6 million). The result from revaluations was € 19.6 million (2005: € 6.5 million), which corresponds to developments in the market. The result from sales totalled € 10.3 million (2005: € 0.0). Compared with the expectations set out in the 2005 Annual Report, KFN once again realised the direct results and comfortably outperformed its targets.
Outlook for 2007 In 2007, the main area of attention for the team will be the portfolio in operation. The organisation’s focus will gradually shift to further improving the quality of the existing portfolio. KFN expects that in 2007 it will at least be able to hold on to the favourable rental income recorded in 2006, and to reduce the vacancy in the portfolio as a whole to below 6% by year-end 2007 (year-end 2006: 7.8%). Utrecht, 16 February 2007 Paul Vismans, CEO report of the chairman of the management board
15
report of the supervisory board
We have seen and approved the 2006 Annual Accounts drawn up by the Management Board and accompanied by an approving auditor’s report, and agree with the Management Board’s proposal to distribute a dividend over 2006 of € 52.5 million (€ 2.62 per share). We recommend the shareholder to approve the Annual Accounts presented in this Annual Report. f.h.j. boons (1940)
Activities of the Supervisory Board
chairman of the supervisory board. frans was formerly a member of
During the year under review, the Supervisory Board held
the management board of rabobank
five meetings in the presence of the Management Board.
netherlands, after which he chaired
The principal subjects of discussion were the movements in
the management board of vado beheer
KFN’s results, in particular the developments in the field of
bv. he currently holds positions on
rental, acquisitions and property sales.
a number of supervisory boards, including various property companies.
The Supervisory Board also devoted special attention to the development of the growth strategy for the 2006-2010 period,
w. borgdorff (1960)
partly considering the scenarios defined for KFN’s future.
managing partner at alpinvest partners. wim is also a member of
The composition of the Supervisory Board changed during 2006.
the supervisory board of corio nv,
After three terms, Rien van Gendt left the Supervisory Board in
and chairman of the investment
2006. We are very grateful to Rien for his contributions to the
committee of bpf bouwinvest.
development of KFN. d.j. de beus (1946) Jelle Mensonides was reappointed to the Supervisory Board on
advisor to pggm’s main board between
1 January 2006.
2004 and 2006 and, during the preceding sixteen years, chairman of the pggm
In accordance with the shareholder’s nomination, Dick de Beus
main board. in addition, dick has various
joined the Supervisory Board during the 2006 General Meeting
supervisory positions with different
of Shareholders.
companies in the netherlands, including real estate companies, and one
With a view to future developments at KFN, an audit committee
supervisory directorship in england.
was appointed, consisting of Jelle Mensonides and Dick de Beus. The audit committee conducted its first meeting during the year
j. mensonides (1947)
under review.
member of the abp management board as cio alternative investments
We would like to express our thanks to the Management Board
(including real estate) until 2004.
and staff for their efforts and dedication during the past year.
until end of 2005, jelle was appointed director abp-us-investments inc. in
Utrecht, 16 February 2007
new york.
On behalf of the Supervisory Board, Frans Boons, Chairman
report of the supervisory board
19
april 2006
report of the supervisory board
kfn sells office building at eendrachtskade in groningen paul vismans joins
supervisory board of wooninc.
We have seen and approved the 2006 Annual Accounts drawn up by the Management Board and accompanied by an approving auditor’s report, and agree with the Management Board’s proposal to distribute a dividend over 2006 of € 52.5 million (€ 2.62 per share). We recommend the shareholder to approve the Annual Accounts presented in this Annual Report. f.h.j. boons (1940)
Activities of the Supervisory Board
chairman of the supervisory board. frans was formerly a member of
During the year under review, the Supervisory Board held
the management board of rabobank
five meetings in the presence of the Management Board.
netherlands, after which he chaired
The principal subjects of discussion were the movements in
the management board of vado beheer
KFN’s results, in particular the developments in the field of
bv. he currently holds positions on
rental, acquisitions and property sales.
a number of supervisory boards, including various property companies.
The Supervisory Board also devoted special attention to the development of the growth strategy for the 2006-2010 period,
w. borgdorff (1960)
partly considering the scenarios defined for KFN’s future.
managing partner at alpinvest partners. wim is also a member of
The composition of the Supervisory Board changed during 2006.
the supervisory board of corio nv,
After three terms, Rien van Gendt left the Supervisory Board in
and chairman of the investment
2006. We are very grateful to Rien for his contributions to the
committee of bpf bouwinvest.
development of KFN. d.j. de beus (1946) Jelle Mensonides was reappointed to the Supervisory Board on
advisor to pggm’s main board between
1 January 2006.
2004 and 2006 and, during the preceding sixteen years, chairman of the pggm
In accordance with the shareholder’s nomination, Dick de Beus
main board. in addition, dick has various
joined the Supervisory Board during the 2006 General Meeting
supervisory positions with different
of Shareholders.
companies in the netherlands, including real estate companies, and one
With a view to future developments at KFN, an audit committee
supervisory directorship in england.
was appointed, consisting of Jelle Mensonides and Dick de Beus. The audit committee conducted its first meeting during the year
j. mensonides (1947)
under review.
member of the abp management board as cio alternative investments
We would like to express our thanks to the Management Board
(including real estate) until 2004.
and staff for their efforts and dedication during the past year.
until end of 2005, jelle was appointed director abp-us-investments inc. in
Utrecht, 16 February 2007
new york.
On behalf of the Supervisory Board, Frans Boons, Chairman
report of the supervisory board
19
strategy
The strategy presented in 2003 was defined further during 2006: • A growth scenario of the current (Dutch) portfolio for the 2006-2010 period to approximately € 1.5 billion; • Active portfolio management aimed at further improving the level of quality and reducing the average age of the portfolio; • Future scenarios for KFN. However, KFN’s mission has remained unchanged. Further details are explained in this chapter below.
3.1.1 To the shareholder
KFN’s mission is to create maximum shareholder value by the best possible use of the five key value drivers: management, clients, the property portfolio, financing, and concepts, services & marketing.
3.1.2 To the client KFN’s objective is to offer integrated housing solutions, in direct relationships with its clients, to meet each client’s specific needs and wishes in the best possible fashion and with perfect timing, allowing our client to focus its attention on its core activities.
* non-recurring redemption of swap contracts not included in figures 2004.
3.1 mission
Return on shareholders’ equity (roe)(in%). 11
10
9
8
7
6
5
4
3 2002
2003
euro area 10 years (dnb)
2004*
2005
roe (direct)
2006 roe (total)
strategy
23
may 2006
strategy
kfn moves from jaarbeursplein 17 to jaarbeursplein 15
june 2006 kfn launches new website www.kfn.nl
The strategy presented in 2003 was defined further during 2006: • A growth scenario of the current (Dutch) portfolio for the 2006-2010 period to approximately € 1.5 billion; • Active portfolio management aimed at further improving the level of quality and reducing the average age of the portfolio; • Future scenarios for KFN. However, KFN’s mission has remained unchanged. Further details are explained in this chapter below.
3.1.1 To the shareholder
KFN’s mission is to create maximum shareholder value by the best possible use of the five key value drivers: management, clients, the property portfolio, financing, and concepts, services & marketing.
3.1.2 To the client KFN’s objective is to offer integrated housing solutions, in direct relationships with its clients, to meet each client’s specific needs and wishes in the best possible fashion and with perfect timing, allowing our client to focus its attention on its core activities.
* non-recurring redemption of swap contracts not included in figures 2004.
3.1 mission
Return on shareholders’ equity (roe)(in%). 11
10
9
8
7
6
5
4
3 2002
2003
euro area 10 years (dnb)
2004*
2005
roe (direct)
2006 roe (total)
strategy
23
Return on offices compared with the ROZ/IPD index (in %). Standing investments
‘KFN aims to create a
10
natural partnership with its
8
clients in order to be able to
6
meet the demand for office space and workspaces as
source: roz/ipd-property index
4
2
0
-2
-4 2001
2002
2003
2004
2005
best as possible.’
3.2 objectives
direct kfn direct roz/ipd-offices indirect kfn
KFN’s first objective is to permanently improve its returns,
indirect roz/ipd-offices
while aiming to outperform the ROZ/IPD property index in the medium term. The second objective is to focus strongly on controlling the level
3 year continuing average return compared with the ROZ/IPD index (in %). Standing investments
of costs of the management set-up. The third objective is to ensure that new investments/corporate
16
acquisitions contribute to raising the earnings per share within three years. The permanent rejuvenation of the Dutch portfolio
14
is a major factor in the strategy to improve yield levels. In this regard, KFN aims to maximise the benefits of its leasing and
12
marketing ideas and the client focus concept it has implemented.
10
KFN also wishes to position itself as a core fund as defined by the INREV (the European Association for Investors in Non-listed Real source: roz/ipd-property index
8
6
4
2
0 2001
2002
kfn roz/ipd-offices
24
kfn annual report 2006
2003
2004
2005
Estate Vehicles). KFN has set itself the target of meeting a longterm return requirement, involving a 10% Total Return in the long-term and a maximum share of 50% of borrowed capital in the overall value of the property portfolio.
3.2.1 Management
Access to a strong network by way of close familiarity with and a clear presence in the regions that are relevant to KFN is key factor for achieving solid results in the office markets. KFN has highly motivated and dedicated commercial teams in both its areas.
3.2.2 Clients
3.2.5 Concepts, Services & Marketing
KFN aims to create a natural partnership with its clients
In 2006, it was once more KFN’s intention to create brand
in order to be able to meet the demand for office space and
awareness and to market a corporate identity with a client-
workspaces as best as possible. As a corporate landlord, KFN
oriented approach. In order to achieve these objectives,
wishes to build up long-term relationships with its clients.
KFN developed a client newsletter, KFnu, that is published twice yearly, and defined a policy for relation marketing
3.2.3 Property portfolio
(‘free publicity’). KFN also renewed its entire website.
KFN invests in the sixteen most dynamic urban economies in
KFN’s economies of scale allow its clients to make attractive
the Netherlands, the main emphasis being on the Randstad
deals with several preferred suppliers, e.g. for ICT, energy,
metropolitan area in general, and on Amsterdam in particular.
greenery and furnishing and fixture.
The central point of departure for building the KFN portfolio is quality. Not just with respect to location, but also, increasingly, in terms of the accessibility of the sites by car or public transport, public spaces and the presence of amenities. KFN currently has more than 495,500 m² rentable floor area in operation, spread across 75 buildings, which, on average, are nine years old. Dominance within a particular urban agglomeration is more important to KFN than expansion in additional cities. This strategy allows KFN to achieve economies of scale, to make better use of the market dynamics in the larger cities and to control specific cyclical risks. Acquisitions target the best office locations, while the sale of outdated offices and offices in less strategic locations will continue. This strategy will result on the one hand in a limited increase in the number of square metres and on the other in an ongoing increase in value and a stable cash flow.
3.2.4 Financing
The basic assumption in financing the property portfolio is that the borrowed capital should not exceed 50% of the total. Financing is based on a well-considered interest rate risk policy, in which 60% to 70% of the floating interest is covered by
‘KFN’s economies of scale allow its clients to make attractive deals with several preferred suppliers, e.g. for ICT, energy, greenery and furnishing and fixture.’
Interest Rate Swaps. KFN’s point of departure in this regard is an average interest term for financing that varies between 48 to 60 months. KFN uses several financing arrangements for this purpose, such as the CMBS and syndicated loans. The assumption is that KFN should retain its status as a ‘fiscale beleggingsinstelling’.
strategy
25
report of the management board
Both in the area of property (rental, acquisition and property sales) and terms of strategy (development of future scenarios), 2006 was an intensive period for KFN. Thanks to KFN’s healthy existing financing structure, no amendments had to be made. In the always active property markets, KFN succeeded in
p.a.r.j. vismans (1955), ceo
surpassing its target for a maximum level of vacancy of 8%,
paul is chairman of uli netherlands,
partly thanks to the favourable economic circumstances.
and member of the executive committee
Despite fierce competition, the acquisitions team managed
of uli europe. among his previous
to purchase new buildings with long leases.
positions were that of managing director of winkel beleggingen
During 2006, KFN again devoted a great deal of energy to
nederland (wbn), to which he was
plotting a future course for the organisation. The primary
appointed in 1995, and in 2000, after
focus in this respect was investigating possible partnerships
the merger with vib, that of chief
at the European level, within the requirements defined by the
operating officer of the listed
shareholder.
property fund corio. besides, paul is a member of the supervisory board
Support and timing are important considerations in the wide
of wooninc., an active housing
range of possible choices for partnerships. It became apparent
association in the south of the
that 2006 was the ideal moment to crystallise the best possible
netherlands.
strategic steps. Thanks to the ongoing favourable developments in the markets, KFN can continue to devote attention to this
f.w. hendriksen (1958), coo
matter with optimism.
after completing his studies, frank held various positions, including at kolpron consultants (1986-1990), and the dutch national investment bank. in 1992, he transferred to abn amro property development. in 1997, he was
‘The market’s recovery was particularly noticeable during the last six months of the year.’
appointed acquisitions manager at kfn, where he was responsible for the build up of the bigger part of the office portfolio. currently, frank is chairman of core net benelux, a premier association for corporate real estate professionals.
report of the management board
29
report of the management board july 2006
kfn improves performance in first half of 2006; kfn shows interim result of â‚Ź 48.9 million
Both in the area of property (rental, acquisition and property sales) and terms of strategy (development of future scenarios), 2006 was an intensive period for KFN. Thanks to KFN’s healthy existing financing structure, no amendments had to be made. In the always active property markets, KFN succeeded in
p.a.r.j. vismans (1955), ceo
surpassing its target for a maximum level of vacancy of 8%,
paul is chairman of uli netherlands,
partly thanks to the favourable economic circumstances.
and member of the executive committee
Despite fierce competition, the acquisitions team managed
of uli europe. among his previous
to purchase new buildings with long leases.
positions were that of managing director of winkel beleggingen
During 2006, KFN again devoted a great deal of energy to
nederland (wbn), to which he was
plotting a future course for the organisation. The primary
appointed in 1995, and in 2000, after
focus in this respect was investigating possible partnerships
the merger with vib, that of chief
at the European level, within the requirements defined by the
operating officer of the listed
shareholder.
property fund corio. besides, paul is a member of the supervisory board
Support and timing are important considerations in the wide
of wooninc., an active housing
range of possible choices for partnerships. It became apparent
association in the south of the
that 2006 was the ideal moment to crystallise the best possible
netherlands.
strategic steps. Thanks to the ongoing favourable developments in the markets, KFN can continue to devote attention to this
f.w. hendriksen (1958), coo
matter with optimism.
after completing his studies, frank held various positions, including at kolpron consultants (1986-1990), and the dutch national investment bank. in 1992, he transferred to abn amro property development. in 1997, he was
‘The market’s recovery was particularly noticeable during the last six months of the year.’
appointed acquisitions manager at kfn, where he was responsible for the build up of the bigger part of the office portfolio. currently, frank is chairman of core net benelux, a premier association for corporate real estate professionals.
report of the management board
29
4.1 management’s focus in 2006
Take-up and supply of office space on the free market in the Netherlands (x m²).
4.1.1 Business
6,000,000
The market’s recovery was particularly noticeable during the 5,000,000
last six months of the year. In addition, as in 2005, management focused on a very active rental policy in 2006. This was reflected source: c.b. richard ellis
4,000,000
3,000,000
2,000,000
1,000,000 1997
1998
directly in the number and quality of rental transactions and the valuation of the property portfolio. Two new objects were acquired (30,650 m2 in The Hague and 18,000 m2 in Heerlen). Both buildings have been rented out almost entirely to Statistics Netherlands (CBS) under long-term contracts (average over 10 years).
1999 2000 2001 2002 2003 2004 2005 2006
take-up
The strength of KFN’s portfolio was also evident in the results
supply
realised on the sale of a portfolio of twelve buildings, on which KFN realised a book profit of 13.6%. Finally, 2006 saw another series of portfolio-wide contacts with preferred suppliers for KFN’s clients. A flexible supply contract
A snapshot of KFN’s rental transactions in 2006: • tpo displays europe (formerly philips mds) 2,920 m², heerlen veste, heerlen • konica minolta 2,900 m², park rhijnhuysen, nieuwegein • klpd 2,794 m², jaarbeursplein 17, utrecht • fortis 2,338 m², 200 weena, rotterdam • bank of tokyo 2,058 m², wtc amsterdam, amsterdam
was concluded for energy supplies.
4.1.2 Personnel and organisation
In 2006, after three years of adjustments and changes, the organisation has stabilised. At year-end 2006, the number of FTEs was 46. On balance, this workforce is expected to remain at this level during 2007. At year-end 2006, KFN employed 24 women and 22 men. The average age of the female employees was 36.5 and that of the male employees was 36.1. The average age of the workforce as a whole during 2006 was 36.3.
• gasunie 2,000 m², leonard springerlaan, groningen • wilgenhaege
4.2 markets
1,998 m², transpolis, hoofddorp • intergas (a division of dong) 1,835 m², pettelaar park, den bosch • tebodin 1,800 m², leonard springerlaan, groningen • redback
The economy recovered visibly in 2006, growing by 3 percent, which is twice the growth during 2005. The most important factors driving that economic growth were the increase in investments, export and private consumption. Employment also rose, while interest rates remained relatively low.
1,562 m², braingate, capelle a/d ijssel The professional services sector in particular profited from the economic recovery, and was an important factor in the market dynamics. The volume of ‘office space in use’ rose for the first time in five years, and new additions to the stock were taken up by the market almost immediately.
30
kfn annual report 2006
Average rental price (in € ).
4.2.1 Rental market for offices Developments on the Dutch rental market
170
The take-up of office space during 2006 came to over 1.6 million m2 (source: C.B. Richard Ellis), which was
160
approximately the same level as in 2005, but is nevertheless above the long-term average. The primary reason underlying
150
the demand for office space is still replacement. However, increasingly often, expansion is the reason for the demand.
140
The largest accommodation transactions in 2006 involved 130
Of the four big cities, Amsterdam performed exceptionally well.
120
source: c.b. richard ellis
significantly smaller volumes than in 2005.
The office market stabilised, take-up was at a high level, the supply was stable and in some locations rental prices were seen
110
to be forced upward. In the other big cities in the Netherlands, office take-up fell behind the level of 2005.
100 1997
1998
1999 2000 2001 2002 2003 2004 2005 2006
Although structural vacancy is still a problem for low-quality
existing office
supplies, the increase in the supply of ‘offices in use’ during
new-build offices
2006 resulted in a positive absorption rate. Thanks to the rising employment figures, on balance more office space was taken into use than vacated. The supply of office space at year-end 2006 was just above 4.7 million m2, which represents a 5% drop compared to the situation at year-end 2005. Furthermore, the
New developments (in m2).
amount of speculative new office developments was small, because many property developments are waiting for further
2,500,000
increase in take-up levels. 2,000,000
The total stock at year-end 2006 was around 44.0 million m², 1,500,000
source: c.b. richard ellis
which represents a slight increase compared with 2005. New stock was consumed almost immediately. Furthermore, the amount of speculative new office developments was small,
1,000,000
because many property developers are waiting for further increase in take-up levels. The average rental price stayed at the same level as 2005, however differences were visible at segment and regional level.
