Rebound of the residential real estate market

As we had anticipated, the Dutch economy saw favourable developments in 2024. Although demand for housing remains high and new developments struggled to keep pace, lowering interest rates and greater wage growth created a sense of optimism in the market. These positive trends not only boosted market confidence but also supported the ARC Fund’s ongoing commitment to delivering high-quality, affordable and sustainable homes.

During 2024 we were also confronted with the amicable departure of our CIO and Fund Director Wim Wensing. We have mastered this challenge by making changes to our management structure, expanded our pool of daily policy makers and re-allocating the responsibilities of the CIO function among multiple members of senior management.

Despite the supply-demand imbalance, the improved investment and interest rate climate helped us offset these challenges, leading to four consecutive quarters of positive revaluation and a solid double-digit return. Our focus on creating homes that meet the evolving needs of our communities ensures long-term value while generating stable, lasting returns for our investors. We are encouraged by this turning point in the market and remain optimistic about what is ahead.

Fund performance

In 2024, the positive turn in the economic climate we experienced, lead to improved operational results and financial performance. Due to a significant shortage of housing and increasing demand, our occupancy rate remained high at 98.2%. The investment market’s strong recovery along with higher vacant values and lower capital costs contributed to four consecutive quarters of positive revaluations — a complete turnaround from last year. We are proud to report a total fund return of 11.6%, with a dividend yield of 2.8%.

In July 2024, the Affordable Rent Act took effect which means that a part of the liberalised rental sector is now regulated in the mid-rental sector. The points system (WWS) is now used to determine whether a house falls into the social sector, mid-rental sector or free market sector. Fortunately, the legislation has a limited impact on the ARC Fund. We see the WWS point system as a benefit, as it rewards sustainable and high-quality homes with more points. Due to this, our young and relatively energy efficient portfolio is well positioned. Additionally, in Q4, the Supreme Court ruled that rent increases of up to 3% above inflation, commonly included in rental contracts, are generally considered fair. This judgement has provided more clarity for the sector and will help limit uncertainty impacts moving forward.

Our total number of sales were higher than in 2023, with twice as many block sales than expected, totalling €232 million. Fortunately, the market was ready for this, allowing us to sell at a favourable price. We used half of the funds from the sale to take out redemption queues and the other half to acquire new projects. In 2025, we aim to reduce the volume of block sales and focus on increasing the number of individual property sales for rentals, as individual sales currently generate healthy profit margins.

Funding

During 2024 we already successfully addressed the refinancing risk of 2025 and 2026. The interest rate environment is becoming more favourable, with rates having declined in 2024 and expected to decrease further in 2025. However, we will closely monitor whether and how attracting debt will contribute to achieving the fund's strategic targets. Additionally, we welcomed a new investor in 2024, contributing €30 million in new equity.

Next to funding our pipeline and CAPEX, block sales are used to address redemptions. We take a balanced approach and use proceeds from block sales to both fulfil our obligations to investors and to fund our pipeline. The new equity that we sourced highlights investors' renewed interest in Dutch residential real estate. We are optimistic and expect this trend to continue in 2025.

In 2024 we successfully obtained and published our investment grade credit rating by Moody's (Baa2 with positive outlook) as a pre-cursor to enter the debt capital markets to secure new debt funding.

Lastly, after our green bond debut in 2024, we expect that we can build on that positive momentum with a second bond transaction in 2025.

Completed and ongoing projects

During 2024, a total of 772 homes were completed and added to the standing portfolio. We expanded our portfolio with apartments in Diemen and Eindhoven and delivered sizeable projects in Amsterdam and Amstelveen. In Amsterdam (Aan 't IJ) we delivered 125 units, in Amstelveen 358 units (Olympiade) and in Eindhoven (Groot Hartje) 201 units, completing the area. Our project in Rotterdam (Clubhouse Boompjes) with 342 units was delayed; however, we are pleased to share that it has been delivered at the end of January 2025.

Our investment focus remained similar to last year, with a greater emphasis on social impact and expanding community management to improve the quality of the living environment. Our Olympiade project is a prime example of this. By prioritising key groups such as key workers, starters and individuals transitioning from social housing, we aimed to enhance access to mid-priced housing and drive progress in the housing market. The development consists of seven apartment buildings, each named after a city where the Olympic Games were held. These buildings feature a thermal energy system, solar panels on the roof and are surrounded by a communal garden, creating a relaxing environment for our tenants.

We also began leveraging the relatively new customer success department, continuing our efforts to improve the customer experience and help tenants build connections to foster a sense of community. In 2024, we improved our customer satisfaction score and outperformed the benchmark with a score of 7.3.

ESG performance

Sustainability continues to be an important part of our strategy, as evidenced by our Amvest Impact Framework, a set of sustainability standards that, along with financial return requirements, will guide future investment decisions. Additionally, we remain committed to achieving a Paris-proof portfolio by reducing our carbon emissions and energy intensity. In 2024, we launched pilot projects to assess the risks of our properties, enabling us to make more informed decisions about the portfolio. Building on this foundation, we expanded our risk assessment efforts, starting with assets in high-risk areas, to determine net climate risks. These ongoing assessments will directly inform our mitigation strategy. We also implemented measures such as sunscreens and green roofs to help reduce heat stress and flooding risks in our portfolios. We remain on track with our framework objectives, demonstrating our progress and commitment to achieving our sustainability goals. Furthermore, we maintained our GRESB score of 5 stars, reflecting our leadership in sustainability and responsible investment practices.

Our EU Taxonomy alignment percentage has increased due to targeted sustainability investments. By allocating capital to environmentally sustainable activities, we have strengthened our SFDR-classified sustainable investments. This reflects our commitment to responsible investing and driving positive impact.

Outlook

The year 2024 marked the end of the downward market trend of the previous two years. We successfully sold several assets above book value, achieved a complete turnaround with our revaluations and significantly improved our returns.

While some economic uncertainty remains due to geopolitical tensions, we are optimistic about 2025. We expect the favourable market conditions in the residential real estate market to continue, driving increased investment activity and rising market values. Moreover, recent legislative changes have alleviated concerns surrounding rent regulation, further enhancing the outlook for residential real estate.

In 2025, we will work on securing new equity partners, continue to address our remaining redemption queue and carrying out more individual sales. The completion of several ongoing projects will add high-quality, sustainable homes to our portfolio, which will positively impact both rental income and our operational efficiency ratio.

Additionally, we have changed the organisation structure of our investment management activities with the goal of modernising our organisation to strengthen asset management and, as a result, further improve the quality of our assets. We look forward to the outcomes of these changes , which we believe will position us for greater success and continued growth in the coming years.