In a recent interview, Jean-Edouard Carbonelle (JEC) shed some light on Cofinimmo’s future strategy. The main trend is a further decrease of the office portfolio and an increased focus on the healthcare sector. No impact.
We summarize the highlights:
Previous target for the office portfolio proportion was set at 40%. Today, a reduction below 40% is definitely a goal for the coming years. Additionally, JEC announces that the disposal target of € 50m of offices in FY12 will not be achieved. The market is too illiquid.
The company underlines its ambition to make its nursing homes & clinics in the portfolio of prime importance. JEC hopes to grow the stake from 36% to 40% or more in the near term.
Market view on Brussels:
He believes that the Brussels office market will suffer during the next 3 to 5 years from a structural overcapacity. As a result, rental prices willremain under pressure. Possible solutions won’t come from European institutions as their annual average demand over the past 20 years amounts only to 50k m2. With a current vacancy of 1,500k m2 on the market, additional demand should come from private companies.
Annually 40k m2 of office space is reconverted into residential. Cofinimmo meets this trend through the redevelopment projects Livingstone and Woluwe 34, representing 24k m2 (delivery in 2014). JEC confirms that of these two projects already approx. 25% issold before works have started at a price which corresponds to € 3,200 per m2.
In the coming 2 years, we should expect around € 150m of investments in nursing homes & clinics and approx. € 110m in the redevelopment or renovation of the other portfolio segments (mainly offices). Both numbers increased by approx. € 20m each vs. the capex program announced at the 1H12 results.
The investments in the Dutch healthcare segment are no flight out of a saturated French or Belgian market. JECconfirms to see opportunities in Belgium. The entry into a new country should however be seen as a further portfolio diversification which reduces the risk profile. In this way, the company also wants to anticipate a possible deregulation in terms of subsidised nursing homes in a European country.
Our View & Conclusion:
These statements confirm our expectations of a strongly reduced interest in offices. Given the current offices trend, it will however be difficult to dispose them at acceptable prices. The grown capex program is in-line with a normal evolution. It is also reassuring to hear that the company is aware of the deteriorated financial situation of the governments which could lead to a potential more limited subsidization of nursing homes, hurtingthe triple net yields. The sale of apartments will enable the company to keep on providing a € 6.5 DPS as expected. We make no changes to our investment case.