500,000
0 1997
1998
1999 2000 2001 2002 2003 2004 2005 2006
Rental prices for new developments in the Randstad urban conglomerate rose slightly. Furthermore the new development segment displayed a drop in the volume of incentives. The highest rental prices were recorded in the Zuidas district in Amsterdam, with levels of around € 370.0 per m2.
report of the management board
31
For the first time in fifteen years, the average term to maturity
Investments in offices (x € 1 million).
of new lease contracts rose to five years in 2006 (source: study
6,000,00
by DTZ, De Nederlandse markt voor kantoorruimte 2007). The reason for this is that in the present market investors are
5,000,00
trying to bind tenants to them for as long as possible. Tenants are receptive to this, provided that they are offered suitable
4,000,00
accommodation, either existing premises or new space, designed specifically for their requirements. source: c.b. richard ellis
3,000,00
2,000,00
1,000,00
0 1997
1998
KFN’s position on the Dutch rental market The volume of KFN’s portfolio in operation at year-end 2006 was over 590,000 m2 (2005: 598,500 m²), including pipeline projects. This translates as 1.3% (2005: 1.4%) of the stock on the Dutch office market. Last year, around 209 (2005:145) rental changes took place,
1999 2000 2001 2002 2003 2004 2005 2006
representing a total volume of 85,306 m2 lettable floor area (2005: 46,724 m²). These changes consisted of new rental agreements and expansions of existing contracts. As a consequence, the volume of unlet square metres dropped to 38,617 m2 lettable floor area (2005: 52,259 m² lettable floor
Gross initial yield (in %).
area), resulting in a physical vacancy in the portfolio at year-end
10.0
2006 of 7.8% (2005: 9.0%).
9.5
The rental contracts with 60 existing clients (2005: 72) were renewed, while the tenancy relations with 69 other clients
9.0
(2005: 39) were not continued. In total, KFN acquired 149 new clients (2005: 99) in 2006, renting an average of 394 m2 lettable
8.5
floor area (2005: 271 m² lettable floor area) from KFN. The new clients together took up a total space of 58,747 m2 lettable floor area (2005: 26,873 m² lettable floor area).
7.5
Prospects for the Dutch rental market
source: c.b. richard ellis
8.0
7.0
6.5
6.0 1997
1998
1999 2000 2001 2002 2003 2004 2005 2006
The prospects for the rental market are favourable, owing in part to the further increase in the take-up of office space as a result of the economic growth. The further recovery of the market is expected to cause the building production of new office space to rise during the coming years. Although that rise is a response to the rising demand, new developments are driven by the low initial yield for which developers can sell occupied new
best locations
developments to investors. This increase in the production of new
other locations
developments will cause office users to dispose of their current accommodation, which may lead to an increase in the supply. As a consequence, supply is expected to remain high.
4.2.2 Investment market for office space Developments on the Dutch property investment market A record amount was taken up for investment transactions in Dutch commercial property in 2006, to an amount in excess of € 7.6 billion, which was 20 percent more than in 2005. In total,
32
kfn annual report 2006
€ 5.2 billion was invested in offices, of which € 1.6 billion in
Geographical spread of offices in operation, based on market value at year-end (in %).
new developments. The year 2006 was characterised by a small number of major investment transactions, with the sale of portfolios forcing the investment volume upward.
20%
Foreign investors continued to dominate the Dutch office market in 2006, with German and Anglo-Saxon parties being 40%
the most active. 8%
The total rate of return of the office sector over 2006 came to approximately 11,5%, an important reason for that was the increase in value. That increase stemmed from the initial yield, which showed a decline. On the one hand, the pressure on the capital markets remains tremendous, while on the other hand high-quality property remains scarce in the office market. As a result, the initial yield in the highest segment reached a level of 5.5-6%.
5%
9% 7%
12%
amsterdam region
other urban centres within randstad
rotterdam region
urban centres adjacent to randstad
KFN’s position on the Dutch property investment market
the hague region
other
The year 2006 was characterised by a positive development in
utrecht region
the value of KFN’s property portfolio. The primary causes for the value movements were a drop in the discount rates applied, a decline in vacancy levels, and a reduction in the volumes of incentives. The average market rent in the KFN portfolio remained virtually unchanged. The total value of KFN’s property portfolio at year-end 2006 was € 1,285.4 million. At year-end 2005, the value of the portfolio was € 1,282.6 million. Despite the large volume of activity on the part of foreign investors in the Dutch office market, driven by the pressure on the capital markets, KFN succeeded in effecting two acquisitions in 2006, with a joint volume of 48,652 m . 2
During the course of 2006, fourteen objects were sold, with a
‘The prospects for the rental market are favourable.’
total book value of € 82.7 million. The proceeds from the sale of those objects totalled € 93.0 million, resulting in a book profit of 12.5%. The disposal also had a positive effect on the quality of the KFN portfolio as a whole. At year-end 2006, the total office space in operation, including offices in course of preparation, was 590,000 m2. In the property investment market, KFN occupied the sixth spot in the list of the ten largest Dutch office investors in 2006.
report of the management board
33
The largest investors in offices in the Netherlands at year-end 2006 (m2).
‘The projected
700,000
economic growth in 2007 will again be
bankhaus wolbern
550,000
achmea vastgoed
600,000
breevast
650,000
ing vastgoed
750,000
around 3 percent.’ kfn
uni-invest
500,000
source: c.b. richard ellis
300,000
bouwfonds
350,000
oppenheim
400,000
Prospects for the Dutch property investment market commerz grundbesitz
hanzevast capital
450,000
The projected economic growth in 2007 will again be around 59,986 3 percent, which is above the European average. In addition,
the employment market is expected to continue to recover and unemployment to drop, coupled with a moderate increase in costs of labour. If interest costs remain low in 2007, the demand for property will stay high. The trend of a growing number of foreign investors
* this position is based on the total number of square metres
will continue, as will the trend that investment transactions will
excluding pipeline projects on which construction has not
involve increasingly large volumes. This will also mean that new
yet commenced.
financing constructions will be set up, to allow investors to keep their financing costs low and manage their risks better. Initial yields are expected to drop even further during the coming year
Rental Income (x € 1 million).
in Europe, as a result of the gross initial yield compression and
130
the decreasing cost of capital on the one hand and the lack of high-quality occupied property on the other. Eventually,
120
however, the yields will stabilise.
110
4.2.3 Financing market
100
Developments on the financing market As a result of a surplus of savings, long-term interest rates
90
remained low around the world during 2006. As a result of this cash surplus, the credit spread on financing (both bank credit and
80
funds on the capital market) remained low. Because of that low spread, it proved sufficiently interesting to invest in new projects
70
in 2006, despite an increase in short-term interest rates.
60
KFN’s position on the financing market After the successful refinancing process in 2004, during which
50
KFN became the first office investor in the Netherlands to issue 2001
2002
2003
2004
2005
2006
€ 450.0 million in AAA-CMBS notes, and the refinancing
theoretical rental income
process in 2005, with the Revolving Credit facility (RCF),
gross rental income
KFN did not require any additional refinancing in 2006.
net rental income
The present arrangements are sufficient for KFN’s strategy. If KFN’s future developments result in growth, the facilities will
34
kfn annual report 2006
be adjusted accordingly. Considering KFN’s credit profile, the credit spread is not expected to increase if new financing arrangements prove necessary.
4.3 results 4.3.1 Net rental income
The 2006 net rental income totalled € 79.5 million (2005: € 81.6 million). The € 2.1 million drop resulted from an increase in operating costs by € 3.2 million, which was partly offset by an increase in gross rental income by € 1.1 million. 4.3.1.1 Gross rental income The table below shows the rental income over 2006 and 2005 based on a like-for-like analysis: gross rental income (x € 1 million)
2006
Gross rental income in previous financial year
97.8
98.3
0.0
- 3.6
Property sales in previous financial year Property sales in financial year
2005
- 0.7
- 0.2
New objects put into use in previous financial year
0.6
3.0
New objects put into use in financial year
0.0
1.2
Indexing
1.2
1.7
Other movements
0.0
- 2.6
98.9
97.8
Gross rental income
Secured rental income (x € 1 million). 100
90
80 Financial occupancy (%)
90.1
89.0 70
Vacancy costs (x € 1 million)
10.5
11.9 60
The sales during the financial year had a limited effect on
50
the gross income from investments, since the majority of the disposals were effected at year-end 2006.
40
The vacancy costs dropped by € 1.4 million to € 10.5 million
30
2006, and pertain primarily to: - WTC Amsterdam in Amsterdam (€ 4.2 million);
20
- Braingate in Capelle aan den IJssel (€ 1.6 million); - WTC Schiphol Airport (€ 1.1 million). The reversionary potential of the portfolio as a whole is -5.7% (2005: -6.1%). This is mainly caused by the yearly rent
10
0 2007 2008 2009 2010
2011
2012
2013
2014
2015
2016
indexation of excisting rental contracts, which exceeds the yearly market rent development. Another cause is that new contracts are leased out with a higher initial rent than the current market rent. In the reversionary potential incentives aren’t taken into account explicitly. report of the management board
35
4.3.1.2 Property expenses
Breakdown of property portfolios Property I and Property II property
gross rental income
The operating expenses rose by € 3.2 million as compared with 2005, to € 19.4 million. This increase was caused by the net rental income
following factors: - an increase in the commercial costs resulting from rental by
1,200
120
120
1,000
100
100
800
80
80
600
60
60
400
40
40
(2005: € 0.0 million).
200
20
20
4.3.2.2 Changes in the fair value of property
0
0
0
€ 2.3 million; - an increase in costs of maintenance by € 0.3 million; - other cost increases of € 0.6 million.
4.3.2 Other revenues 4.3.2.1 Results from sale of property The results from sales of property came to € 10.3 million
The upward revaluation of the property portfolio by 1.5% prop i prop ii
prop i prop ii
(2005: 0.5%) stemmed primarily from the slight average prop i prop ii
improvement of the current value of the buildings, based mainly on a reduction in the market yields used in external valuations.
Breakdown of KFN portfolio (100% ownership) and joint ventures property
gross rental income
4.3.3 Other expenses 4.3.3.1 Management expenses By closely monitoring costs and in the absence of non-recurring expenses as arose during 2005, KFN succeeded in reducing its management costs from € 7.9 million to € 7.2 million.
1,200
120
1,000
100
800
80
600
60
400
40
200
20
0
0
4.3.3.2 Finance costs Finance costs decreased from € 16.8 million to € 14.8 million, mainly due to capitalised interest for the new pipeline projects and a one-off interest gain relating to WTC Amsterdam.
4.3.4 Principles for reporting and presentation of the results and equity With effect from 1/1/2005, KFN reports in accordance with
kfn
joint ventures
the International Financial Reporting Standards (IFRS).
kfn
joint ventures
the term joint ventures refers to the group of buildings that form part of the wtc complex in amsterdam.
36
kfn annual report 2006
4.4 corporate governance
‘The focus for 2007 is
No changes occurred to the accountability structure of the Supervisory Board and the shareholder in 2006. However,
on further implementing
following Jeroen den Otter’s appointment, the allocation of duties among the members of the Management Board changed.
the strategy of ensuring
In addition, an audit committee was appointed, partly with a view to KFN’s future developments, consisting of two members of the
autonomous and
Supervisory Board, viz. Jelle Mensonides and Dick de Beus. The internal risk management and control systems were fully
qualitative growth in
operational in 2006, and are tested every quarter. The reports of those tests serve in part as the basis for discussions with the
the Netherlands.’
Management Board, the audit committee, the Supervisory Board and the external auditor.
4.5 outlook for 2007 4.5.1 Expectations
4.5.2 Targets
The Dutch rental market is expected to continue to show signs
In addition to the general objectives as set out in Chapter 3.2,
of recovery in KFN’s segment of high-quality office buildings in
the focus for 2007 is on further implementing the strategy of
2007.
ensuring autonomous and qualitative growth in the Netherlands. KFN is currently engaged in an intensive process of weighing
KFN expects to be able to realise a drop in vacancy in 2007 to 6%
several different future scenarios and studying the associated
(2005: 8%). No significant changes to the level of rental prices
options. In 2007 KFN, in conjunction with its shareholder, aims
are expected in the portfolio.
to work out the practical details of the steps that need to be taken to further optimise its strategy.
KFN expects to be able to realise net rental income in 2007 that is on a par with 2006, as well as a slight upward revaluation of the
Utrecht, 16 February 2007
property portfolio.
Management Board Paul Vismans, CEO Frank Hendriksen, COO
report of the management board
37
key value drivers
In 2003, KFN introduced its ‘key value drivers’: the most important drivers that add value to the business. These include management efforts, client acquisition and retention, increase in value through the property portfolio, creation of value by the use of specific financing tools, and the use of unique concepts, services and marketing. This chapter explains the key value drivers in greater detail.
Operational model KFN
5.1 management management board
KFN has a specialised and professional management team, whose results are assessed by regular benchmarking and performance measuring instruments; account management, in particular, is
marketing & communication
business strategy
human resource management
new business
tax & legal
information technology
controlled and monitored using Critical Success Factors (CSFs) and Performance Indicators (PIs).
5.2 clients KFN focusses always on the client. Our objective is to offer integrated housing solutions, in a direct relationship with the client and customised to its specific needs, enabling the client to focus on its own core activities. This involves intensive client contacts at all organisational levels.
finance & control
area northwest
area south
estate management
service management technical management contract management & business administration corporate administration
‘Key value drivers’: the most important drivers that add value to the business.’ key value drivers
41
august 2006 kfn buys the double u office complex
key value drivers
in the hague main tenant: statistics netherlands (centraal bureau voor de statistiek, cbs)
In 2003, KFN introduced its ‘key value drivers’: the most important drivers that add value to the business. These include management efforts, client acquisition and retention, increase in value through the property portfolio, creation of value by the use of specific financing tools, and the use of unique concepts, services and marketing. This chapter explains the key value drivers in greater detail.
Operational model KFN
5.1 management management board
KFN has a specialised and professional management team, whose results are assessed by regular benchmarking and performance measuring instruments; account management, in particular, is
marketing & communication
business strategy
human resource management
new business
tax & legal
information technology
controlled and monitored using Critical Success Factors (CSFs) and Performance Indicators (PIs).
5.2 clients KFN focusses always on the client. Our objective is to offer integrated housing solutions, in a direct relationship with the client and customised to its specific needs, enabling the client to focus on its own core activities. This involves intensive client contacts at all organisational levels.
finance & control
area northwest
area south
estate management
service management technical management contract management & business administration corporate administration
‘Key value drivers’: the most important drivers that add value to the business.’ key value drivers
41
top 10 current clients no.
name
description
annual rental
income 31-12-06
(x € 1 million)
properties
1.
dutch government The Dutch Government Buildings Agency (Rijksgebouwen-
buildings agency
dienst, or Rgd) is part of the Dutch Ministry of Housing,
Forum, Stationstraat, Heerlen Veste,
Spatial Planning and the Environment, and is entrusted
Da Vinci, La Voie, La Fortezza,
with housing government agencies, independent
Orion, Boschdijkveste.
administrative bodies and international organisations.
3.8
4.0
2.
deloitte
Deloitte is one of the largest organisations in the world in
the field of accounting and auditing, tax advice, consultancy
and financial advice.
3.
heijmans
Heijmans is a listed full-service construction and property
3.5
company deploying activities in the Netherlands, Belgium,
Germany and the United Kingdom. In the Netherlands,
Heijmans is the third-largest company in its sector.
Churchillhof, MCMX Office,
Flight Forum, Crystal Tower.
Graafsebaan
4.
vodafone
Vodafone is the world’s leading operator of mobile telephone
services. In the Netherlands, it is the second largest mobile
Av. Céramique 1&2,
operator. Over the past few years, Vodafone has introduced
Stationstraat.
numerous innovative services.
5.
nautadutilh
NautaDutilh is the largest and oldest law firm in the Netherlands.
Its core activities are corporate law and financing law.
3.4
6.
movares
Movares is a leading engineering and consultancy firm
operating in the field of transport systems and rail infrastructure.
Its major projects include the southern branch of the High-Speed
Railway Line (HSL-Zuid) and the Betuwe Line.
7.
pricewaterhouse-
PricewaterhouseCoopers is one of the world’s largest organisations
coopers
for accounting and auditing, tax advice, and other professional services.
Il Fiore,
2.4
WTC Amsterdam
2.1
Smakkelaarsburcht
1.9
Paterswoldseweg,
Flight Forum.
8.
kempen
Kempen is a leading Dutch merchant bank operating in the field of
asset management, securities brokering and corporate finance.
9.
abp
Stichting Pensioenfonds ABP is the pension fund for the employers
and employees in service of the Dutch government and the
Stationsstraat,
educational sector.
200 Weena,
Boschdijkveste.
10.
united services
The United Services Group provides services in the fields of
1.7
Quinterium
group
flexible work, education and customer care services. Its principal
Offices I-V,
operating companies are Unique, Start, Secretary Plus and United
Heerlen Veste.
Technical Solutions.
42
kfn annual report 2006
1.8
WTC Amsterdam
1.7
Lindestaete,
Total 26.3
(Rental Income 27%)
All clients can expect a tailored and personal approach and service
Building size office portfolio in operations at market value year-end (in %).
programme, which allows each client a great deal of freedom. Its size is not an issue in this respect. Each client is in direct contact with its own KFN account director or account manager. Thanks to
5%
its high-quality portfolio and financing methods, KFN is able to
13%
offer value for money. A key factor for the success of the mission toward clients is KFN’s value as perceived by the client. Every six months KFN examines its own performance by asking the client to complete a Client Satisfaction Survey, with questions regarding the client’s opinion and perceptions in the following fields:
22%
60%
• the quality of the buildings; • the services provided; • the quality of the daily management; • the performance and continuity of the owner/lessor.
< 2,500 m2 2,500 - 5,000 m2 5,000 - 10,000 m2
5.3 property portfolio
> 10,000 m2
The portfolio policy is aimed at concentrating the property investments in economically strong core regions. It involves a well-considered choice for high-quality and representative buildings at first-class locations of robust urban quality,
Age of the office portfolio in operations based on market value at year-end (in %).
characterised by easy access by private and public transport and sufficient parking facilities. Other criteria for acquisitions include regional property market dynamics and the tenant’s solvency.
21%
Moreover, acquisitions should add value to the business and have a positive effect on the financial ratios at organisation level. The top 10 properties as shown on page 56 and 57 represent
47%
52% of the total portfolio value. 32%
‘The portfolio policy is aimed at concentrating the property investments
< 5 years 6 - 11 years > 11 years
in economically strong core regions.’
key value drivers
43
Location quality office portfolio in operations based on market value at year-end (in %).
Besides acquisitions, KFN also focuses on its existing operating portfolio, using the Portfolio Analysis Model to periodically assess all objects. The first consideration in assessing office
1%
buildings is financial performance. This is calculated using the 12%
average future net rental income in relation to the balance sheet value, expressed in the Average Net Yield. Buildings are also assessed using their non-financial performance figures. These are expressed as a score, in which four factors are taken into account: quality of the building, age of the building, 32%
55%
quality of the location, and regional market dynamics. KFN distinguishes three categories in its property portfolio: Core
modest reasonable good excellent
Buildings that score high in terms of both financial and non-financial performance; Tactical Buildings whose returns are low and whose non-financial scores are high, as well as buildings whose non-financial performance is low and whose returns are high; Sell Buildings that score low in terms of both financial and non-financial performance. Strategies are adopted for the objects according to the categories to which they are assigned, to serve as the basis for the further policy for each object. The focus may be either financial performance or non-financial performance. Objects that are structurally assigned to the Sell category do not meet the portfolio criteria and as such qualify for disposal. Orientation on cash flow and development of value requires that the market developments be closely followed at all times, in order to adjust the assumptions used for the future, using the most recent findings.
