Solid financial results in 2018

Solid financial results in 2018
• Gross rents up 5.9% to Euro 36.3 million
• Like for like rental growth of 2.5% (2.6% ex bank branches)
• NOI margin stable at 89.1%
• Net Profit up 60.2% to Euro 46.3 million
• Recurring FFO per share up 5.0% to Euro 0.49
• EPRA NAV per share up 9.6% to Euro 11.71
• Return on Equity of 11.8% (vs 8.0% in 2017)
• Return on Equity since IPO of 21.1%
• Proposed dividend for 2018 up by 11.1% to Euro 0.30 per share
• Prudent LTV of 34.5% maintained

Office focused portfolio concentrated in Milan with growth component
• Milan exposure at 90% and Porta Nuova exposure at 40%
• Growth component of portfolio at 50%

Active asset management and portfolio rotation
• Euro 4.3 million worth of new leasing with 18% reversion
• Occupancy increased by 70 bps to 95.9%
• Capital value growth of 2.0% on a like for like basis (2.7% ex-bank branches)
• Acquisition of properties with growth potential in Milan Porta Nuova (Euro 103.7 million)
• Disposal worth Euro 91.8 million (14% of our portfolio) at 12% premium
• New financing and refinancing executed for Euro 246.3 million

Resilient Milan outlook supports COIMA RES’ investment case
• Record take up in Milan at 400,000 sqm in 2018
• Record low vacancy (2%) for Grade A properties in Milan
• Milan office prime rent up 6% in 2018
• Strong rental growth outlook, especially for Porta Nuova

Manfredi Catella, Founder and CEO of COIMA RES, commented: “Our focus in 2018 has been on acquiring properties with growth features in Milan Porta Nuova and on selling mature and non-core assets crystallising value creation. The acquisition of the Pavilion in Milan and the disposal of the Eurcenter property in Rome are important proof points that reinforce our track record and our value creation proposition. Looking forward, we will continue to focus on asset management, on carefully and selectively assessing investment opportunities all whilst maintaining a prudent level of leverage.”

Milan, February 22nd, 2019 – The Board of Directors of COIMA RES approved the draft separated and consolidated financial statements as at December 31st, 2018, at a meeting held yesterday under the chairmanship of Massimo Capuano.

Solid financial results in 2018
Overall, gross rents grew by 5.9% in 2018 to Euro 36.3 million (from Euro 34.2 million in 2017), mainly thanks to the contribution of the Monte Rosa property (acquired in Q4 2017) and the Tocqueville property (acquired in Q3 2018), partially offset by the sale of the Deutsche Bank branches portfolio located in the South of Italy, which closed in January 2018.

The NOI margin remained stable at 89.1% in 2018 as the changes in the portfolio perimeter were offset by the positive contribution of the asset management initiatives performed on the cost base of the Deutsche Bank portfolio and of the Vodafone complex.

Recurring FFO per share grew by 5.0% to Euro 0.49 in 2018 based on higher gross rents and the positive impact of the accounting treatment relating to the re-financing signed in July 2018, partially offset by higher G&A.

EPRA Earnings per share were marginally down by 1.3% to Euro 0.42 in 2018 mainly due to the impact of the promote fee for the fiscal year 2018, one-off write-downs on tenant-receivables and other non-recurring costs. If we exclude the impact of the promote fee, EPRA Earnings per share for 2018 would have been Euro 0.45 (up 5.4% vs 2017).

The cost of financing remained at 2.0% in 2018 (broadly in line with 2017), with 70% of the debt hedged against interest rate movements at December 31st, 2018.

EPRA NAV as of December 31st, 2018 was Euro 421.6 million (or Euro 11.71 per share), an increase of 9.6% during 2018. The increase is mainly related to the contribution of EPRA Earnings in the amount of Euro 15.1 million, revaluations and capital gains for Euro 35.7 million, partially offset by the Euro 10.1 million dividend distributions in 2018 and other items accounting for Euro 3.7 million (mainly related to minorities and the financial instrument held by COIMA RES’ key managers).

According to Asset Management Agreement between COIMA RES and COIMA SGR and in light of the positive financial and industrial results achieved by COIMA RES in 2018, a total promote fee of Euro 2.55 million is payable by COIMA RES to COIMA SGR and its key managers. The mechanics and timing of the actual payment will be disclosed in due course by COIMA RES.

