Patient, but never passive

The projected economic slowdown came to pass in 2023, impacting the Dutch residential real estate market. The trend of negative revaluations, which initially emerged in 2022, persisted throughout the year. However, with demand for high-quality and affordable homes at an all-time high, the recovery of the market is not a question of if, but rather when. While we eagerly anticipate the return to a healthy and stable investment market, we are not sitting idly by. We may be patient, but we are never passive. Instead, we are actively investing in the sustainability of our portfolio and in the processes and tools to track, analyse and report on our sustainability performance.

For the first time, we are aligning the reporting of our non-financial information with the EU Taxonomy. This required a lot of hard work from many of our Amvest colleagues. Nevertheless, we choose to see new reporting obligations like the EU Taxonomy not as an administrative burden, but as a tool. We are intrinsically motivated to accelerate our CO2 reduction efforts. In fact, we committed to the Dutch Green Building Council target of decarbonising the built environment by 2040. We also proactively implement climate adaptation solutions and contribute to a healthy and liveable future. The EU Taxonomy raises the bar for our industry, elevates the standards that we hold ourselves to and helps us to demonstrate our leadership in this area.

Fund performance

Our 2023 operational results and financial performance compared to our peers tell the story of the ARC Fund. We have stayed true to our investment focus and have built a resilient portfolio. We have been aspirational in our sustainability efforts and vigilant and responsible in our investment efforts. As a result, we are well positioned to reap the benefits. Our occupancy rate remains very high at 98.3%. We continue to take a financially and socially responsible approach to raising our rents, resulting in a healthy rental income. These strong operational results limited the impact of a slow investment market and four consecutive quarters of negative revaluations. Our total fund return was -/- 5.1%, and the dividend yield was 2.5%.

To gauge how we compare with our peers, we look to the MSCI property index. We know that in a stagnant investment market, distinctions between favourable and unfavourable real estate assets become more apparent. Characteristics like location, quality and energy efficiency become the difference makers. That is exactly what the MSCI showed in 2023. We outperformed the market in terms of income return and capital growth for 2023 (-/- 2.3% vs -/- 6.1%), as well as the 3, 5, 7, and 10-year averages. The strength of our Fund strategy and of our portfolio truly shines through. It is clear that our investments in the right type of real estate in the right places and in line with the risk appetite of our investors pays off in good times and shields us in challenging times.

Given the state of the investment market, we did not expect to carry out any block sales in 2023. Nevertheless, we realised one successful block sale in Velp. The low turnover rate – another by-product of the stagnant housing market – again limited our ability to carry out individual sales. In total, we sold 44 individual homes with a net gain of 23%. This is an improvement over last year's net gain of 21%, despite consecutive quarters of negative revaluations. We are pleased with our sales results yet hope to see the total sales volume increase in the year ahead. To this end, we will earmark additional assets for individual sale.

Funding

Our sales targets are tied to our acquisition objectives. The ability to execute block sales and individual sales above book value, and to use those proceeds to fund our pipeline and CAPEX plans, are particularly important in today's economic environment. While there appears to be light at the end of the tunnel, the high interest rates remain a barrier to attracting debt funding, while the negative revaluations limit our ability to raise new equity. Next to funding our pipeline and CAPEX, block sales are important for clearing our redemption queue. We take a balanced approach and use proceeds from block sales to both fulfil our obligations to investors and to fund our pipeline. The projected stabilisation of the investment market bodes well for meeting our ambitious 2024 block sales targets.

We also reflect positively on our first venture into US private placements (USPP) as a new debt instrument. In 2023, we successfully closed the first USPP with a select group of investors based in the United States and Canada. These investors’ confidence in our Fund's strength enabled us to successfully secure new unsecured debt funding as laid out in our debt funding strategy. Furthermore, the investment market is already showing signs of recovery. As such, we are optimistic about securing new equity funding in the coming year.

Completed and ongoing projects

With the delivery of the Jonas project, we have added an iconic property to our portfolio. The Jonas concept dates back to a contest launched by the municipality of Amsterdam for the development of new affordable, sustainable and high-quality homes in the IJburg district. We acquired the Jonas project from the Amvest Development Fund and implemented our unique community management concept Livvin. Jonas features 190 compact rental apartments, 83 privately owned apartment a community living room, rooftop terrace, flexible workspaces, entertainment areas and a cafe embedded in the property. The unique building meets the need for affordable housing in the city and provides both tenants and community members with a place to connect and socialise. We achieved the highest BREEAM certification level – BREEAM Outstanding – in recognition of the building's environmental performance. We were also awarded several prizes for the Jonas project, including the BNA Best Building of the Year award and the 2023 Zuiderkerk award for the best housing development in Amsterdam. Our dedication to sustainability and quality is not going unnoticed, and that is something to be proud of. In addition to Jonas, we delivered 30 homes in Breda and 44 as part of the Berkhout development in the Cruquius neighbourhood of Amsterdam.

ESG performance

We have always looked past the financial returns of our investments and considered the impact of our decisions on our tenants and society as a whole. This is evident in our approach to rent, the community services and amenities that we offer and our Roadmap to Paris-proof. The introduction of the Amvest Impact Framework in 2023 challenges us to think even more broadly about sustainability and all that it encompasses. It applies the same rigorous process for evaluating the financial contributions of new investments to assessing the environmental and social impact of those investments. Energy consumption, circularity, biodiversity, heat stress, health and safety, and affordability; the framework covers it all. The development of the Amvest Impact Framework and our EU Taxonomy assessment are indicative of our unwavering commitment to sustainability. In 2023, 94% of our assets could be considered environmentally sustainable according to the EU Taxonomy criteria, an excellent starting point. From here, it is upwards and onwards. That applies to our GRESB score too, which again improved in 2023. The new energy labelling process, which is based on an in-home inspection instead of build year and characteristics, resulted in many of our energy labels being upgraded. It shows that we go beyond what is required to the benefit of all our stakeholders.

Outlook

2024 is bound to be an eventful year. We are optimistic that the investment market will stabilise in the first half of the year. The European Central Bank is expected to gradually lower the interest rates, which is likely to break the trend of negative revaluations. This will also set the scene to execute further transactions as part of our debt funding strategy and address refinancing of existing facilities ahead of time. We also expect to benefit from the recovery of the owner-occupied housing market and carry out more individual sales in 2024. The completion of a number of large projects will add 901 high-quality and sustainable homes to our portfolio, which bodes well for our rental income and for our OPEX ratio. Finally, we expect to end the year with more certainty with regards to the regulation of the mid-priced rental market. We are fully prepared for every known scenario, and we are looking forward to reaping the benefits of our hard work in 2023.