44
kfn annual report 2006
5.4 financing
Capital structure at year-end (in %). 2005
5.4.1 Financing structure
2%
financing
31-12-2006
31-12-2005
Outstanding loans
€ 585.0 m
€ 535.0 m
Loans with terms of less than 1 year
€ 135.0 m
€ 85.0 m
Credit Facilities
€ 650.0 m
€ 650.0 m
Bank balance
€ 67.5 m
€ 35.7 m
Deposit
€ 45.0 m
€
Interest rate (year-end)
Interest charges
€ 17.4 m
€ 17.8 m
Market value of IRS portfolio
€ 13.0 m
€ -3.6 m
Market value of loans
€ 585.0 m
€ 535.0 m
3.7%
0.0 m 3.2%
Interest Coverage Ratio (ICR)
4.2
Solvency (shareholders’ equity/total assets)
57.2%
57.5%
Loan to Value ratio (Total portfolio)
45.5%
41.7%
Average interest representative term
38 months
58% 40%
4.2
shareholders’ equity interest-bearing debts other debts
47 months
2006
5.4.2 Treasury Risk Management
2%
KFN pursues a proactive treasury management policy, aiming for the best possible spread of the terms of credit facilities taken out in the future. The associated interest-bearing debts consist of long-term facilities. Interest payments are agreed with terms ranging between one and twelve months, at interest rates based
57%
on EURIBOR. 41%
shareholders’ equity interest-bearing debts
‘KFN pursues a
other debts
proactive treasury management policy.’
key value drivers
45
Following an Asset and Liability Management (ALM) study, it was decided that in future 60-70% of the amount of the outstanding loans is to be covered. This ALM study was based on the relation between interest charges, expected inflation and rental income, and on KFN’s 10-year forecast. At year-end 2006, KFN had covered 62% of its outstanding loans.
‘Orientation on cash flow and
The short-term average interest term of the loans is extended
development of value requires that
mentioned above and on benchmarking studies, KFN aims an
the market developments be closely followed at all times, in order to adjust the assumptions used for the future, using the most recent findings.’
by using Interest Rate Swaps (IRSs). Based on the ALM study average interest representative term duration of 48 to 60 months. At year-end 2006, the average interest representative term was 38 months. Derivative financial instruments are used exclusively to cover interest rate risks. With financing structure adopted, KFN will be able to obtain a large degree of flexibility with a reduced interest rate risk. At year-end 2006, KFN had IRS outstanding to a notional amount of € 340.0 million (2005: € 360.0 million). KFN drew up a treasury statute in 2006, defining the duties and responsibilities of the treasury. It also sets out the policy framework for the persons involved in those duties and responsibilities. The statute also sets out rules for controlling interest expense and interest rate risks and addresses financing issues.
5.4.3 Financial agreements
The performance figures of KFN Property I are strictly monitored for purposes of the CMBS. The Loan To Value (at most 60%) and the Interest Coverage Ratio (ICR, with a minimum of 2.0), in particular, are vital for meeting the financial agreements. During 2006, KFN Property I easily met these requirements (LTV ratio at year-end 2006: 52.2%; ICR at year-end 2006: 3.7).
46
kfn annual report 2006
Tenants’ satisfaction rating
For the Revolving Credit Facility, the Loan to Value (maximum of 50%) of KFN Property II is important; the margin above EURIBOR is linked to that figure. An important factor for
10,0
determining the ICR (minimum of 2.5) is KFN’s group result. 9,0
During each quarter of 2006, KFN complied with all financial covenants.
8,0
7,0
5.5 concepts, services & marketing
6,0
KFN has been distinguishing itself in the sector for three years with its client focus concept. The concept focuses on the direct
5,0
relationship with clients and intermediaries, high-quality buildings, supplementary services and excellent partnership
4,0
with intermediaries. KFN offers convenient arrangements for its tenants. Besides renting bare square metres of office space,
3,0
tenants can also choose from a range of additional workplace services offered by KFN’s preferred suppliers.
2,0
In order to ensure the best possible communications with existing
1,0
and prospective clients, KFN has opted for an integrated and multimedia marketing & communication strategy: a two-track policy focusing on KFN’s corporate identity as well as on the objects in its portfolio (object communication). To meet its objectives in 2006, KFN focused on editorial marketing, a client
0 2005 2006
2005 2006
2005 2006
general availability customer state of helpdesk satisfaction maintenance helpdesk
2005 2006
2005 2006
speed of reaction helpdesk
availability kfn contact
newsletter and a new website.
‘KFN has been distinguishing itself in the sector for three years with its client focus concept.’
key value drivers
47
corporate governance
As a non-listed property company, KFN is not subject to the Tabaksblat Code. Nevertheless, KFN does use the Code as an important framework for assessing its Corporate Governance. This chapter discusses KFN’s policies regarding Corporate Governance.
6.1 management board The Management Board consists of a Chief Executive Officer (CEO) and a Chief Operating Officer (COO), both appointed under the Articles of Association, and a Director Finance. The members of the Management Board under the Articles of Association are nominated by the Supervisory Board and appointed by the General Meeting of Shareholders. - The CEO is responsible for the general management of the
policies conducted, in such areas as strategy, financial accounting,
organisation, its strategy, HRM, research, marketing, investor
internal control systems and portfolio policy. KFN appointed an
relations, and tax and legal affairs, and bears final responsibility
audit committee in 2006. The audit committee’s statute will be
for finance, treasury, control, and accounting and reporting.
approved during the first meeting with the Supervisory Board in
- The COO is responsible for the portfolio strategy, acquisition and
2007. KFN does not have a remuneration committee.
disposition of property and operations, and bears responsibility for budget matters for the portfolio, including WTC Amsterdam
The purpose of the audit committee is to assist the Supervisory
and WTC Schiphol.
Board in its tasks as a supervisory organ, with an emphasis on
- The Director Finance is responsible for risk management,
the following issues:
finance, treasury, control, and accounting & reporting. • The internal risk management and control systems; The non-variable remuneration and the bonuses of the members
• The company’s financial reports;
of the Management Board appointed under the Articles of
• The auditor’s performance;
Association are determined annually by the Supervisory Board,
• Follow-up to the auditor’s comments;
with reference to the policy established by the General Meeting
• The company’s policies in the field of tax planning;
of Shareholders. Bonuses are related to the realisation of
• The company’s financing;
objectives determined at the start of the year to reflect
• Applications of information and communication
commercial, functional, joint and individual results.
technology (ICT).
6.2 supervisory board The members of the Supervisory Board were appointed by the shareholder, and have been selected on the basis of their specialised knowledge of KFN’s business. The Supervisory Board is responsible for supervising the Management Board and the
corporate governance
51
corporate governance november 2006 kfn buys new office building in heerlen main tenant: statistics netherlands (centraal bureau voor de statistiek, cbs)
december 2006 kfn sells portfolio of twelve office buildings to cortona estates
As a non-listed property company, KFN is not subject to the Tabaksblat Code. Nevertheless, KFN does use the Code as an important framework for assessing its Corporate Governance. This chapter discusses KFN’s policies regarding Corporate Governance.
6.1 management board The Management Board consists of a Chief Executive Officer (CEO) and a Chief Operating Officer (COO), both appointed under the Articles of Association, and a Director Finance. The members of the Management Board under the Articles of Association are nominated by the Supervisory Board and appointed by the General Meeting of Shareholders. - The CEO is responsible for the general management of the
policies conducted, in such areas as strategy, financial accounting,
organisation, its strategy, HRM, research, marketing, investor
internal control systems and portfolio policy. KFN appointed an
relations, and tax and legal affairs, and bears final responsibility
audit committee in 2006. The audit committee’s statute will be
for finance, treasury, control, and accounting and reporting.
approved during the first meeting with the Supervisory Board in
- The COO is responsible for the portfolio strategy, acquisition and
2007. KFN does not have a remuneration committee.
disposition of property and operations, and bears responsibility for budget matters for the portfolio, including WTC Amsterdam
The purpose of the audit committee is to assist the Supervisory
and WTC Schiphol.
Board in its tasks as a supervisory organ, with an emphasis on
- The Director Finance is responsible for risk management,
the following issues:
finance, treasury, control, and accounting & reporting. • The internal risk management and control systems; The non-variable remuneration and the bonuses of the members
• The company’s financial reports;
of the Management Board appointed under the Articles of
• The auditor’s performance;
Association are determined annually by the Supervisory Board,
• Follow-up to the auditor’s comments;
with reference to the policy established by the General Meeting
• The company’s policies in the field of tax planning;
of Shareholders. Bonuses are related to the realisation of
• The company’s financing;
objectives determined at the start of the year to reflect
• Applications of information and communication
commercial, functional, joint and individual results.
technology (ICT).
6.2 supervisory board The members of the Supervisory Board were appointed by the shareholder, and have been selected on the basis of their specialised knowledge of KFN’s business. The Supervisory Board is responsible for supervising the Management Board and the
corporate governance
51
Two changes occurred in the composition of the Supervisory
Final responsibility for the risk management policy lies with the
Board during 2006. Another two changes will take place in 2007,
CEO, while the Director Finance is responsible for formulating,
as indicated in the table below.
implementing and assessing KFN’s risk management policy. The COO is responsible for the operational implementation and monitoring of risk management measures.
Composition of the Supervisory Board member
6.5 business controls
status
date
F.H.J. Boons
Scheduled to step down
2007
Business Control Framework
M.C.E. Van Gendt
Has stepped down
2006
The Business Control Framework, which is based on the COSO
W. Borgdorff
Scheduled to step down
2007
model, allows the risks attached to each key value driver to be
J. Mensonides
Term of office renewed
2006
identified, assessed and controlled.
D.J. de Beus
Joined
2006
6.5.1 Risks
6.3 shareholder
The primary risks identified per key value driver are as follows:
KFN is a wholly-owned subsidiary of Stichting Pensioenfonds
management
ABP. ABP’s management is informed on a quarterly basis of the
Strategic/Operational:
Failure to achieve the return per share
business’s developments and the results achieved. General
Control measure:
Key value driver concept
Meetings of Shareholders are held every year, at which the Annual Accounts are adopted.
clients Strategic:
Loss of key accounts
During the course of the year, major projects are submitted for
Operational:
Debtor risk
approval to the shareholder. During the past year, discussions
Control measure:
Screening process for debtors upon
were held with various shareholder representatives concerning
signing of new contracts and during
such matters as KFN’s future scenarios, acquisitions and property
the term of the contracts
sales. property portfolio Strategic:
Portfolio quality
Operational:
Object risk
Control measure:
Portfolio analysis model, assessing such
Management is responsible for the internal control systems and
factors as the quality, surroundings and
risk control, the purpose of which is to monitor and safeguard
accessibility of the building
6.4 risk management
progress towards achieving the business objectives. With this in mind, KFN established and implemented a Business Control
financing
Framework in 2003 in order to direct its business. This system
Strategic:
Financing and refinancing risks
identifies and assesses all material risks listed below, and provides
Operational:
Liquidity risks
the framework for control measures. The Accounting Manual
Control measure:
Central cash flow planning in consultation
describes the internal procedures and work processes in detail.
with the operational departments
It was updated in 2006 and now includes risk analyses, risk &
52
control measures per process and flow charts, amongst others.
client focus concept
In addition, KFN carried out two risk assessments in 2006, which
Strategic:
Damage to corporate image
focused on the various control measures of the business control
Operational:
Damage to reputation among clients
framework.
Control measure:
Client satisfaction survey and helpdesk
kfn annual report 2006
6.5.1.1 Reporting/responsibilities Reports on the realisation of commercial targets and the control of the risks mentioned above are submitted to the Supervisory Board, the shareholder, banks, rating agencies, the holders of CMBS notes and other stakeholders at the end of each quarter. In addition, the results per key value driver are presented in the Interim Report and with the Annual Accounts. Internal reports
‘For measuring its performance in relation to those of its peers, KFN uses the ROZ/IPD property index.’
Strategic risks are discussed and assessed by the Management Board periodically. Responsibilities Although ultimate responsibility lies with the CEO and the COO
6.5.3 Board regulations
in all instances, the following staff officers are responsible for
The external powers of the Management Board and the Director
achieving the operational targets associated with each key value
Estate Management have been filed with the Chamber of
driver.
Commerce, and are available at the KFN website (www.kfn.nl). In addition, a representative authority regulation is in force.
operational targets
responsibility
6.5.4 Benchmarking
Management
CEO
Property
Estate Management Director
For measuring its performance in relation to those of its peers,
Clients
Account Management Director per Area
KFN uses the ROZ/IPD property index (see the key figures and
Financing
Director Finance
figures on page 24), as well as its own internal benchmarks.
Client focus concept
Manager Marketing & Communication
Internal benchmarking studies are performed primarily into operational results (both financial and non-financial), In order to control these risks, appropriate measures were
management costs and financing costs.
introduced during the reporting year, as explained in more detail in the Report of the Management Board, in particular, and in
Except for the benchmarking instruments described above, no
Chapters 5 (Key value drivers) and 6 (Corporate Governance)
public benchmarks are currently available. Hence, KFN actively
of this report.
supports the efforts initiated by INREV to develop benchmarks for unlisted funds in Europe. In addition, KFN endorses the
6.5.2 Code of Conduct
IVBN’s recommendations for annual reporting and transparency
initiatives of NEPROM, and the Best Practices Policy
KFN uses a Code of Conduct, which is endorsed by all staff.
Recommendations of EPRA. During 2006, KFN participated in
The values and standards set out in that Code of Conduct ensure
the assessment of the follow-up to the IVBN’s recommendations
the organisation’s integrity internally and toward the outside
based on the 2005 Annual Report, which revealed that KFN’s
world. As a member of the IVBN (the Association of Institutional
compliance with those recommendations was above average.
Property Investors in The Netherlands), KFN has committed itself to abiding by that association’s Code of Ethics; KFN’s internal Code of Conduct is equivalent to the IVBN model. KFN strives to realise its objectives within the framework of the general assumptions as set out in the Code and the identity statement.
corporate governance
53
6.5.5 Health & Safety and the environment
6.5.7 Legal structure
KFN conducts its operations in accordance with the applicable
This year the emphasis was on finalising the reorganisation
Dutch and European laws and regulations. KFN recognises
launched in 2004 and on putting it into operation. In 2006,
the following risks:
following the merger of WTC Amsterdam IV BV with
- soil pollution;
KFN Property II BV, WTC Amsterdam IV BV ceased to exist.
- fire safety in and around buildings (for people as well as
That merger was effected on 31 August 2006, and has been
buildings); - air pollution resulting from legionnella and asbestos;
included in the financial reports with retroactive effect from 1 January 2006.
- excessive energy consumption (electricity, gas and water); - unsafe working conditions;
The legal chart is shown on page 67 of the Annual Accounts.
- harm to the environment. KFN’s policy is aimed at controlling these risks effectively.
6.5.6 Valuation of the property portfolio
KFN states its objects at fair value. In order to determine the current market value, KFN uses a system of appraisal management. Each object is incorporated into a three-year appraisal cycle. - Upon acquisition/completion, each object is fully appraised by an external surveyor. - Every quarter the appraisal is updated, based on reference material submitted by external surveyors such as market rent levels, vacancy forecasts and discount factors. - In addition to these quarterly updates, concise reappraisals are conducted once every year. These are assessed by the external surveyors and approved by way of Letters of Comfort. - After three years, the object is subjected to a new full external appraisal. This system does not apply to major multi-tenant objects valued at more than € 20.0 million, for which a system of annual appraisals was introduced on 1 January 2006. Owing to their specific nature, WTC Amsterdam and WTC Schiphol Airport were already subject to annual appraisals. In addition, full appraisals may be performed for any object that is subject to any major, far-reaching changes (large changes in tenancy, significant amendments to contracts or major investments or disposals). For pipeline projects, valuation is based on the lower of cost or market value. KFN assesses pipeline projects externally when 50% of the budgeted costs have been expended and/or when 50% of the building is complete.
54
kfn annual report 2006
‘KFN states its objects at fair value.’
6.5.8 Reporting Financial reporting
6.6 auditors, tax lawyers and other advisors
KFN uses a reliable and transparent system of principles for valuing its capital and determining its results, which allows
- During the reporting year, PricewaterhouseCoopers
for easy comparisons. On 1 January 2005, KFN adopted the
Accountants NV provided KFN with accountancy services,
IFRS rules for its reports.
including a review of the interim report, the audit of the Annual Accounts and a review of the internal control structure
As regards the internal and external commercial reports, KFN uses reports based on cash flow. This makes it easier to benchmark transactions with reference to historical market and transaction data.
in connection with the Annual Accounts. - For tax advice, KFN uses the services of PricewaterhouseCoopers Belastingadviseurs NV, who in 2006 also assisted with the analysis of the tax implications of KFN’s future scenarios. - The legal advisor for restructuring and refinancing operations
Financial monitoring
was Stibbe NV, who in 2006 also provided assistance with the
- Monthly reports of all operational data (tenancy changes, lists of
analysis of the legal implications of KFN’s future scenarios.
properties available, leads, expiration dates, contract changes, debtor analyses and complex information) to the Management
- In addition, KFN obtained advice from NautaDutilh NV, De Brauw Blackstone Westbroek NV and Houthoff Buruma NV.
Board. - Quarterly reports of the profit and loss account, the balance sheet, a statement of movements in shareholders’ equity, and a
6.7 property surveyors
cash flow statement, among other things, all accompanied by analyses per key value driver, to the Management Board and the
KFN engaged three independent external property surveyors to
Supervisory Board.
appraise its buildings:
- The realisation of properties in preparation is monitored using
- Jones Lang LaSalle (19% of the number of appraisals);
KFN’s Project Monitoring System. The investment proposals,
- DTZ Zadelhoff (33% of the number of appraisals);
commissions granted and invoices are entered into this system.
- Boer Hartog Hooft (48% of the number of appraisals).
This provides clear information about the progress made by the end of each quarter. Upon completion, a closing memorandum of the project is compiled and presented to the Management Board and the Supervisory Board. - The PAM model (Portfolio Analysis Model), under which each building is analysed in relation to the portfolio average, based on the quality of the building and its Net Average Yield. - Investor reports for CMBS stakeholders, describing the most important financial agreements. - Quarterly reports on compliance with agreements from the loan facility (RCF). - Reports on compliance with the tax regime for financial investment institutions are submitted to the Management Board when financing is taken out and at least twice per year. - Financial model investments and property sales are extrapolated on the basis of the financial model approved by the shareholder.
corporate governance
55
top-10 kfn properties by value 1
wtc amsterdam
Strawinskylaan 1-1725/Beethovenstraat 300/Zuidplein 12-212, Amsterdam
Lettable floor area
62,359 m2 [1]
Parking places
600 [1]
Year of construction
1985
Year of renovation
2004/2002
Year of purchase
1995/2000
Market value 31-12-06
€ 243.2 million
Major tenants
ABN Amro Mellon, Bank of Tokyo, IMC, InFocus, Michael Page,
Occupancy
75.8%
Kempen, NautaDutilh, Linklaters, Simmons & Simmons, Aberdeen, Roland Berger, Skyport Regus
2
wtc schiphol airport
50% of the complex.
