Beneficial interest AvH: 30.01%
AvH Contact: Jan Suykens
The economic situation in 2015 evolved favourably in the Grand Duchy of Luxembourg, whereas in Belgium and Switzerland it was less positive (primarily due to the stronger position of the Swiss franc against the euro and a decline in domestic consumption since the beginning of 2015). By diversifying into Luxembourg and Switzerland, LRE is turning towards countries with AAA rating, a healthy economy with low unemployment, high per capita GNP, and a steady growth.
In the Grand Duchy of Luxembourg, where LRE has been the prime foreign property investor since 2013, a record volume of office rentals was realized in 2015, whereas retail remained on the same level as 2014. In Belgium, the office market witnessed one of the lowest rental volumes in the last 15 years, while rents and the vacancy rate remained on the same level (10%) as last year. The rental volume in the retail market showed a positive trend, however, with a 10% increase. The retail rental market in Switzerland remained stable.
The acquisition of the Royal Warehouse office building on the Tour & Taxis site in Brussels at the end of 2015 - based on a fair value of 108 million euros - was a unique investment opportunity for LRE to acquire an iconic building. Nevertheless, LRE continues its strategic reorientation towards more retail and less office space, and its geographical diversification.
At year-end 2015, the fair value of the consolidated real estate portfolio, including project developments, amounted to 869 million euros (compared with 756 million euros as at 31/12/2014). The 15% increase is primarily the result of the acquisition of the Royal Warehouse. The overall real estate portfolio comprises 42% retail (2014: 45%), 42% offices (2014: 35%), and 16% logistics (2014: 20%). There are 16 sites in Luxembourg (54% based on the fair value of the portfolio), 14 sites in Belgium (41%) and 3 sites in Switzerland (5%).
In terms of rental income (50.5 million euros), 2015 was comparable with peak year 2014. The average duration of the portfolio remained stable at 4.8 years with the conclusion of several long-term leases (such as the Monnet building in Luxembourg). The occupancy rate (2015: 95.96%, 2014: 96.24%) and the rental yield calculated on the fair value (2015: 6.89%, 2014: 7.23%) decreased slightly in relation to the previous year.
As at 31/12/2015, the equity (group share) stood at 362 million euros (2014: 336 million euros). The revalued net assets stood at 73.4 euros per share based on the fair value of the real estate (68.1 euros at 31/12/2014), and 76.9 euros (71.0 euros at 31/12/2014) based on the investment value. The financial debt increased to 532 million euros (441 million euros at 31/12/2014) as a result of the investment in the Royal Warehouse. The debt ratio (calculated according to the Belgian Royal Decree of 12/05/2014) temporarily increased to 58.03% (2014: 54.27%). The debt ratio will decrease again to around 53% following the contractually planned sale for 62.5 million euros of the Royal20 office project in Luxembourg city, which is due for completion in the second quarter of 2016. The balance sheet total amounted to 976 million euros at the end of the financial year (2014: 837 million euros).
Due to the vacancy of a number of properties due for renovation (Monnet and Square de Meeûs), LRE ended its 2015 financial year as expected with a lower net result (group share) of 30.6 million euros (32.6 million euros at year-end 2014), or a 6% decrease compared with the previous year, or 6.20 euros per share (6.60 euros at 31/12/2014). The net current result decreased by 2% to 25.6 million euros.
The price of the LRE share fluctuated in 2015 between 79.40 euros and 97.85 euros. The closing price at the end of the year was 93.09 euros. The gross dividend per share for the 2015 financial year will amount to 4.70 euros, or a gross dividend yield (based on the closing price) comparable with 2014 of 5.05% (2014 financial year: 4.96%).
In March, June and October, an office building situated in Rue de Kiem in Strassen in the Grand Duchy of Luxembourg (6.3 million euros), phase 2 of the logistics property Canal Logistics in Neder-over-Heembeek (16.75 million euros), and a warehouse building in Wenenstraat in Meer (1.5 million euros) were sold.
In mid-April, the Royal20 office project under construction, situated at Boulevard Royal 20 in Luxembourg city, was sold under a forward sale agreement (62.5 million euros) after it was entirely pre-let at the end of 2014. The project is proceeding according to plan and is expected to be finished in the second quarter of 2016.
The Square de Meeûs office building has been completely empty since the end of April. The idea is to demolish this building and put up a sustainable office building in its place, and to have it ready by the fourth quarter of 2017.
At the end of May, the public regulated real estate company Retail Estates, in which LRE holds a 10% stake, successfully placed a public capital increase of 76 million euros. LRE subscribed for 10%, or 7.6 million euros, to avoid a dilution of its stake.
By the end of October, the full replacement of the technical installations in the Monnet office building in Avenue Kennedy (Kirchberg, Luxembourg) was successfully completed, and the building was entirely let sooner than expected, and at higher rents than in 2014.
In mid-December, 100% of the shares were acquired of Tour & Taxis Royal Warehouse, leaseholder of the eponymous iconic building. The residual rights in rem were acquired at the beginning of 2016 (total: 108 million euros). During the year, and just after the closing of the financial year, several leases were concluded in Luxembourg, Belgium and Switzerland.
Despite the start in 2016 of the projected demolition and reconstruction of two new buildings in Brussels (Square de Meeûs and Montoyer 63), and except for extraordinary circumstances, the company expects to realize a higher net result and net current result in 2016 than in 2015 thanks to the acquisition of the Royal Warehouse on the Tour & Taxis site. The dividend over 2016 can be maintained at minimum the same level.