[1]
Schiphol Boulevard 105-699, Schiphol
Lettable floor area
26,221 m2
Parking places
3,049
Year of construction
1996
Year of renovation
-
Year of purchase
1995
Occupancy
94.5%
Market value 31-12-06
€ 169.5 million
Major tenants
Prologis, JohnsonDiversey, Pearle, Numico, Citygroup, CROS, Koninklijke Marechaussee, Malaysian Airlines, E.C. Europe, TSMC, Mitsubishi
3
crystal tower
Orlyplein 10, Amsterdam
Lettable floor area
20,373 m2
Parking places
Year of construction
2002
Year of renovation
Year of purchase
2000
Occupancy
Market value 31-12-06
€ 53.4 million
Major tenants
Deloitte, AM Wonen, Kelkoo, Polycom, Tribune Media,
AKD Prinsen van Wijmen, Adams, Asset Control
4
transpolis
Polaris Avenue 1-101, Hoofddorp
Lettable floor area
18,190 m2
Parking places
455
Year of construction
1992
Year of renovation
-
Year of purchase
1995
Occupancy
89.0%
Market value 31-12-06
€ 42.5 million
Major tenants
Arcadis, JLG, Head First, IBUS Asset Management,
214 94.6%
CB&I, Airmiles, Wielandt & Partners, Wilgenhaege, DTZ Zadelhoff, NCDC
5
weena building
Weena 106-178, Rotterdam
Lettable floor area
18,048 m2
Parking places
Year of construction
1969
Year of renovation
1983
Year of purchase
1995
Occupancy
96.9%
Market value 31-12-06
€ 37.7 million
Major tenants
OOCL Benelux, Lloyd’s Register EMEA, Intermax, Texaco Nederland, Spring Architecten
56
kfn annual report 2006
500
6
200 weena
Weena 200-342, Rotterdam
Lettable floor area
17,477 m2
Parking places
No private
Year of construction
1993
parking places
Year of purchase
1995
Occupancy
Market value 31-12-06
€ 34.3 million
Major tenants
Fortis Bank, Unilever, JLL Vastgoed Management,
81.5%
Cosco Container Lines, Michael Page International, TNT, Regus
7
braingate
Rivium Boulevard 301-319, Capelle aan den IJssel
Lettable floor area
15,941 m2
Parking places
352
Year of construction
2003
Year of renovation
-
Year of purchase
2000
Occupancy
43.7%
Market value 31-12-06
€ 28.5 million
Major tenants
BP Nederland, Mercuri Urval, Redback Networks International
8
il fiore
Avenue Céramique 201-245, Maastricht
Lettable floor area
13,607 m2
Parking places
Year of construction
2000
Year of renovation
Year of purchase
2002
Occupancy
Market value 31-12-06
€ 27.7 million
Major tenants
Vodafone, Il Fiore Life Style, HP Nederland,
241 93.3%
YER Montesquieu Finance, Ahrend inrichtingen
9
headoffice heijmans i
Graafsebaan 65, Rosmalen
Lettable floor area
10,229 m2
Parking places
240
Year of construction
2004
Year of renovation
-
Year of purchase
2001
Occupancy
100%
Market value 31-12-06
€ 26.8 million
Major tenants
Heijmans
10 smakkelaarsburcht
Leidseveer 2-10, Utrecht
Lettable floor area
12,105 m2
Parking places
Year of construction
1981
Year of renovation
2002
Year of purchase
1995
Occupancy
100%
Market value 31-12-06
€ 24.7 million
Major tenants
Movares
120
57
consolidated annual accounts
index to the consolidated annual accounts Consolidated balance sheet
62
7
Property
80
Consolidated income statement
63
8
Financial assets
81
Consolidated statement of changes in equity
64
9
Other receivables
82
Consolidated cash flow statement
65
10
Other property, plant and equipment
82
Notes to the consolidated Annual Accounts
66
11
Deferred tax assets
83
1
General information
66
12
Receivables
83
2
Summary of significant accounting policies
68
13
Cash and cash equivalents
83
14
Shareholdersâ&#x20AC;&#x2122; equity
84
15
Interest-bearing loans and borrowings
84
16
Financial liabilities
87
17
Provisions
88
18
Other liabilities
88
19
Gross rental income
89
20
Property operating expenses
90
21
Management expenses
90
22
Finance costs
90
23
Earnings per share
91
24
Dividend per share
91
2.1
Basis of preparation
68
2.2
Consolidation
68
2.3
Segment reporting
69
2.4
Property
69
2.5
Financial assets
70
2.6
Other receivables
70
2.7
Other property, plant and equipment
71
2.8
Deferred tax assets
71
2.9
Leases
71
2.10
Impairment of assets
71
2.11
Receivables
72
2.12
Cash and cash equivalents
72
2.13
Share capital
72
2.14
Interest-bearing loans and borrowings
72
2.15
Pensions
73
2.16
Provisions
74
2.17
Revenue recognition
74
2.18
Changes in fair value of investment property
74
2.19
Return on sale of investment property
74
2.20
Dividend distribution
74
3
Financial risk management
75
25
Contingencies
91
4
Critical accounting estimates and judgements
77
26
Commitments
92
5
Joint ventures
78
27
Related party transactions
93
6
Segment reporting
79
consolidated annual accounts
61
consolidated annual accounts
index to the consolidated annual accounts Consolidated balance sheet
62
7
Property
80
Consolidated income statement
63
8
Financial assets
81
Consolidated statement of changes in equity
64
9
Other receivables
82
Consolidated cash flow statement
65
10
Other property, plant and equipment
82
Notes to the consolidated Annual Accounts
66
11
Deferred tax assets
83
1
General information
66
12
Receivables
83
2
Summary of significant accounting policies
68
13
Cash and cash equivalents
83
14
Shareholdersâ&#x20AC;&#x2122; equity
84
15
Interest-bearing loans and borrowings
84
16
Financial liabilities
87
17
Provisions
88
18
Other liabilities
88
19
Gross rental income
89
20
Property operating expenses
90
21
Management expenses
90
22
Finance costs
90
23
Earnings per share
91
24
Dividend per share
91
2.1
Basis of preparation
68
2.2
Consolidation
68
2.3
Segment reporting
69
2.4
Property
69
2.5
Financial assets
70
2.6
Other receivables
70
2.7
Other property, plant and equipment
71
2.8
Deferred tax assets
71
2.9
Leases
71
2.10
Impairment of assets
71
2.11
Receivables
72
2.12
Cash and cash equivalents
72
2.13
Share capital
72
2.14
Interest-bearing loans and borrowings
72
2.15
Pensions
73
2.16
Provisions
74
2.17
Revenue recognition
74
2.18
Changes in fair value of investment property
74
2.19
Return on sale of investment property
74
2.20
Dividend distribution
74
3
Financial risk management
75
25
Contingencies
91
4
Critical accounting estimates and judgements
77
26
Commitments
92
5
Joint ventures
78
27
Related party transactions
93
6
Segment reporting
79
consolidated annual accounts
61
consolidated balance sheet as at 31 december Before proposed appropriation of profit (x â&#x201A;Ź 1 million)
notes
2006
2005
assets
Non-current assets
Property
Investment property
1,184.7
1,237.3
Pipeline projects
100.7
45.3
7
1,285.4
1,282.6
Property
Financial assets
8
28.9
10.2
Other receivables
9
19.3
16.4
Other property, plant and equipment
10
0.7
0.6
Deferred tax assets
11
0.1
Non-current assets
1,334.4
- 1,309.8
Current assets
Receivables
12
9.2
7.9
Cash and cash equivalents
13
112.5
35.7
Current assets
121.7
43.6
1,456.1
1,353.4
Assets
equity & liabilities
Equity
Shareholdersâ&#x20AC;&#x2122; equity
14
832.4
778.4
Non-current liabilities
Interest-bearing loans and borrowings
15.1
445.6
444.8
Financial liabilities
16
15.9
13.8
Non-current liabilities
461.5
458.6
Current liabilities
Provisions
17
1.0
0.8
Interest-bearing loans and borrowings
15.2
135.0
85.0
Other liabilities
18
26.2
30.6
Current liabilities
162.2
116.4
62
Liabilities
623.7
575.0
Equity & Liabilities
1,456.1
kfn annual report 2006
1,353.4
consolidated income statement year ended 31 december (x € 1 million)
notes 2006 2005 Total revenues
142.3
116.8
Total expenses
-54.9
-53.4
Net rental income
Gross rental income
19
98.9
97.8
Service charge income on principal basis
13.5
12.5
Service charge expenses on principal basis
-13.5
-12.5
Property operating expenses
20
-19.4
-16.2
Net rental income1
79.5
81.6
Changes in fair value of property
Changes in fair value of investment property
26.8
8.4
Changes in fair value of pipeline projects
-7.2
-1.9
Changes in fair value of property2
19.6
6.5
Profit on sale of property2
10.3
-
Management expenses1
21
-7.2
-7.9
Operating profit
102.2
80.2
Interest income
22
8.2
2.0
Interest expense1
22
-23.0
-18.8
Profit before tax
87.4
63.4
Tax on profit1
11
-
-
Net profit
87.4
63.4
1
Attributable to:
Equity holders of the company
87.4
63.4
Minority interest
Basic and diluted earnings per share (x € 1)
4.36
3.16
-
-
Additional information
Total revenues is calculated by adding up Gross rental income, Service charge income on principal basis, Changes in fair value of property and Profit on sale of property.
Direct Result
57.5
56.9
Indirect Result
29.9
6.5
= Direct result
1
= Indirect result
2
consolidated annual accounts
63
consolidated statement of changes in equity Before proposed appropriation of profit (x â&#x201A;Ź â&#x20AC;&#x2030;1 million) share capital
share premium reserve
retained earnings
hedge reserve
1 January 2005
minority total interest
91.0
299.8
352.8
1.3
-
744.9
Net profit 2005
63.4
63.4
Dividend 2004
-25.0
-25.0
Fair value of hedging instruments
-4.9
-4.9
31 December 2005
91.0
299.8
391.2
-3.6
-
778.4
Net profit 2006
87.4
87.4
Dividend 2005
-50.0
-50.0
Fair value of hedging instruments
16.6
16.6
31 December 2006
91.0
299.8
428.6
13.0
-
832.4
64
Please refer to note 14 for further details on shareholdersâ&#x20AC;&#x2122; equity.
kfn annual report 2006
consolidated cash flow statement (x â&#x201A;Ź â&#x20AC;&#x2030;1 million)
notes
2006
2005
80.2
Cash flow from operating activities
Net operating profit
102.2
Profit on sale of property
-10.3
Changes in fair value of property
7
-22.8
-6.5
Movement in other receivables
9
-2.9
-3.6
-
Movement in other property, plant and equipment
10
-0.1
0.2
Movement in receivables
12, 22
-0.1
1.7
Movement in current liabilities
7, 18
-2.3
-1.9
Movement in provisions
17
0.2
-0.4
Total cash flow from operations
63.9
69.7
Interest paid
22
-22.2
-18.3
Interest income
22
4.4
1.0
Cash flow from operating activities
46.1
52.4
-44.7
Cash flow from investing activities Investments
7, 18
-62.3
Property sales
93.0
3.7
Total cash flow from investing activities
30.7
-41.0
-25.0
Cash flow from financing activities
Dividend
-50.0
Movement in short-term interest-bearing loans and borrowings
15.2
50.0
Total cash flow from financing activities
-
10.0 -15.0
Total cash flow
76.8
-3.6
Cash and cash equivalents as at 1 January
13
35.7
39.3
Cash and cash equivalents as at 31 December
13
112.5
35.7
Movement in cash and cash equivalents
76.8
-3.6
consolidated annual accounts
65
notes to the consolidated annual accounts These notes are an integral part of the consolidated Annual Accounts.
1
general information KFN Holding BV was incorporated on 17 May 1995 as a private company with limited liability (besloten vennootschap met beperkte aansprakelijkheid) having its corporate seat in Utrecht, the Netherlands and its registered office at Jaarbeursplein 15, 3521 AM Utrecht, the Netherlands. It acts as a holding company and owns all shares in the capital of KFN Property I BV and KFN Property II BV. KFN is wholly owned by Stichting Pensioenfonds ABP (ABP). In accordance with ABPâ&#x20AC;&#x2122;s principles, the KFN Management Board emphasises the independence of the property fund as an autonomous investment institution maintaining its own strategy and independent responsibility for operational affairs. KFN is a non-listed Dutch property investment group focusing on the upper segment of the office property market in strong urban locations. The consolidated Annual Accounts set out the financial information of KFN Holding BV and the subsidiaries listed below. registered office
interest
KFN Property I BV
Utrecht
100%
KFN Property II BV
Utrecht
100%
WTC Utrecht BV
Utrecht
100%
Beheermaatschappij WTC Amsterdam BV
Amsterdam
50%
KFN Office Finance I BV
Amsterdam
0%
On 1 January 2006, WTC Amsterdam IV BV was merged with KFN Property II BV. This merger has no effect on the consolidated equity and results. KFN Office Finance I BV is the Special Purpose Vehicle (SPV) that placed the CMBS bonds with investors on behalf of KFN Property I BV. KFN Office Finance I BV issued a loan to KFN Property I BV. KFN Office Finance I BV is considered a group company, because of the fact that only KFN Property I BV benefits from its activities. KFN Office Finance I BV is therefore included in the consolidated Annual Accounts of KFN Holding BV. KFN Holding BV issues a statement within the meaning of Section 403, Book 2 of the Netherlands Civil Code for KFN Property II BV. In view of the fact that KFNâ&#x20AC;&#x2122;s 2006 Consolidated Income Statement is included in the consolidated Annual Accounts, a summarised Company Income Statement for KFN Holding BV is presented in accordance with Section 402, Book 2 Title 9 of the Netherlands Civil Code.
66
kfn annual report 2006
KFN group legal chart kfn holding bv
kfn property i bv 100%
cmbs portfolio
other portfolio
kfn property ii bv 100%
wtc utrecht bv
maatschap wtc amsterdam
maatschap wtc amsterdam e-toren
100%
50%
50%
maatschap wtc amsterdam zuidplein hoogen laagbouw 50%
wtc amsterdam
wtc e-toren
wtc zuidplein
beheermij wtc amsterdam bv
maatschap wtc amsterdam zuidplein
50%
50%
Tax status
KFN Holding BV and KFN Property I BV have both been awarded the status of fiscal investment institution for the purpose of Section 28 of the 1969 Netherlands Corporate Income Tax Act. As such, they are exempt from corporate income tax, provided that they meet certain conditions, the principal of which is that their taxable profits are distributed as dividends, and that leveraged financing transactions are subject to certain restrictions. Capital gains realised on the sale of investments may be added to the companyâ&#x20AC;&#x2122;s reinvestment reserves. The valuation principles for tax purposes are somewhat different from those for accounting purposes, mainly as regards the valuation of property for tax purposes: at acquisition price (less annual depreciation based on a percentage depending on the useful life), as opposed to fair value, as is used for accounting purposes. In view of KFNâ&#x20AC;&#x2122;s tax status, no provision is necessary for deferred tax liabilities stemming from the difference between the book values for tax and accounting purposes. KFN Property II BV is included in a fiscal unity for corporate income tax with KFN Holding BV. KFN Property I BV, WTC Utrecht BV, Beheermaatschappij WTC Amsterdam BV and KFN Office Finance I BV are independently liable for corporate income tax.
consolidated annual accounts
67
2 2.1
summary of significant accounting policies Basis of preparation
These consolidated Annual Accounts of KFN have been prepared in accordance with International Financial Reporting Standards (IFRS). The principal accounting policies applied in the preparation of these consolidated Annual Accounts are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. Standards, interpretations and amendments to published standards effective in 2006 No new standards, amendments to standards or interpretations of existing standards mandatory for the financial year ending 31 December 2006 have any impact on KFN. Standards, interpretations and amendments to published standards that are not yet effective and have not been early adopted by the group KFN has not early adopted any new standards, amendments to standards or interpretations of existing standards that have been published and are mandatory for KFN’s accounting periods beginning on or after 1 January 2007. The Annual Accounts have been prepared on a historical cost basis, with the exception of investment property and derivative financial instruments, which are stated at their fair values. The cash flow statement is based on the indirect method, stating the cash flows from operating, investing and financing activities separately. The total results have been adjusted for costs and income that did not result in any expense or revenues during the reporting year. The dividends paid have been included under financing activities. The funds in the cash flow statement consist of cash, cash equivalents and bank overdrafts. These Annual Accounts are presented in Euros, which is the group’s functional and presentation currency. The presentation of the balance sheet, the income statement and the cash flow statement, as well as various notes and additional disclosures, are based on EPRA’s “Best Practices Policy Recommendations”, as published in November 2006.
2.2 Consolidation
The consolidation includes the financial data of KFN Holding BV, its joint ventures and its subsidiaries. Subsidiaries Companies, including special purpose entities, qualify as subsidiaries if they are controlled1 by the company. The Annual Accounts of wholly or partly owned subsidiaries are fully
company has the power,
consolidated from the date on which control is transferred to KFN and deconsolidated from
directly or indirectly, to
the date on which control ceases. Third-party shares in group equity and group results are
govern the financial and
regarded as minority interest and stated separately.
operating policies of an
The purchase method of accounting is used to account for the acquisition of subsidiaries by
entity so as to obtain
KFN. The cost of an acquisition is measured as the fair value of the assets transferred, equity
benefits from its activities.
instruments issued and liabilities incurred or assumed at the date of exchange, plus the costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are initially measured at their fair
68
Control exists when the
1
kfn annual report 2006
values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of KFN’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of KFN’s share of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement. Joint ventures Joint ventures are those entities over whose activities the group exercises joint control, as established by contractual agreement. Participating interests in joint ventures are consolidated proportionally. Inter-company transactions, inter-company results and mutual claims and debts between group companies are eliminated. Unrealised results on inter-company transactions are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Where necessary, accounting policies of the individual group companies have been adjusted to match the policies adopted by the group.
2.3
Segment reporting
Segment information for the group is presented as follows: KFN’s areas The group distinguishes two areas in accordance with the geographic segments: Area North West: e.g. Amsterdam, Schiphol, The Hague, Utrecht, Groningen Area South: e.g. Maastricht, Eindhoven, Den Bosch, Breda, Rotterdam. The reporting format referred to above is based on geographical segmentation. As KFN only operates in the high-end office market, no segment reporting relating to activity has been presented.
2.4 Property Investment property Investment property comprises freehold land and freehold buildings held to earn rentals, for capital appreciation or both. Land held under operating lease is not part of the investment property and is accounted for as an operating lease. Investment property is initially measured at cost, including related transaction costs. After initial recognition, investment property is stated at its fair value, which is the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction. The value is based on appraisals by registered independent property surveyors who have appropriate and recognised professional qualifications and recent experience in the location and category of the property being valued. Fair values are determined using the discounted cash flow method, having regard to recent market transactions for similar properties in the same location as the property being appraised. All appraisals are carried out in accordance with International Valuation Standards (IVS) as set out by the International Valuation Standards Committee (IVSC). The valuations are prepared by considering the aggregate of net annual rents receivable from the properties and, where relevant, associated cost. A discount rate which reflects the risk inherent in the net cash flows is then applied to net annual rentals to arrive at the property valuation.
consolidated annual accounts
69
Where appropriate, valuations reflect the type of tenants actually in occupation or responsible for meeting lease commitments, or likely to be in occupation after the letting of vacant accommodation, as well as the marketâ&#x20AC;&#x2122;s general perception of their creditworthiness, the allocation of maintenance and the remaining economic life of the property. Any gain or loss arising from a change in fair value is recognised in the Income Statement. Furthermore, additional investments related to the properties, after initial recognition, are only included if the investment leads to higher contract prices, and hence adds value to the property, and the cost of the investment can be measured reliably. Pipeline projects In accordance with IAS 16, pipeline projects are initially stated at historical cost, and subsequently at cost (including related transaction costs) less impairment. An impairment is taken into account in case the fair value is lower than historic cost. The fair values of objects that are 50% complete or that will be completed within six months are based on external appraisals. The other objects are appraised internally. Both internal and external appraisals are based on the rent value capitalisation method. If, after an impairment test, the fair value is less than the overall expected costs, a write-down is deducted from the changes in fair value of pipeline projects in the income statement. Costs include: - Construction costs; - Professional fees; - Capitalised interest (directly attributable borrowing costs based on the weighted average cost of borrowings by the group up to the moment of completion). Pipeline projects are transferred to Investment Property as soon as the project is technically complete and available for lease. Within three months after this transfer, the new investment property is valued externally.
2.5
Financial assets Financial assets include derivative financial instruments, which are stated at fair value without deduction of transaction costs. The fair value of the interest rate swaps is the estimated amount that the group would receive or pay to terminate the swap at balance sheet date, taking into account current interest rates and the current creditworthiness of the swap counterparties. For further details, please refer to 2.14.
2.6 Other receivables Other receivables include loans granted to tenants, deferred lease incentives and other financial assets. Other receivables are initially stated at fair value plus expenditures that are directly attributable to the acquisition of the item. Subsequently, other receivables are stated at amortised cost less any accumulated impairment losses for uncollectibility. Impairment losses are presented in the income statement under Impairment Results. Deferred lease incentives are capitalised and amortised on a straight-line basis over the period up to the first break option. Lease incentives can be defined as follows: any consideration or expense leading to a reduction in income in order to secure a lease.
70
kfn annual report 2006
2.7
Other property, plant and equipment Tangible fixed assets Tangible fixed assets are initially stated at historical cost, which includes expenditures that are directly attributable to the acquisition of the item. Subsequently, tangible fixed assets are valued at cost less accumulated depreciation and any accumulated impairment losses. Depreciation is linear, based on the estimated useful life. For computer equipment, the useful life is three years; for furniture, five years. The residual values and useful lives of assets are reviewed, and adjusted if appropriate, at least at the end of each financial year. Impairment losses are presented in the income statement under Impairment Results. Intangible fixed assets Intangible financial assets are initially stated at historical cost, which includes expenditures that are directly attributable to the acquisition of the item. Subsequently, intangible fixed assets are stated at cost less accumulated impairment losses. The residual values and useful lives of the assets are reviewed, and adjusted if appropriate, at least at the end of each financial year. Impairment losses are presented in the income statement under Impairment Results.
2.8 Deferred tax assets Deferred tax assets are the amounts of income taxes recoverable in future periods in respect of the carryforward of unused tax losses. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which it can be utilised. Deferred tax assets are measured at the tax rates that are expected to apply to the period when the asset is realised.
2.9
Leases 2.9.1 A group company is the lessor Operating lease: properties leased out under operating leases are presented in the balance sheet under Investment Property. Finance lease: when assets are leased out under a finance lease, the present value of the lease payments is recognised as a receivable. The difference between the gross receivable and the present value of the receivable is recognised as unearned finance income. 2.9.2 A group company is the lessee Operating lease: leases in which substantially all risks and rewards of ownership are retained by another party (the lessor) are classified as operating leases. Finance lease: leases of assets where the group has a substantial interest in all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the commencement of the lease at the lower of the fair value of the leased property and the present value of the minimum lease payments. The investment properties acquired under finance leases are carried at their fair value.
2.10 Impairment of assets Assets including goodwill that have an indefinite life, but excluding investment property carried at fair value, are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation or depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
consolidated annual accounts
71
An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount. The recoverable amount is the higher of the fair value of the asset less selling costs and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows.
2.11 Receivables Receivables are stated at amortised cost, minus any reduction for impairment or uncollecÂtibility. A provision for impairment of receivables is established where it is expected that the group will not be able to collect all amounts due according to the original terms of the receivables.
2.12 Cash and cash equivalents Cash and cash equivalents include cash in hand. Bank overdrafts that are repayable on demand and form an integral part of the groupâ&#x20AC;&#x2122;s cash management are included as a component of cash and cash equivalents for the purpose of the cash flow statement.
2.13 Share capital Shares are classified as equity. External costs directly attributable to the issue of new shares are shown as a deduction, net of tax, in equity from the proceeds. Share issue costs incurred directly in connection with a business combination are included in the cost of acquisition.
2.14 Interest-bearing loans and borrowings Interest-bearing debt Interest-bearing debt is recognised initially at fair value, less attributable transaction cost. Subsequent to initial recognition, interest-bearing debt is stated at amortised cost with any difference between cost and redemption value being recognised in the income statement over the period of the borrowings on an effective interest basis. Interest-bearing debt with a maturity of more than one year is recognised under long-term liabilities. Possible repayments on interest-bearing debts within one year are recognised under short-term liabilities. Derivative financial instruments Derivatives are initially recognised at fair value on the date a derivative contract is concluded, and are subsequently remeasured at fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument and, if so, on the nature of the risk being hedged. The group designates certain derivatives as hedges of a particular risk associated with a recognised asset or liability or a highly probable forecast transaction (cash flow hedging). At the inception of the transaction, the group documents the relationship between hedging instruments (interest rate swaps) and hedged items (debt), as well as its risk management objectives and strategy for undertaking various hedge transactions. The group hedges its floating interest charges under the interest-bearing debt to fixed-rate instruments, for 60-70% of the total loans outstanding. The group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives used in hedging trans actions are highly effective in offsetting changes in fair values or cash flows of hedged items. The fair values of the derivative financial instruments are based on quoted market prices at the balance sheet date. KFN uses Bloomberg data for the market quotes.
72
kfn annual report 2006
The fair values of various derivative financial instruments used for hedging purposes are disclosed in note 15. Cash flow hedging The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in equity. The gain or loss relating to the ineffective portion is recognised immediately in the income statement within Other (losses) gains - net. Amounts accumulated in equity are recycled in the income statement in the period when the hedged items affect profit or loss. The gain or loss relating to the effective portion of interest rate swap hedging variable rate borrowings is recognised in the income statement within Finance costs. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately carried to the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement. Derivatives that do not qualify for hedge accounting Certain derivatives do not qualify for hedge accounting. Changes in the fair value of any such derivative instruments are recognised immediately in the income statement within Other (losses) gains - net. Finance costs Finance costs consist of the interest expenses attributable to the period on interest-bearing debt, calculated using the effective interest method, less capitalised financing cost on pipeline projects and interest income from outstanding loans and gains or losses on hedging instruments that are recognised in the income statement.
2.15 Pensions KFN Property II BV’s post-employment benefit plan is placed with ABP’s Pension Fund and qualifies as a defined benefit plan. The group is unable to account for the plan as a defined benefit plan, due to the pension fund’s inability to supply the group with the relevant information. ABP reports an actual funding ratio of 133.0% as per 31 December 2006 (2005: 119.7%). With this funding ratio, ABP complies with the requirements of De Nederlandsche Bank (DNB). However, it is unknown how this funding ratio may affect the amount of KFN’s future contributions. Therefore, KFN accounts for the post-employment benefit plan as if it were a defined contribution plan, following IAS 19.30. Liabilities for contributions to the plan are recognised as expenses in the income statement as incurred. The post-employment benefit plan of Beheermaatschappij WTC Amsterdam BV and its associate Triple Ace VOF qualify as defined contribution plans. Liabilities for contributions to these plans are recognised as expenses in the income statements as incurred.
consolidated annual accounts
73
2.16 Provisions Provisions are formed for actual commitments or commitments that can be enforced under the law stemming from ordinary activities or from reorganisations, which were present as at the balance sheet date and whose volume is uncertain but can be reasonably estimated. The commitments in question pertain to events that occurred in the past but that will not be settled until after the balance sheet date. The amount recognised as a provision is the best estimate of the expenditure required to settle the present commitment at the balance sheet date. The movement in provisions will be charged and/or released through the income statement.
2.17 Revenue recognition General Costs and revenues are allocated to the periods to which they pertain. In accordance with IAS 17, lease incentives are straight-lined over the period, up to the first break, of the lease contract. Revenues Revenues comprise the total of net rental income. Net rental income consists of gross rental income, service charge income on a principal basis, service charge expenses on a principal basis and property operating expenses. Gross rental income The rental income from a lease contract is straight-lined over the period of the contract. The straight-lined income is presented in the period to which it is attributable. The gross rental income does not include the service charge income. Service charge income and expenses on principal basis The service charge income includes gross advances charged to tenants. The service charge expenses include gross costs charged to the group for services and goods the group acquired on behalf of its tenants. Property operating expenses Property operating expenses are chiefly costs of maintenance, property tax and other levies, insurance premiums, external asset management fees and service charges not charged to tenants.
2.18 Changes in fair value of investment property
The unrealised changes in the value of investment property stem from the quarterly appraisals.
2.19 Return on sale of investment property
The return on sales of investment property is calculated as the revenues from the sales - minus commissions, if applicable - less the book value of the objects sold at the moment of sale.
74
kfn annual report 2006
2.20 Dividend distribution
Movements in equity comprise movements stemming from the appropriation of results and movements stemming from issues and declared dividends. Dividend distribution to the company’s shareholders is recognised as a liability in the group’s Annual Accounts in the period in which the company’s shareholders approve such dividends. After appropriation of the results, the portion of the results that has not been set aside for dividend distributions is added to retained earnings.
3
financial risk management The group is exposed to a variety of financial risks: market risk, credit risk, liquidity risk, cash flow risk and fair value interest-rate risk. KFN’s risk management programme (business control framework) focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on KFN’s financial performance. The group uses derivative financial instruments to hedge certain risk exposures. Risk management is carried out by a central treasury department under policies approved by the management board. The treasury department identifies, evaluates and hedges financial risks in close co-operation with the operational units. The Board provides written principles for overall risk management, as well as policies covering specific areas, such as interest-rate risk, credit risk use of derivative financial instruments and investment of excess liquidity. Market risk The group is exposed to property price and market rental risks. Credit risk The group has no significant concentrations of credit risk. It has policies in place to ensure that rental contracts are concluded with customers with an appropriate credit history. Derivative counterparties and cash transactions are limited to high-credit-quality financial institutions with an S&P rating of at least A-. The group has policies that limit the amount of credit exposure to any financial institution. Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding through an adequate amount of committed credit facilities. Due to the nature of the underlying business, KFN aims to maintain flexibility by keeping committed revolving credit facilities available. The group’s liquidity position is monitored on a daily basis by the management and is reviewed quarterly by the Management Board. Cash flow and fair value interest-rate risk As the group has no significant interest-bearing assets, its income and operating cash flows are substantially independent of changes in market interest rates. The group’s interest rate risk arises from long-term borrowings. Borrowings issued at floating rates expose the group to interest rate risks. In order to hedge the group’s exposure to interest-rate risks, the group applies derivative financial instruments. In accordance with its treasury policies, the group does not hold or issue derivative financial instruments for trading purposes.
consolidated annual accounts
75
The group’s cash flow and fair value interest-rate risks are periodically monitored by the Management Board. The group analyses its interest-rate exposure on a dynamic basis. It takes on exposure to the effects of fluctuations in prevailing levels of market interest rates on its financial position and cash flows. Interest costs may increase as a result of such changes. Following an Asset and Liability Management (ALM) study, the group’s policy is to maintain 60% to 70% of its borrowings in fixed-rate instruments. Furthermore, KFN targets an average interest representative term of between 48 and 60 months. The ALM study was based on the relationship between interest charges, rental income and KFN’s 10-year forecast. Updates of the ALM study will be performed on a yearly basis. No amendments were made to the interest-rate strategy during 2006, due to the fact that the conclusions from the 2006 ALM study were in line with the study of previous years. Fair value estimations The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. The group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet date. Quoted market prices or dealer quotes for similar instruments are used for long-term debt. Other techniques, such as estimated discounted cash flows, are used to determine fair value for the remaining financial instruments. The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows. Trade and other receivables and payables are interest-free and have settlements dates within one year. The sensitivity analyses below are based on a change in one assumption while holding all other assumptions constant. In practice this is unlikely to occur, and changes in some of the assumptions may be correlated, for example, the change in interest-rate and change in market values.
Sensitivity analysis increase in %
2005
Net rental income
10
7.9
8.2
10
9.9
9.8
Interest expenses
10
-1.7
-1.3
Market yield
5
- 29.9
-28.4
Revaluation investment property
10
2.7
0.8
Capital risk management The group’s objectives when managing capital are to safeguard the group’s ability to continue as a going concern in order to provide return for shareholders and benefits for other stake holders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the group may adjust the amount of dividend paid to the shareholders, return capital to the shareholders, issue new shares or sell assets to reduce debt.
76
2006
Gross rental income
estimated influence result/shareholders‘ equity (in € million)
kfn annual report 2006
Consistent with others in the industry, the group monitors capital on the basis of the Loan to Value ratio. This ratio is calculated as net debt divided by the amount of property. Net debt is calculated as total debt less cash and cash equivalents stemming from the consolidated balance sheet. Total amount of property is calculated as total property stemming from the consolidated balance sheet. During 2006 the group’s strategy, which was unchanged from 2005, was to maintain a Loan to Value ratio of 40-50%. The Loan to Value ratios at year-end were as follows:
4
(x € 1 million)
2006
Total debt
585.0
Less: cash and cash equivalents
112.5
35.7
Net debt
472.5
499.3
2005 535.0
Property
1,285.4
1,282.6
Loan to value
45.5%
41.7%
Net debt to Value ratio
36.8%
38.9%
critical accounting estimates and judgements Management discussed with the Supervisory Board the development, selection and disclosure of the group’s critical accounting policies and estimates, and the application of these policies and estimates. Estimates and judgements are continually evaluated, and are based on historical experience as adjusted for current market conditions.
4.1
Estimate of fair value of investment properties The best evidence of fair value is current prices in an active market for similar lease and other contracts. In the absence of such information, the group determines the amount within a range of reasonable fair value estimates. In making its judgements, the group considers information from a variety of sources including: a. current prices in an active market for offices of different nature, conditions or location, adjusted to reflect these differences; b. recent prices of similar properties in less active markets, with adjustments to reflect any changes in economic conditions since the date of the transactions that occurred at those prices; and c. discounted cash flow (DCF) projections, based on reliable estimates of future cash flows derived from the terms of any existing lease and other contracts, and from external evidence such as current market rents for similar properties in the same location and condition, and using discount rates that reflect the current market assessment of the uncertainty in the amount and timing of the cash flows.
4.2 Principal assumptions for management estimation of fair value
If information on current or recent prices of investment properties is not available, the fair value of investment properties is determined using DCF valuation techniques. The group uses assumptions that are mainly based on market conditions existing at each of the balance sheet dates.
consolidated annual accounts
77
The principal assumptions underlying management’s estimation of fair value are those related to the receipt of contractual rentals, expected future markets rentals, void/vacancy periods, maintenance requirements, and appropriate discount rates. These valuations are regularly compared to actual market yield data and to actual transactions by the group and those reported by the market. The expected future market rentals are determined on the basis of current market rentals for similar offices in the same location and condition.
5 joint ventures The group has interests in the following joint ventures: ownership ownership 2006 2005 Maatschap WTC Amsterdam
50%
50%
Maatschap WTC Amsterdam E-Toren
50%
50%
Maatschap WTC Amsterdam Zuidplein
50%
50%
Maatschap WTC Amsterdam Zuidplein Hoog- en Laagbouw
50%
50%
Together, these joint ventures hold the World Trade Center Amsterdam property.
The other 50% interest of these joint ventures is held by ING.
Included in the consolidated Annual Accounts of KFN are the following items that and expenses of these represent the group’s interest in the assets, liabilities, revenues joint ventures:
(x € 1 million)
2006
2005
Non-current assets
243.4
227.9
Current assets
4.2
13.7
Non-current liabilities
Current liabilities
54.1
53.8
Net assets
193.5
187.8
Gross rental income
15.1
13.6
-
-
Property operating expenses
-3.9
-2.7
Changes in fair value of investment property
13.6
9.1
Net operating profit
24.8
19.4
kfn annual report 2006
78
6
segment reporting KFNâ&#x20AC;&#x2122;s areas
2006
area north west
area south
un- allocated
total kfn
Gross rental income
64.7
34.2
98.9
Net rental income
52.1
27.4
79.5
Net profit
71.9
27.2
-11.7
Investment property
782.4
402.3
Pipeline projects
33.5
67.2
Total liabilities
15.8
7.6
Changes in fair value of property
19.8
-0.2
19.6
Impairment of receivables
0.1
0.1
0.2
2005
area north west
area south
87.4
1,184.7
100.7
600.3
un- allocated
623.7
total kfn
Gross rental income
64.1
33.7
97.8
Net rental income
53.7
27.9
81.6
Net profit
61.0
27.1
Investment property
812.0
425.3
Pipeline projects
19.1
26.2
Total liabilities
16.1
8.4
Changes in fair value of property
7.3
-0.8
Impairment of receivables
0.1
0.1
-24.7
63.4 1,237.3 45.3
575.0
6.5
0.2
550.5
are charged to There are no transactions between the areas. All property operating expenses expenses. Segment assets the properties in the areas. Unallocated costs represent corporate consist of investment property and pipeline projects.
KFNâ&#x20AC;&#x2122;s joint ventures are all part of the North West Area.
consolidated annual accounts
79
7
property Investment properties are those properties which are held either to earn rental income or for capital appreciation or for both. Investment properties are stated at fair value. An external, independent valuation company, having an appropriate recognised professional qualification and recent experience in the location and category of the property being valued, will assess the fair value. KFN uses a system of appraisal management. Each object is incorporated into a three-year appraisal cycle. - Upon acquisition/completion, each object is fully appraised by an external surveyor. - Every quarter the appraisal is updated, based on reference material submitted by external surveyors such as market rent levels, vacancy forecasts and discount factors. - In addition to these quarterly updates, concise reappraisals are conducted once every year. These are assessed by the external surveyors and approved by way of Letters of Comfort. - After three years, the object is subjected to a new full external appraisal. This system does not apply to WTC Amsterdam or WTC Schiphol Airport, which, owing to their specific natures, are both appraised externally at the end of each financial year. The fair values are based on market values, being the estimated amount for which a property could be exchanged on the date of valuation between a willing buyer and a willing seller in an armâ&#x20AC;&#x2122;s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. The valuations are prepared by considering the aggregate of the net annual rents receivable from the properties and, where relevant, associated costs. A discount rate which reflects the risks inherent in the net cash flows is then applied to the net annual rentals to arrive at the property valuation. The table below shows the range of discount rates applied for prime office space. Discount rates applied by external appraisers for valuation purposes: Amsterdam
6.8 - 7.7% (2005: 6.9 - 8.2)
Rotterdam
6.1 - 7.4% (2005: 6.3 - 7.9)
The Hague
6.3 - 6.6% (2005: 6.3 - 7.8)
Utrecht
6.8 - 7.3% (2005: 7.5 - 8.0)
Where appropriate, valuations reflect the type of tenants actually in occupation or responsible for meeting lease commitments or likely to be in occupation after letting of vacant accommodation and the marketâ&#x20AC;&#x2122;s general perception of their creditworthiness; the allocation of maintenance and insurance responsibilities between lessor and lessee; and the remaining useful life of the property. It has been assumed that whenever rent reviews or lease renewals are pending with anticipated reversionary increases, all notices and - where applicable counter notices have been served validly and within the appropriate time. Any gain or loss arising from a change in fair value is recognised in the income statement. Rental income from investment property is accounted for as described in accounting policy 2.17.
80
kfn annual report 2006
The group’s investment properties were revalued at 31 December 2006 by independent, professionally qualified surveyors Boer Hartog Hooft, DTZ Zadelhoff and Jones Lang LaSalle. Valuations were based on current prices in an active market for all properties. At year-end 30.7% of the portfolio in operations were appraised by external surveyors, of which 39.1% by Boer Hartog Hooft, 43.5% by DTZ and 17.4% by Jones Lang Lasalle. All other objects were valued internally. In 2006 all objects were valued externally at least once. These surveyors charge KFN for these services with a fixed fee that is independent of the appraised value. These three companies also render real estate agency and advisory services to KFN. In 2006 and 2005, KFN did not own investment property that was fully unlet. investment property 1 January 2005
pipeline projects
total
1,207.2
29.2
1,236.4
Investments
2.3
40.1
42.4
Capitalised interest
1.0
1.0
Property sales
-3.7
-3.7
Revaluations
8.4
-1.9
6.5
Transfer
23.1
-23.1
31 December 2005
1,237.3
45.3
1,282.6
0.1
60.0
60.1
-
Investments
Capitalised interest
2.6
2.6
Property sales
-82.7
-82.7
Termination of straightlining of property sold
1.8
1.8
Revaluations
26.8
-7.2
19.6
Termination of straightlining of real estate brokerage fees
1.4
1.4
31 December 2006
1,184.7
100.7
1,285.4
The fair value of property amounts to € 1,300.1 million (2005: € 1,293.8). The difference between this fair value and the value of property as presented above, is caused by the deferred lease incentives. Deferred lease incentives are included in the fair value of investment property but are presented in this report as other receivables. Both pipeline projects and tangible fixed assets are accounted for under IAS 16 Property, Plant and Equipment. As at 31 December 2006, these amount to € 101.1 million (2005: € 45.6 million).
8
financial assets derivative financial instruments 1 January 2005 Movements
- 10.2
total
10.2
31 December 2005
10.2
10.2
Movements
18.7
18.7
31 December 2006
28.9
28.9
consolidated annual accounts
81
9
other receivables
deferred loans lease granted incentives to tenants
other financial assets
total
1 January 2005 Repayments of loans
6.8
5.9
0.1
12.8
-0.8
-0.8
Additions
7.3
7.3
Straightlining
-2.9
-2.9
31 December 2005
11.2
5.1
0.1
16.4
Repayments of loans
-0.6
-0.6
Additions
11.9
11.9
Termination of straightlining of real estate brokerage fees
-1.4
-1.4
Termination of straightlining of property sold
-1.8
-1.8
Straightlining
-5.2
-5.2
31 December 2006
14.7
4.5
0.1
19.3
tangible intangible fixed assets fixed assets
total
Based on the most recent IFRS interpretations, KFN terminated the straightlining of real estate brokerage fees. From 2006 onward, real estate brokerage fees are charged directly through the income statement.
10 other property, plant and equipment
1 January 2005
82
0.5
0.3
0.8
Additions
-
Depreciation
-0.2
-0.2
31 December 2005
0.3
0.3
0.6
Additions
0.3
0.3
Depreciation
-0.2
-0.2
31 December 2006
0.4
0.3
0.7
kfn annual report 2006
11
deferred tax assets It is expected that Beheermaatschappij WTC Amsterdam BV will be profitable from 2006 onward. This subsidiary is liable to pay corporate income tax. The carryforward of unused tax losses is presented here. The value of the tax asset was calculated by using the 2007 corporate income tax percentages.
deferred tax assets
total
1 January 2005
-
-
Allocation
-
-
Withdrawal
-
-
31 December 2005
-
-
Allocation
Withdrawal
31 December 2006
0.1 -
0.1 -
0.1
0.1
2006
2005
2.6
2.4
12 receivables Trade receivables
Non-refundable VAT on property investments
2.3
1.7
Prepayments and accrued income
0.4
0.7
Taxes and social security premiums
1.1
0.6
Other receivables
2.8
2.5
Total
9.2
7.9
2006
2005 35.7
Trade receivables have settlement dates within one year.
13 cash and cash equivalents Cash and cash equivalents
67.5
Cash deposits
45.0
Total
112.5
- 35.7
consolidated annual accounts
83
14 shareholders’ equity For a detailed explanatory note of the changes in shareholders’ equity, reference is made to the consolidated statement of changes in equity.
Issued and paid up capital
The authorised share capital amounts to € 227.0 million, consisting of 50 million shares with a face value of € 4.54 each. As at 31 December 2006, 20,048,725 shares had been issued and fully paid.
Share premium reserve
The share premium reserve is not tainted for Dutch tax purposes.
Hedge reserve
Where a financial instrument is designated as a hedge of the variability in cash flows of a recognised asset or liability, or of a highly probable forecasted transaction, the effective part of any gain or loss on the financial instrument is directly recognised in the hedge reserve.
Distribution of profit
Dividends are recognised as a liability in the period in which they are declared. The company may only distribute profits to its shareholders and other parties entitled to shares in those profits insofar as its shareholders’ equity exceeds the amount of its issued capital plus the statutory reserves. In the retained earnings an amount of € 142.0 million (31/12/2005: € 134.4 million) relates to unrealised changes in the fair value of investment properties. The hedge reserve amounts to € 13.0 million (31/12/2005: - € 3.6 million). These amounts are not available for distribution.
15 interest-bearing loans and borrowings CMBS bond loan
The € 450.0 million CMBS bond loan issued by KFN Office Finance I BV and used to finance the property held by KFN Property I BV, with a term to maturity until 2011, can be repaid without penalty from 2007 onward. The interest rate for the bond loan is the 3-month EURIBOR rate +21 bps. The CMBS agreement (Secured Loan Agreement) stipulates various conditions that KFN Property I BV must meet. The Loan to Value ratio (LTV) may not exceed 60%, and the Interest Coverage Ratio (ICR) must be at least 2.0. The LTV is calculated as follows: the CMBS loan, divided by the value of the property of KFN Property I. The ICR is equal to the aggregate of all net rental income of KFN Property I, divided by its total interest charges. Failure to meet these conditions may result in an event of default, after which, as explained under ‘Security’ (25.1), the provider of the funds may take further action. Interest charges relating to this loan totalled € 13.9 million (2005: € 10.8 million).
84
kfn annual report 2006
Liquidity facility for the CMBS bond loan
KFN Office Finance I BV concluded a 364-day liquidity facility agreement for 4.5% of the outstanding bond loan, in order to be able to guarantee interest payments to its bondholders. If KFN Office Finance 1 BV is unable to pay its interest, this facility is drawn and compensation will be due equal to EURIBOR +50 bps.
Revolving Credit Facility
The € 200.0 million Revolving Credit Facility (RCF) is used to finance the investment property and the pipeline projects held by KFN Property II BV. Of this facility, € 135.0 million had been drawn at year-end 2006 (31/12/2005: € 85.0 million). The facility may be repaid at all times without penalties, and is included under Current Liabilities. The compensation for this facility is the 3-month EURIBOR rate +35 to 57.5 bps. The interest depends in part on the Loan to Value ratio. Pursuant to the loan agreement, the Loan to Value ratio may not exceed 50%, and the Interest Coverage Ratio (based on the consolidated figures of KFN Holding BV) must be at least 2.5. The ICR is calculated as follows: gross income minus taxes & insurance minus non-reimbursable VAT, divided by the interest costs. The amount committed under the RCF has been confirmed until October 2010; banks have the option to renew the credit by 5 years as per 2007. For economic purposes, the term of the CMBS ends in December 2011; however, KFN has the option to enlarge this facility until 2014. Spread on the interest rate will rise from 21 bps to 100 bps.
Available credit facilities at year-end (x € 1 million). 700,000
600,000
500,000
400,000
300,000
200,000
100,000
0 2006
2007
2008
2009
2010
2011
committed most likely scenario
consolidated annual accounts
85
Effective interest rates
At year-end 2006, the effective interest rate was 3.2% (2005: 3.3%). In 2006, the average interest rate was 3.4% (2005: 3.3%). The effective interest rate is calculated as follows: cumulative interest charge for the year divided by outstanding loans at year-end.
Financial covenants
At year-end 2006, the Loan to Value was 45.5% (2005: 41.7%). The ICR for the group on that date was 4.2 (2005: 4.2). The ICR is calculated as follows: net rental income minus management expenses divided by the interest expenses.
Derivative financial instruments
KFN uses Interest Rate Swaps (IRS) to cover its interest rate risks. As at 31 December 2006, IRS had been concluded with a notional value of € 360.0 million (2005: € 340.0 million).
counterparty long term nominal kfn pays kfn maturity rating amount receives s&p/fitch
abn amro
aa-/aa 90,000,000
3.366% 3m-euribor
17/12/2011
3.10
- 1.15
abn amro
aa-/aa 70,000,000
3.295% 3m-euribor
17/12/2011
2.60
- 0.60
abn amro
aa-/aa 20,000,000
3.160% 3m-euribor
17/12/2010
0.70
- 0.10
nib capital
a-/a 90,000,000
3.366% 3m-euribor
17/12/2011
3.10
-1.15
nib capital
a-/a 70,000,000
3.295% 3m-euribor
17/12/2011
2.60
-0.60
lloyds tsb
aa+ 20,000,000
3.290% 3m-euribor 24/10/2012
0.90
-
abn amro (btb)
aa-/aa 450,000,000 3m-euribor
3.833%
17/12/2011
15.85
-10.20
abn amro (btb)
3.850% 3m-euribor
17/12/2011
-15.85
10.20
Total
aa-/aa 450,000,000
13.00
-3.60
At year-end 2006, the average term of the swaps was 5.0 years. Under these swap contracts, KFN pays an average of 3.32% in fixed interest and receives variable interest based on the 3-month EURIBOR rate. The fair value of the derivative financial instruments adds up to € 13.0 million (2005: - € 3.6 million).
Back to back swap (BTB)
Under the CMBS bond issued by KFN Office Finance I BV, KFN Holding BV entered into a swap contract ending 2011 with a solid financial institution. Under the terms of that contract, KFN Holding BV pays a floating interest of 3-month EURIBOR plus 21 bps, and receives a fixed interest of 3.83%. KFN Office Finance I BV also entered into a swap contract ending 2011 with a solid financial institution. Under the terms of this contract, KFN Office Finance I BV pays a fixed interest of 3.85% and receives floating interest of 3-month EURIBOR plus 21 bps. This contract cannot be netted against the value of the derivative financial instruments of KFN Holding, as KFN Holding does not have the legal enforceable right to offset this item.
86
market market value value 31/12/2006 31/12/2005 (x € 1 mln) (x € 1 mln)
kfn annual report 2006
Fair value of the loans
The RCF is valued at its market value, as this loan is concluded in line with current market standard, no movements of the value noted. The CMBS is valued at market value, using market data from Bloomberg. Since its listing, there has not been any significant trading in these securities. The fair value of the loans is € 585.0 million (2005: € 535.0 million).
Risk Ratios
If the interest rate rises by 100 base points, the market value of the interest-bearing debts, including the IRS, will rise by 3.9% (2005: 5.08%) (modified duration). If the interest on the loans rises by 100 base points compared with the current coupon rate on the first review date in 2007, this will have a negative impact of € 2.0 million on the results (2005: € 1.6 million). The average interest representative term was 38 months (2005: 47 months).
15.1 Interest-bearing loans and borrowings
2006
2005
450.0
450.0
Long-term loans
Deferred financing costs
-4.4
-5.2
Total
445.6
444.8
2006
2005
135.0
85.0
Total
135.0
85.0
derivative financial instruments
total
15.2 Interest-bearing loans and borrowings Short-term loans
16 financial liabilities
1 January 2005
-1.3
-1.3
Movements
15.1
15.1
31 December 2005
13.8
13.8
Movements
2.1
2.1
31 December 2006
15.9
15.9
consolidated annual accounts
87
17 provisions provision other for reorga- provisions nisation
total
1 January 2005 Allocation
Withdrawal
31 December 2005
0.7 -0.7 -
0.5
1.2
0.5
0.5
-0.2
-0.9
0.8
0.8
Allocation
0.3
0.3
Withdrawal
-0.1
-0.1
-
1.0
1.0
31 December 2006
The provisions include a long-term rental guarantee relating to the sale of an office building, a tax-claim relating to changes in a ground rent contract, as well as a tax-claim regarding the renovation of an office building.
18 other liabilities
2006
2005
Deferred income
12.9
13.7
Shareholder
0.4
Accrued expenses
8.3
Accrued investment commitments
1.8
3.9
Trade payables
1.2
2.7
Pension premiums
0.2
0.4
Other current liabilities
0.7
0.2
Non-refundable VAT on property investments
0.7
0.3
Total
26.2
30.6
Other liabilities are interest-free and have settlement dates within one year.
88
- 9.4
kfn annual report 2006
19 gross rental income For segment reporting and a detailed presentation of gross rental income per area, please refer to note 6.
Future rental income
As at 31 December, the future aggregate minimum rental income receivable under non-cancellable rental agreements is as follows:
2006
2005
12.6
12.4
Within 1 year
1-5 years
52.5
43.1
> 5 years
26.1
29.3
Total
91.2
84.8
Summary of lease terms
In general, parties are free to agree to any terms relating to the leasing of property.
General lease law
If a tenant breaches any of its obligations under a lease agreement (including a failure to pay rent), the landlord may not terminate or dissolve that lease agreement without permission of the Dutch courts. However, if the leased space is completely destroyed, the lease can be dissolved by either party. If the leased space is only partially destroyed, a tenant has the option to dissolve the lease agreement or claim a reduction of the rent.
Office space
There are no statutory minimum terms for the lease of office space, nor are there any regulations relating to the amount of rent payable or to rent reviews. However, the Rent Act (as contained in the Netherlands Civil Code) does contain mandatory provisions with regard to eviction protection at the end of the lease term.
The occupational leases
Most occupational tenants under each of the existing occupational leases are prohibited from assigning their rights in respect of the relevant occupational lease without KFNâ&#x20AC;&#x2122;s consent.
2006
2005
Number of contracts
804
693
Number of tenants
629
551
Average contract term
3.9 years
4.2 years
consolidated annual accounts
89
20 property operating expenses
2006
2005
Maintenance
5.2
4.9
Fixed costs
3.7
3.4
Tenants improvements
3.3
1.5
Property management
1.7
1.7
Letting costs
1.5
1.0
Other costs
2.3
1.8
Service charges vacancy
1.5
1.7
Result from impairment on trade receivables
0.2
0.2
Total
19.4
16.2
2006
2005
21 management expenses Salaries
3.0
3.6
Social security premiums
0.3
0.4
Pension charges
0.4
0.6
Other short-term employee benefits
1.0
0.9
Other general expenses
2.5
2.4
Total
7.2
7.9
At year-end 2006, KFN, not including its joint ventures, employed 46.0 FTEs (2005: 41.7). The joint ventures in which KFN participates employed 8.2 FTEs (2005: 9.8).
22 finance cost
2006
2005
22.2
18.3
Interest expense
90
Interest income
-5.6
-1.0
Capitalised interest
-2.6
-1.0
Amortisation of deferred financing costs
0.8
0.5
Total
14.8
16.8
kfn annual report 2006
23 earnings per share Basic earnings per share are calculated by dividing the net profit attributable to shareholders by the weighted average number of ordinary shares outstanding during the year.
2006
2005
Net profit attributable to shareholders (x € 1 million)
87.4
63.4
Weighted number of shares issued (x 1,000)
20,049
20,049
4.36
Basic earnings per share (€ )
3.16
The company has no dilutive potential ordinary shares. This means that the diluted earnings per share are equal to the basic earnings per share.
24 dividend per share The dividends paid in 2006 and 2005 totalled € 50.0 million (€ 2.49 per share) and € 25.0 million (€ 1.25 per share) respectively. A dividend in respect of 2006 of € 2.62 per share, amounting to a total dividend distribution of € 52.5 million, is to be proposed at the 2007 Annual General Meeting. These Annual Accounts do not reflect this dividend.
25 contingencies 25.1 Security
In connection with the CMBS transaction, KFN Holding BV has pledged its shares of KFN Property I BV as security for: - the bonds issued by KFN Office Finance I BV; - KFN Property I BV’s commitments under the Secured Loan Agreement; - any property transfer tax payable by KFN Property I BV until December 2007 as a result of the restructuring operation. The pledge will be exercised if KFN Property I BV defaults under the secured loan agreement. From such a time on, the Security Trustee may issue binding instructions to the management of KFN Property I BV, up to and including the dismissal of the Management Board and the transfer of the shareholders’ rights to the pledgee. Until the voting rights are transferred to the pledgee, KFN Holding BV retains all rights to the shares in KFN Property I BV.
consolidated annual accounts
91
25.2 Mortgage rights
All buildings held by KFN Property I BV are subject to mortgage security. The total value of these mortgages is € 848.2 million (2005: € 874.6 million).
25.3 Fiscal unities
KFN Property II BV is included in a fiscal unity for corporate income tax with KFN Holding BV. KFN Property I BV, WTC Utrecht BV, Beheermaatschappij WTC Amsterdam BV and KFN Office Finance I BV are each independently liable to pay corporate income tax. KFN Holding BV, KFN Property I BV, KFN Property II BV and WTC Utrecht BV are included in a VAT group.
25.4 Statements of liability
KFN Holding BV has issued a statement within the meaning of Section 403, Book 2 of the Netherlands Civil Code in respect of KFN Property II BV.
25.5 Leasehold
An annual amount of € 0.8 million (2005: € 0.8 million) is due for ground rent contracts. These contracts have durations of more than five years. The first revision is in the year 2020.
26 commitments As at 31 December 2006, the commitments relating to pipe-line projects totalled € 144.2 million (2005: € 99.0 million). These projects will be finished by year-end 2009 at the latest.
92
kfn annual report 2006
27 related party transactions
Identity of related parties
The group has related party relationships with its subsidiaries and joint ventures (see note 1), its key personnel and its shareholder.
Transactions with key personnel
KFN’s key personnel can be divided in two groups: Supervisory Board and Management Board. The key management personnel compensations are as follows: (x € 1,000)
2006
2005
Short-term employee benefits
673
1,169
Post-employment benefits
71
156
744
1,325
2006
2005
664
1,245
Total remuneration is included in management expenses (see note 21): (x € 1,000) Management Board
Supervisory Board
80
80
744
1,325
Transactions with shareholder
Of KFN’s total rental income, € 1.7 million (2005: € 1.5 million) comes from rental agreements with Stichting Pensioenfonds ABP. These rental agreements were made at arm’s length.
consolidated annual accounts
93
company annual accounts
index to the company annual accounts Company balance sheet
98
Company income statement
99
Company statement of changes in equity
100
Notes to the company Annual Accounts
101
1
General information
101
2
Summary of significant accounting policies
101
3
Subsidiaries
102
4
Derivative financial instruments
102
5
Receivables
103
6
Shareholdersâ&#x20AC;&#x2122; equity
104
7
Derivative financial instruments
105
8
Other liabilities
105
9
Net profit
105
10
Employees
105
11
Related party transactions
106
12
Contingencies
106
company annual accounts
97
company annual accounts
index to the company annual accounts Company balance sheet
98
Company income statement
99
Company statement of changes in equity
100
Notes to the company Annual Accounts
101
1
General information
101
2
Summary of significant accounting policies
101
3
Subsidiaries
102
4
Derivative financial instruments
102
5
Receivables
103
6
Shareholdersâ&#x20AC;&#x2122; equity
104
7
Derivative financial instruments
105
8
Other liabilities
105
9
Net profit
105
10
Employees
105
11
Related party transactions
106
12
Contingencies
106
company annual accounts
97
company balance sheet as at 31 december Before proposed appropriation of profit (x â&#x201A;Ź 1 million)
notes
2006
2005
assets
Non-current assets
Financial fixed assets
Subsidiaries
3
814.3
763.5
Derivative financial instruments
4
13.0
10.2
827.3
773.7
Non-current assets
827.3
773.7
Financial fixed assets
Current assets
Receivables
5
8.9
16.1
Cash and cash equivalents
3.5
2.4
Current assets
12.4
18.5
839.7
792.2
91.0
91.0
Assets
equity & liabilities
Equity
Share capital
Share premium reserve
299.8
299.8
Retained earnings
288.2
253.2
Legal reserve subsidiaries
137.5
134.4
Legal reserve derivative financial instruments
-
10.2
Shareholdersâ&#x20AC;&#x2122; equity
6
816.5
788.6
7
15.9
3.6
Non-current liabilities
15.9
3.6
Non-current liabilities
Derivative financial instruments
Current liabilities
Other liabilities
8
7.3
-
Current liabilities
7.3
-
23.2
3.6
Liabilities
Equity & Liabilities
98
kfn annual report 2006
839.7
792.2
company income statement year ended 31 december (x € 1 million)
notes 2006 2005 Other income and expenses after tax
-7.9
8.4
Result of subsidiaries after tax
85.8
60.3
Net profit after tax
9
77.9
68.7
77.9
68.7
3.89
3.43
Attributable to: equity holders of the company
Basic and diluted earnings per share (x € 1)
company annual accounts
99
company statement of changes in equity (x € 1 million) company equity share share retained legal legal total capital premium earnings reserve reserve reserve subsidiaries derivative financial instruments
1 January 2005
91.0
299.8
220.8
57.4
132.0
1.3
744.9
2.4
8.9
68.7
Net profit 2005
Dividend 2004
-25.0
-25.0
31 December 2005
91.0
299.8
253.2
134.4
10.2
788.6
Net profit 2006
85.0
3.1
-10.2
77.9
Dividend 2005
-50.0
-50.0
31 December 2006
91.0
299.8
288.2
137.5
-
816.5
comparison company vs. consolidated share share retained hedge legal legal total shareholders’ equity capital premium earnings reserve reserve reserve reserve subsidiaries derivative financial instruments Consolidated equity 31 December 2005 91.0 299.8 391.2 -3.6 - - 778.4 Unrealised gain Back to Back Swap
10.2
Legal reserve subsidiaries
-134.4
134.4
Different treatment of derivative financial instruments
-3.6
3.6
Company equity 31 December 2005
91.0
299.8
253.2
-
Consolidated equity 31 December 2006
91.0
299.8
428.6
13.0
134.4
10.2 -
832.4
-15.9
-15.9
-137.5
137.5
Difference in treatment of derivative financial instruments
13.0
-13.0
Company equity 31 December 2006
91.0
299.8
288.2
-
-
-
816.5
kfn annual report 2006
137.5
Please refer to note 6 for further details on shareholders’ equity.
100
- 788.6
Legal reserve subsidiaries
-
-
Unrealised loss Back to Back Swap
-
10.2
notes to the company annual accounts 1
general information Policies for the preparation of the company Annual Accounts
The company Annual Accounts of KFN Holding BV are prepared in accordance with the provisions of Title 9, Book 2 of the Netherlands Civil Code. In this connection, the company opted to apply to its company Annual Accounts the accounting policies and determination of profit and loss (including the principles for the presentation of financial instruments as debt or equity capital) as used in the consolidated Annual Accounts, which option is provided for under Section 362 (8), Book 2 of the Netherlands Civil Code. In view of the fact that the 2006 Income Statement of KFN Holding BV is included in KFNâ&#x20AC;&#x2122;s consolidated Annual Accounts, an Income Statement is presented in accordance with Section 402, Book 2 Title 9 of the Netherlands Civil Code.
2
summary of significant accounting policies KFN has chosen, in conformity with Section 362, Book 2 of the Netherlands Civil Code, to use the accounting policies of the consolidated Annual Report in this company report.
Subsidiaries
Companies, including special purpose entities, qualify as subsidiaries if they are controlled1
Control exists when the
1
by the company. Subsidiaries are stated at net asset value. That value is determined by
company has the power,
valuating the assets, provisions and debts and calculating the result according to the
directly or indirectly, to
accounting policies adopted in the consolidated Annual Accounts.
govern the financial and operating policies of an
The first-time recognition of subsidiaries in the Annual Accounts is effected at acquisition
entity so as to obtain
price. The value of each subsidiary is then adjusted in proportion to the share of KFN Holding
benefits from its activities.
BV in the results of that subsidiary, on the basis of the accounting principles and determination of profit and loss as applied in the consolidated Annual Accounts, and in proportion to the share in other movements in the shareholdersâ&#x20AC;&#x2122; equity of that subsidiary that are attributable to KFN Holding BV after the date of the takeover. Subsidiaries: recognition of losses If the share in losses that is attributable to the company exceeds the book value of the subsidiary, further losses will not be recognised unless the company has provided security for the subsidiary or has assumed liabilities or made payments on the subsidiaryâ&#x20AC;&#x2122;s behalf. In that case the company will include a provision for such liabilities. Subsidiaries: recognition of unrealised results The profits from transactions between the company and its participating interests are eliminated in proportion to the level of the participating interest, insofar as those profits were
company annual accounts
101
not realised in transactions with third parties. Losses will not be eliminated if the transaction with a subsidiary points to an impairment of an asset. Unrealised revaluation results from the assets of subsidiaries are presented as follows: Positive revaluation results, to the extent that the cumulative revaluation of the object is positive, are added to the statutory reserve for subsidiaries. If the cumulative revaluation of an object is negative, the revaluation is added to retained earnings.
3
subsidiaries KFN Holding BV holds the following subsidiaries:
subsidiary registered ownership office KFN Property I BV
Utrecht
100%
KFN Property II BV
Utrecht
100%
kfn property i bv
kfn property ii bv
total
424.6
321.0
745.6
1 January 2005 Result 2005
37.2
23.1
60.3
Dividend
-42.4
-42.4
31 December 2005
419.4
344.1
763.5
48.5
37.3
85.8
Result 2006
Dividend
-35.0
31 December 2006
432.9
381.4
-35.0 814.3
It was ascertained that due to fiscal obligations, over 2005 KFN Property I BV was obliged to pay out a dividend of € 42.4 million to KFN Holding BV. In the original 2005 Annual Accounts, a dividend of € 40.3 million was presented. In these 2006 Annual Accounts, the 2005 figures are corrected. This correction concerns the 31-12-2005 value of KFN Property I BV with - € 2.1 million to € 419.4 million, as well as a correction in the 31-12-2005 balance of the group company receivables from € 3.4 million to € 5.5 million.
4
derivative financial instruments derivative total financial instruments 1 January 2005 Movements
102
-
10.2
10.2
31 December 2005
10.2
10.2
Movements
-
2.8
2.8
31 December 2006
13.0
13.0
kfn annual report 2006
KFN uses Interest Rate Swaps (IRS) to cover its interest rate risks. Due to the financing structure of KFN, as stated in the notes to the consolidated Annual Accounts, KFN Holding BV hedges 60-70% of the floating interest cash flows of its subsidiaries. KFN Office Finance I BV is not owned by KFN Holding BV, which means that from a company perspective the IRS are not considered hedge instruments. The fair values of the IRS are taken into account on an individual basis, therefore, and are taken to the profit and loss account directly, instead of through a hedge reserve. For unrealised gains and losses, a legal reserve is formed. The following IRS were contracted by KFN Holding BV: counterparty long term nominal kfn pays kfn maturity rating amount receives s&p/fitch
market market value value 31/12/2006 31/12/2005 (x € 1 mln) (x € 1 mln)
abn amro (btb)
aa-/aa 450,000,000
3.850% 3m-euribor
17/12/2011
-15.85
10.20
abn amro
aa-/aa 90,000,000
3.160% 3m-euribor
17/12/2011
3.10
-1.15
abn amro
aa-/aa 70,000,000
3.295% 3m-euribor
17/12/2011
2.60
-0.60
abn amro
aa-/aa 20,000,000
3.160% 3m-euribor
17/12/2010
0.70
-0.10
nib capital
a-/a 90,000,000
3.366% 3m-euribor
17/12/2011
3.10
-1.15
nib capital
a-/a 70,000,000
3.295% 3m-euribor
lloyds tsb
aa+ 20,000,000
17/12/2011
2.60
-0.60
3.290% 3m-euribor 24/12/2012
0.90
-
Total
13.00
-3.60
For more information regarding loans and IRS, please refer to note 3 to the consolidated Annual Accounts for the company’s financial risk management, to note 15 for loans and interest rate swaps, and to note 25 for securities.
5
receivables
Taxes and social security premiums
Group companies
Total
2006
2005
8.9
10.6
- 8.9
5.5 16.1
All receivables have settlement dates within one year.
company annual accounts
103
6
shareholders’ equity For a detailed explanatory note of the changes in shareholders’ equity, please refer to the company statement of changes in equity, as well as to KFN’s consolidated Annual Accounts. Issued and paid-up capital The authorised share capital amounts to € 227.0 million, consisting of 50 million shares with a face value of € 4.54 each. As at 31 December 2006, 20,048,725 shares had been issued and fully paid. Share premium reserve The share premium reserve is not tainted for Dutch tax purposes. Revaluation reserves Statutory reserves will be recognised for: 1. upward changes in the value of assets whose value movements are taken to the Income Statement and for which no frequent market prices are listed. This category includes property investments, non-listed securities and non-listed derivative financial instruments; 2. upward changes in the value of assets that are taken directly to the shareholders’ equity; 3. changes in the value of financial instruments that serve and effectively act as hedge instruments. Of these three value movements, the first and the third impact KFN’s company equity and consolidated group equity. In the determination of the revaluation reserves, no tax effects have been taken into account because the fiscal unities of KFN Holding BV and KFN Property I BV qualify as Fiscal Investment Institutions. Statutory reserves and reserves pursuant to the Articles of Association This item concerns the reserve for positive results from subsidiaries and direct equity movements at subsidiaries that cannot be freely distributed. The proposed dividend distribution as included in the other information has not been processed into the Annual Accounts.
104
kfn annual report 2006
7
derivative financial instruments For a detailed explanatory note on these derivative financial instruments, please refer to note 4. derivative total financial instruments 1 January 2005
1.3
1.3
Movements
2.3
2.3
31 December 2005
3.6
3.6
12.3
12.3
31 December 2006
15.9
15.9
2006
2005
Movements
8
9
other liabilities
Group companies
7.3
-
Total
7.3
-
net profit
2006
2005
Consolidated net profit
87.4
63.4
Result from derivative financial instruments
-9.5
5.3
Company net profit
77.9
68.7
The difference between consolidated and company net profit relates to derivative financial instruments. The difference is caused by the fact that certain interest rate swaps either qualify for hedge accounting on a consolidated level or interest rate swaps are not taken into account on a company level. Please refer to note 4 to the company Annual Accounts and note 15 to the consolidated Annual Accounts for detailed information on KFNâ&#x20AC;&#x2122;s derivative financial instruments.
10 employees In 2006, KFN Holding BV had 0 employees (2005: 0).
company annual accounts
105
11
related party transactions For a presentation of the related party transactions, please refer to note 27 to the consolidated Annual Accounts. The remunerations of the Management Board and Supervisory Board are also presented there.
12 contingencies For a detailed presentation of the contingencies and securities, please refer to note 25 to the consolidated Annual Accounts. Utrecht, 16 February 2007 Supervisory Board
Management Board
Frans Boons,
Paul Vismans,
Wim Borgdorff,
Frank Hendriksen.
Jelle Mensonides, Dick de Beus.
106
kfn annual report 2006
other information
proposal for profit distribution (x € 1 million)
2006
2005
Total net profit
77.9
68.7
Realised
85.0
57.4
Unrealised
-7.1
11.3
Addition to retained earnings
32.5
7.4
Addition to legal reserve subsidiaries
3.1
2.4
Addition to legal reserve derivative financial instruments
-10.2
8.9
Dividend
52.5
50.0
77.9
68.7
Dividend per share
2.62
2.49
Appropriation of profit
The profits are appropriated in accordance with the provisions laid down in Article 35 of the company’s Articles of Association, which is reproduced below. Article 35 35.1 Profits are distributed pursuant to the provisions of this Article after the adoption of the annual accounts showing that they are permitted. 35.2 The profits are at the disposal of the general meeting. In the event that the votes on a proposal to distribute or reserve any profits are equally divided, the profits to which the proposal pertains shall be reserved. 35.3 The company may only distribute profits to its shareholders and other parties entitled to shares in those profits insofar as its shareholders’ equity exceeds the amount of its issued capital plus the statutory reserves. 35.4 Deficits may only be offset against the statutory reserves if and insofar as is permitted by the law.
company annual accounts
107
To the General Meeting of Shareholders of KFN Holding B.V.
auditor‘s report
report on the annual accounts We have audited the accompanying Annual Accounts 2006
Accounts in order to design audit procedures that are appropriate
of KFN Holding B.V., Utrecht as set out on pages 61 to 107.
in the circumstances, but not for the purpose of expressing an
The Annual Accounts consist of the consolidated Annual
opinion on the effectiveness of the company’s internal control.
Accounts and the company Annual Accounts. The consolidated
An audit also includes evaluating the appropriateness of
Annual Accounts comprise the consolidated balance sheet as at
accounting policies used and the reasonableness of accounting
31 December 2006, the income statement, statement of changes
estimates made by the directors, as well as evaluating the overall
in equity and cash flow statement for the year then ended, and a
presentation of the Annual Accounts.
summary of significant accounting policies and other explanatory notes. The company Annual Accounts comprise the company
We believe that the audit evidence we have obtained is sufficient
balance sheet as at 31 December 2006, the company income
and appropriate to provide a basis for our audit opinion.
statement for the year then ended and the notes.
The directors’ responsibility
Opinion with respect to the consolidated Annual Accounts
The directors of the company are responsible for the preparation
In our opinion, the consolidated Annual Accounts give a true
and fair presentation of the Annual Accounts in accordance with
and fair view of the financial position of KFN Holding B.V. as at
International Financial Reporting Standards as adopted by the
31 December 2006, and of its result and its cash flows for the
European Union and with Part 9 of Book 2 of the Netherlands
year then ended in accordance with International Financial
Civil Code, and for the preparation of the management board
Reporting Standards as adopted by the European Union and
report in accordance with Part 9 of Book 2 of the Netherlands
with Part 9 of Book 2 of the Netherlands Civil Code.
Civil Code. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and
Opinion with respect to the company Annual Accounts
fair presentation of the Annual Accounts that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making
In our opinion, the company Annual Accounts give a true and
accounting estimates that are reasonable in the circumstances.
fair view of the financial position of KFN Holding B.V. as at 31 December 2006, and of its result in accordance with Part 9 of Book 2 of the Netherlands Civil Code.
Auditor’s responsibility Our responsibility is to express an opinion on the Annual Accounts based on our audit. We conducted our audit in accordance with Dutch law. This law requires that we comply
report on other legal and regulatory requirements
with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the Annual Accounts are
Pursuant to the legal requirement under 2:393 sub 5 part e
free from material misstatement.
of the Netherlands Civil Code, we report, to the extent of our competence, that the management board report is consistent
An audit involves performing procedures to obtain audit evidence
with the Annual Accounts as required by 2:391 sub 4 of the
about the amounts and disclosures in the Annual Accounts. The
Netherlands Civil Code.
procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the Annual
Amsterdam, 16 February 2007
Accounts, whether due to fraud or error. In making those risk
PricewaterhouseCoopers Accountants N.V.
assessments, the auditor considers internal control relevant to the
W.J.J. Verdegaal - Ong RA
company’s preparation and fair presentation of the Annual
108
kfn annual report 2006
annexes
advisors
Legal advisors Stibbe NautaDutilh De Brauw Blackstone Westbroek Houthoff Buruma
Accountants/auditor PricewaterhouseCoopers Accountants N.V.
Tax advisors PricewaterhouseCoopers Belastingadviseurs N.V. Stibbe
Property surveyors Boer Hartog Hooft DTZ Zadelhoff Jones Lang LaSalle
company annual accounts
109
list of definitions
source: epra, ifrs, keeris, kfn AAA rating
Fair value of property
Degree of creditworthiness, assessed by rating agencies (e.g.
The estimated amount for which a property should exchange on
Standard & Poorâ&#x20AC;&#x2122;s and Fitch Ratings). The AAA rating indicates
the date of valuation between a willing buyer and a willing seller
the highest possible degree of creditworthiness.
in an armâ&#x20AC;&#x2122;s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without
Benchmark
compulsion.
The generally accepted market reference value for the corres ponding goods or services to be provided, based on the weighted
Financial vacancy
average of registered goods or services for more or less similar
The total loss of income from lease of the part of the property
objects from similar investment categories and under more or less
object concerned that is immediately available for lease during
similar market circumstances.
the financial year in question, as a result of the absence of tenancy agreements. The amount is based on the prevailing market rent
Bridge facility
during the vacancy period and is calculated proportionally to the
Temporary bridging credit facility generally used to simplify
duration of the vacancy.
transitions from old credit facilities to new credit facilities.
Free market
CMBS (Commercial Mortgage Backed Securities)
The lease and purchase market in which property developers,
The term used to describe publicly listed bonds, such as mortgage
construction firms and investors offer spaces to users who are
pledges on property that are listed on the securities exchange.
generally not known in advance.
Contractually agreed rent
Gross floor area
The rent as agreed when the rental contract concerned was
The area of a space or of multiple connected spaces in a property
concluded and which is stipulated as such in the rental contract,
object, measured (NEN 2580) at floor level along the outside
which applies from the effective date of the agreed lease period
circumference of the outer vertical divisions enclosing the space
until the agreed moment of the first rent increase.
or spaces concerned.
COSO
Gross initial return
An internal control model that is intended to control material
The gross annual rent at the time of purchase, expressed as a
business risks. The model was designed by the Committee of
percentage of the total purchase price, inclusive of acquisition
Sponsoring Organisations of the Treadway Commission.
costs and property transfer tax.
Current (gross) rent
Gross market rent value
The prevailing gross annual rent for the entire property object as
The term used to describe the annual rent agreed for a particular
of the appraisal date of the financial year concerned, exclusive of
property object which could be realised in the market at a given
VAT and service charges, taking any unleased space into account
moment in time according to a statement from the property
at market rent value.
surveyor, based on optimum marketing, a lively market and lease to the highest-bidding prospect, exclusive of VAT and the share in
Direct result
the service charges. The gross market rent value applies only to
The result built up in the period concerned based on the
leased spaces and object-related facilities, and does not include
operation of a property or a property portfolio.
such rent for parking spaces.
EURIBOR The acronym for European Inter Bank Offered Rate.
110
kfn annual report 2006
Gross rental income
Lettable floor area / rentable floor area
The total amount of gross rent invoiced during the financial year
The gross floor area, less area used for construction, vertical
in question, exclusive of VAT, and adjusted for any other cost
circulation space and plant rooms.
elements included in the rent and other costs charged, such as service charges or advances, interest and rent concessions
Like-for-like
granted, but inclusive of the rent for any parking spaces leased,
Comparable information relating to elements which existed for
plus the notional rental income attributed to the unleased spaces,
the whole of the current and prior year.
based on their market rent values. Market rent IFRS
The estimated rent that would be reasonably achievable for a
The abbreviation of International Financial Reporting Standards.
certain space type in the open market.
Indirect result
Net rental income
The assumed market value development of a property or
Gross rental income less expenses directly related to letting and
property portfolio (or the capital invested in it) during the period
holding the properties.
concerned. Net initial yield Initial vacancy
The net annual rent at the time of the purchase, expressed as a
The financial vacancy resulting exclusively from the completion
percentage of the total purchase price inclusive of acquisition
of new development or renovation, until the end of the first
costs and property transfer tax.
(following) full year that the premises are under operation. The ROZ/IPD-property index applies a total period of at most
No additional costs payable by the purchaser
two years.
Phrase used to indicate that the seller of a property bears all additional costs attached to a particular transaction, so that the
Internal Rate of Return (IRR)
purchaser receives the object concerned at the agreed purchase
The IRR is the discount rate to be applied, where the invested or
price, i.e. without any further commitments.
appraised value of the property object equals the discounted value of the cash flows from the operation of that property
Passing rent
object.
The annual gross rental income as per a certain date, excluding the net effects of straight-lining for lease incentives.
Investment properties Investment property is property (land or a building - or part of a
Pipeline projects
building - or both) held (by the owner or by the lessee, under a
Property in preparation for the purpose of inclusion in investment
finance lease) to earn rentals or for capital appreciation or both,
property at completion.
rather than for: - use in the production or supply of goods or services or for
Pre-let
administrative purposes; or
A lease signed with a tenant prior to completion of a
- sale in the ordinary course of business.
development.
Lease incentives
Property expenses
Any consideration leading to a reduction in income (e.g. rent-free
The expenses directly relating to a property over a certain period
periods) or expenses in order to secure a lease.
of time for the account of the landlord, including service charges not recoverable because of vacancy.
111
Purchase costs payable by the purchaser
investments. The index covers property investments held in the
The phrase used to indicate that the purchaser of a property
portfolio for the whole year.
object bears all additional costs attached to a particular transaction, so that upon transfer of the object concerned the
Securitisation
seller is paid, on balance, the agreed purchase price. For the
A financing technique where the income stream of an asset is
purposes of the ROZ/IPD property index, these costs are
used to service the interest and principal repayments on the
calculated as 7% of the purchase price.
relevant debt instruments.
Rent-free period/rent reduction
Service charges
The period within the term of a rental agreement during which
The amounts paid or prepaid by the landlord relating to lettable
the landlord grants the tenant exemption from the contractually
space for which it has been agreed in the lease that the landlord
agreed rent as a rent incentive.
will recover these from the tenants periodically.
Return on Equity (ROE)
Supply
The term used to denote the figure representing the annual ratio
Buildings in which at least 500 square metres of office space are
between the net profits realised and the total shareholdersâ&#x20AC;&#x2122;
offered for sale or rent. The supply is measured at the end of the
equity.
calendar year and comprises only offices already completed and/ or still under construction.
Reversionary potential The market rent value in relation to the current (average) rent as
Tenant investments
of the expiry date, or as of the date of the rent review for the
The refurbishment expenses incurred to let or relet vacant space,
agreement concerned, used to calculate positive developments in
to let or relet space becoming vacant at the expiry date of a lease,
that rent.
or to renew a lease.
Reversionary yield
Theoretical rent
Estimated rental value divided by cost of acquisition (including all
Gross rental income plus the estimated rental value (ERV) applied
transaction costs).
to vacant space (voids) over the reporting period.
Reversion
Theoretical gross rental income
The estimated change in rent at review.
Total gross rental income plus the market rent of unleased spaces that are available for rent, plus the rent-free periods/rent
Revolving Credit Facility
discounts, valued at market rent.
An available line of credit with a definite term. During that term, the amount agreed may be withdrawn.
Treasury management All activities connected to managing the funds received, cash
Risk mark-up
assets and liquid means in order to reduce the costs of monetary
The minimum premium required on top of the return to be
transactions, increase the total return and limit the risks.
realised on long-term (10-year) government bonds, by way of compensation for the notional increased risk incurred on the
Weighted Average Cost of Capital (WACC)
investment in the property object or portfolio concerned.
A concept used to indicate the realised or required return on equity.
ROZ/IPD-property index An annual property index compiled by the Investment Property Databank (IPD) under the auspices of the Dutch Council for Real Estate (ROZ), recording the total returns on direct property
112
kfn annual report 2006
property portfolio overview 2006
crystal tower, amsterdam
einstein, amsterdam
wtc amsterdam, amsterdam
wtc e-tower, amsterdam
de vijzel, amsterdam
rivium quadrant, capelle a/d ijssel
trias, rotterdam
mirage, rotterdam
gemini, rotterdam
weena building, rotterdam
bologna, zoetermeer
park rijnhuysen, nieuwegein
jaarbeursplein, utrecht
smakkelaarsburcht, utrecht
zonnebaan, utrecht
claudius prinsen, breda
hagepoint, breda
westerhagelaan ii, breda
pettelaarpark, den bosch
rompertsebaan, den bosch
flight forum, eindhoven
hurkestraat, eindhoven
flight forum i, eindhoven
de parmentier, eindhoven
vonderweg, eindhoven
stationstraat, heerlen
la fortezza, maastricht
il fiore, maastricht
avenue ceramique 300-1, maastricht
markt, maastricht
t-point, hoofddorp
transpolis, hoofddorp
transpolis, hoofddorp
wtc schiphol airport, schiphol
braingate, capelle a/d ijssel
200 weena, rotterdam
weenatower, rotterdam
churchillhof, rijswijk
canberra, zoetermeer
zaragossa, zoetermeer
mercurius, amersfoort
quinterium offices, gouda
mercator, gouda
de wing, arnhem
wiarda, arnhem
heijmans i, rosmalen
heijmans ii, rosmalen
beemdstraat, eindhoven
beukenlaan, eindhoven
boschdijkveste, eindhoven
eendrachtskade, groningen
martini trade park, groningen
paterswoldseweg, groningen
lindestaete, heerlen
heerlen veste, heerlen
randwijck, maastricht
zwolse poort, zwolle
la voie, zwolle
da vinci, zwolle
la vitesse, zwolle
property portfolio 31-12-2006 area place property
property i bv or property ii bv
amsterdam region North-West
Amsterdam
Orlyplein 10, Crystal Tower *
I
North-West
Amsterdam
Kabelweg 21, Einstein*
II
North-West
Amsterdam
Strawinskylaan 1-1755, WTC A'dam (50%) *
II
North-West
Amsterdam
Beethovenstraat 300, WTC A'dam E-Tower (50%) *
II
North-West
Amsterdam
Strawinskyl, 1999/Zuidpl,10-218, WTC A'dam Zuidpl, (50%)*
II
North-West
Amsterdam
Vijzelstraat 20, De Vijzel *
I
North-West
Hoofddorp
Kruisweg 563, T-point II
II
North-West
Hoofddorp
Kruisweg 567-573, T-point I
II
North-West
Hoofddorp
Polaris Avenue 1-101, Transpolis Schiphol Airport
I
North-West
Hoofddorp
Siriusdreef 1-15, Transpolis Penta paviljoen
I
North-West
Hoofddorp
Siriusdreef 17-27, Transpolis Tetra paviljoen
I
North-West
Schiphol
Schiphol Boulevard 105-699, WTC Schiphol Airport *
I
South
Capelle a/d IJssel
Rivium Boulevard 301-319, Braingate
I
South
Capelle a/d IJssel
Rivium Eerste Straat 1-9
I
South
Capelle a/d IJssel
Rivium Quadrant 122
I
South
Rotterdam
K.P. v/d Mandelelaan 90, Trias I
I
South
Rotterdam
K.P. v/d Mandelelaan 100, Trias II
I
South
Rotterdam
K.P. v/d Mandelelaan 110, Trias III
I
South
Rotterdam
K.P. v/d Mandelelaan 130-144, Mirage
I
South
Rotterdam
K.P. v/d Mandelelaan 64-78, Gemini
II
South
Rotterdam
Weena 106-178, Weena Building
II
South
Rotterdam
Weena 200-342, 200 Weena
I
South
Rotterdam
Weena 325-355, Weena Tower
I
North-West
The Hague
Anna van Saksenlaan 28-30, Lombok *
I
North-West
The Hague
Fluwelen Burgwal 56, MCMX Office
I
North-West
The Hague
Fluwelen Burgwal 58, Sirius
I
North-West
The Hague
Kalvermarkt 53/Turfmarkt 28, Forum *
I
North-West
The Hague
Turfmarkt 104, Orion
I
North-West
Rijswijk
Sir Winston Churchilllaan 295, Churchillhof
I
North-West
Zoetermeer
Baron de Coubertinlaan 1-9, Canberra
I
North-West
Zoetermeer
Albert Einsteinlaan 50, Zaragossa
I
North-West
Zoetermeer
Louis Braillelaan 80, Bologna
I
North-West
Nieuwegein
Edisonbaan 14b-14c, Park Rhijnhuysen VII en VIII
I
North-West
Nieuwegein
Edisonbaan 14e, Park Rhijnhuysen II
I
North-West
Nieuwegein
Edisonbaan 14d, Park Rhijnhuysen I
I
North-West
Nieuwegein
Edisonbaan 14f, Park Rhijnhuysen III
I
North-West
Utrecht
Jaarbeursplein 15, Leeuwensteyn *
I
North-West
Utrecht
Jaarbeursplein 17-19, Cranenborch *
I
North-West
Utrecht
Jaarbeursplein 22, van Sypesteyn *
I
North-West
Utrecht
Leidseveer 2-10, Smakkelaarsburcht
I
North-West
Utrecht
Zonnebaan 9-21
I
rotterdam region
the hague region
utrecht region
other urban centres within randstad North-West
Amersfoort
Displayweg 2, Heilijgers
II
North-West
Amersfoort
Displayweg 6-24, Mercurius
I
South-West
Gouda
Kampenringweg 45a-45b, Quinterium Offices I & II
I
South-West
Gouda
Kampenringweg 45c, Quinterium Offices III
I
South-West
Gouda
Kampenringweg 45d-45e, Quinterium Offices IV & V
I
South-West
Gouda
Tielweg 26, Mercator I
I
South-West
Gouda
Tielweg 28, Mercator II
I
South-West
Gouda
Tielweg 30, Mercator III
I
* Leasehold
116
kfn annual report 2006
year of year of number type of office offices (m2 nra) construction acquisition of tenants location or renovation 2002
2000
10
1983
1995
-
‘85,’02/’02
‘95/’00
230
other property (m2 nra)
parking places (no.)
theoretical annual rent (x € 1,000)
occupancy rate (% m2)
office district
20,355
214
4,282
industrial park
13,963
345
-
99% Sold
office district
32,237
4,713
452
10,978
78% 100%
2002
2000
7
office district
5,631
-
1,761
‘03-’04
2001
37
office district
18,705
1,073
148
6,789
95%
2001
1999
3
centre
-
1,040
100%
1987
1998
-
industrial park
1,480
45
-
Sold
1988
1995
-
industrial park
1,640
31
-
Sold
1992
1995
31
office district
18,190
415
3,816
84%
1992
1995
-
office district
2,872
74
-
Sold
1992
1995
-
office district
2,411
62
-
Sold
1996
1995
97
office district
26,221
3,049
14,481
62%
2003
2000
5
office district
15,941
352
2,717
47%
1999
1999
-
office district
1,750
21
-
Sold
1999
1999
-
office district
1,750
17
-
Sold
1990
1995
2
office district
2,208
44
375
100%
1990
1995
3
office district
2,235
58
377
100%
1990
1995
5
office district
2,235
58
409
100%
1990
1995
0
office district
2,553
71
448
0%
1989
1995
5
office district
2,482
56
416
100%
1969/’83
1995
20
centre
13,237
4,811
500
3,578
99%
1993
1995
23
centre
16,038
1,439
-
2,882
92%
1990
1995
2
centre
10,521
-
1,700
86%
2001
2000
1
office district
2,865
32
558
100%
1999
1997
1
centre
865
-
155
100%
2001
1997
1
centre
3,891
-
741
100%
1994
1995
5
centre
9,015
154
-
1,538
100%
1999
1997
1
centre
2,682
-
530
100%
2001
2000
3
office district
4,222
48
684
100%
1999
1998
2
office district
2,617
50
399
100%
2002
2001
1
office district
5,158
89
852
100%
2001
2000
9
office district
11,190
210
1,691
90%
2001
2000
3
office district
5,204
137
788
100%
2001
1999
1
office district
1,531
36
788
100%
2001
1999
2
office district
1,360
41
204
100%
2001
1999
1
office district
1,368
32
187
100%
1967/’83
1995
6
centre
7,381
-
1,106
100%
1967/’83
1995
7
centre
8,518
-
1,339
98%
1967/’83
1995
2
centre
8,330
-
1,241
100%
1981/’02
1995
1
centre
12,105
139
2,114
100%
2000
2000
4
industrial park
8,242
263
1,324
100%
1995
2005
1
office district
2,363
62
294
100%
1999
1998
1
office district
3,055
74
457
100%
2003
1999
3
office district
7,873
159
1,380
100%
2002-’03
1999
1
office district
2,675
54
455
100%
2003
1999
2
office district
6,041
122
1,044
100%
2000
1999
1
office district
2,464
60
403
100%
2000
1999
1
office district
2,237
52
361
100%
2000
1999
3
office district
1,571
38
247
86%
117
area place property
property i bv or property ii bv
urban centres adjacent to randstad South
Arnhem
Mr. E.N. van Kleffensstraat 12, De Wing
I
South
Arnhem
Velperweg 27, Wiarda
II
South
Breda
Claudius Prinsenlaan 128-138
I
South
Breda
Hoge Mosten 8-14
I
South
Breda
Hoge Mosten 16-24
I
South
Breda
Westbroek 39-51, HagePoint
I
South
Den Bosch
Pettelaarpark 111-117
I
South
Den Bosch
Rompertsebaan 60-64
I
South
Rosmalen
Graafsebaan 65, Headoffice Heijmans I
II
South
Rosmalen
Graafsebaan 67, Headoffice Heijmans II
II
South
Eindhoven
Beemdstraat 36-40, Beemdstraat III
I
South
Eindhoven
Beemdstraat 42-46, Beemdstraat II
I
South
Eindhoven
Beemdstraat 48-52, Beemdstraat I
I
South
Eindhoven
Beukenlaan 40-50
I
South
Eindhoven
Boschdijk 131-139/Zernikestraat 1-15, Boschdijkveste
I
South
Eindhoven
Flight Forum 840
I
South
Eindhoven
Flight Forum 1
I
South
Eindhoven
Hurksestraat 29-51
I
South
Eindhoven
Luchthavenweg 99, De Parmentier
I
South
Eindhoven
Vonderweg 12-14
II
North-West
Groningen
Eendrachtskade zuid zijde 2
II
North-West
Groningen
Leonard Springerlaan 31
I
North-West
Groningen
Paterswoldseweg 806
I
South
Heerlen
Burgemeester de Hesselleplein 31, Lindestaete
I
South
Heerlen
Schinkelstraat 13
II
South
Heerlen
Honigmanstraat 65/Stationstraat 39, Heerlen Veste
I
South
Heerlen
Stationstraat 45-50
I
South
Maastricht
Avenue Céramique 1-7, La Fortezza (Noordblok)
I
South
Maastricht
Avenue Céramique 27-33, La Fortezza (Zuidblok)
I
South
Maastricht
Avenue Céramique 201-245/Renier Nafzgerstr, 100/104, Il Fiore
I
South
Maastricht
Avenue Céramique 300-II
I
South
Maastricht
Avenue Céramique 300-I
I
South
Maastricht
Franciscus Romanusweg 2
II
South
Maastricht
Markt 27, 28/Batterijstraat 47-49
II
South
Maastricht
Robert Schumandomein 2-4
I
North-West
Zwolle
Burgemeester Roelenweg 11
I
North-West
Zwolle
Hanzeplein 11-27, La Voie
I
North-West
Zwolle
Noordzeelaan 40-48, Da Vinci
I
North-West
Zwolle
Zuiderzeelaan 33, La Vitesse
I
North-West
Amersfoort
Brouwersstraat 4, Brouwershof
II
North-West
Amsterdam
Oosterdokseiland kavel 4B, Hollandia
II
South
Rotterdam
Fascinatio Boulevard Brainpark III, KPMG
II
North-West
The Hague
‘s Gravendeel, CBS
II
South
Heerlen
Stadspark Oranje Nassau, CBS Heerlen
II
other
pipeline projects
* Leasehold
118
kfn annual report 2006
year of year of number type of office offices (m2 nra) construction acquisition of tenants location or renovation
other property (m2 nra)
parking places (no.)
theoretical annual rent (x â&#x201A;Ź 1,000)
occupancy rate (% m2)
1999
1998
2
office district
3,100
63
385
1988
1995
-
office district
5,006
86
-
18% Sold
1991
1996
8
office district
4,495
141
667
70%
2000
1999
2
office district
1,816
24
275
100%
2001
2000
3
office district
2,510
25
368
80%
2002
2000
4
office district
6,355
139
954
93%
1992
1997
5
office district
5,384
115
825
100%
1999
1998
-
residential area
882
23
-
Sold
2004
2001
1
residential area
10,229
240
1,998
100%
2004
2001
1
residential area
8,209
200
1,515
100%
1999
1998
3
industrial park
1,457
41
203
100%
1999
1998
1
industrial park
1,455
49
209
100%
1999
1998
4
industrial park
2,308
77
329
100%
2001
2000
5
office district
3,777
76
543
100%
1989
1995
-
office district
4,457
80
-
Sold
2003
2001
1
office district
10,299
92
1,635
100%
2003
2001
4
office district
10,969
101
1,715
100%
1998
1998
5
industrial park
4,433
112
662
100%
2000
2000
10
office district
2,565
49
363
93%
1990
1999
-
centre
3,596
97
-
Sold
1989
1995
-
centre
13,258
183
-
Sold
2001
2000
-
office district
3,800
44
-
Sold
1991
1995
5
office district
4,376
109
566
100%
2001
1999
1
residential area
9,572
181
1,366
100%
1982
1995
1
centre
1,182
12
145
100%
2001
2000
2
centre
3,774
15
488
100%
1996
1996
3
centre
6,534
38
913
100%
1999
1997
1
residential area
3,098
38
511
100%
1999
1997
1
residential area
3,098
40
424
100%
2002
2000
12
office district
13,607
241
2,448
93%
1998
1998
1
office district
7,221
-
1,138
100%
1997
1996
1
office district
8,787
-
1,265
100%
1982
1995
-
residential area
1,322
10
-
Sold
1982
1995
-
centre
3,053
19
-
Sold
2001
1999
3
office district
5,900
82
985
100%
1990
1995
1
office district
2,806
65
441
100%
1999
1998
2
office district
4,840
69
884
100%
2000
1999
2
office district
3,027
50
482
100%
2001
1999
2
office district
4,343
69
730
100%
540,402
12,190
10,805
103,123
2007
14,000
255
2,622
2007
9,958
-
2,639
2007
22,044
480
4,907
2008
2006
30,652
308
4,262
2009
2006
18,000
293
2,536
94,654
1,336
16,966
119
credits Text KFN, Utrecht
Translation Metamorfose vertalingen, Utrecht
Photography Mark Weemen, Amsterdam Wim Wiskerke, Haarlem Martin van Welzen, Amsterdam Bart Nijs fotografie, Overasselt
Design Hollands Lof ontwerpers bv, Haarlem
Print PlantijnCasparie Capelle aan den IJssel