LTV at 34.5% as of December 31st, 2018 and attractive financing conditions maintained
In a volatile year for the capital markets and for Italy, and in order to insulate COIMA RES from macroeconomic headwinds in the broader Italian economy, management has opted for a more conservative stance on leverage going forward, staying below the 40% LTV threshold. As a reminder, our financing structure is substantially set for the next few years, with no maturities before 2022. In 2018, we have maintained a prudent leverage, extended our average debt maturity and maintained attractive financing terms.

As of December 31st, 2018, the LTV for COIMA RES was 34.5% (Bonnet accounted on a pro rata basis), the weighted average debt maturity was 4.4 years, the weighted average all-in cost of debt was 2.0% and 70% of the outstanding debt was hedged against the impact of interest rate movements. The current level of leverage allows us flexibility to consider further acquisitions.

Dividend at Euro 0.30 per share for 2018
COIMA RES Board of Directors resolved to distribute to shareholders a dividend for the fiscal year 2018 of Euro 10,802,100 (Euro 0.30 per share) subject to approval at the Shareholders’ Meeting planned for April 17th, 2019. The proposed 2018 dividend of Euro 0.30 per share represents an increase of 11.1% vs the 2017 dividend of Euro 0.27 per share. The proposed dividend for 2018 represents a pay-out ratio of 72% based on the consolidated EPRA Earnings for 2018 (vs 64% in 2017). An interim dividend of Euro 3,600,700 (Euro 0.10 per share) was already paid on November 21st, 2018 and the final dividend of Euro 7,201,400 (Euro 0.20 per share) will be paid with ex-dividend date on April 23rd, 2019, record date on April 24th, 2019 and payment date on April 25th, 2019.

Guidance for 2019
Based on the current portfolio perimeter, COIMA RES estimates for 2019 to achieve EPRA Earnings per share of approx. Euro 0.42. The guidance will be updated over the course of 2019 to reflect any meaningful update.

Real estate portfolio overview and performance
As of December 31st, 2018, COIMA RES portfolio consists of 77 properties (70 bank branches located in the North and Centre of Italy and 7 office properties located in Milan) with total commercial surface of 189,000 sqm. The portfolio is valued at Euro 665.0 million (of which 90% is in Milan, 40% in Milan Porta Nuova and 80% is offices).

The value of the portfolio increased by Euro 54.4 million in 2018 thanks to the Euro 103.7 million acquisitions of Pavilion and Tocqueville properties, the Euro 31.2 million revaluation of the portfolio and the Euro 4.6 million of capex spent partially offset by the sale of Euro 1.5 million of Deutsche Bank branches and of Euro 83.8 million related to the disposal of the Eurcenter property in Rome.

Capital growth for the portfolio on a like for like basis was 2.0% in 2018, or 2.7% if we exclude the bank branches.

Approximately 50% of COIMA RES’ portfolio is comprised of assets with rental growth potential. Approximately 54% of the portfolio is currently LEED certified, increasing to 60% including the Bonnet project where the aim is to achieve a LEED Gold certification.

Active leasing activity
In 2018, we signed new leases for a total of Euro 4.3 million on a stabilised basis, achieving positive reversion of 18% and a like for like rental growth of 2.5% across the portfolio (2.6% excluding bank branches).

Pavilion: COIMA RES signed in August 2018 a leasing agreement with IBM for 100% of the Pavilion. The lease agreement with IBM became effective in February 2019 and features a 9 years + 6 years structure, 100% linked to inflation, with gross initial rent of Euro 1.25 million (for the first 12 months) and a contractual gross stabilised rent of Euro 3.5 million (commencing after the first 12 months). IBM is the sole tenant of the Pavilion, fully occupying the property. No material capex will be spent by COIMA RES to host IBM in the property.

Gioiaotto: two existing office tenants released 1,400 sqm in aggregate in 2018 and were replaced by two new tenants which signed leases at an aggregate premium of 21% vs the previous in place rent (on a stabilised basis).

Monte Rosa: COIMA RES signed in Q1 2018 an additional lease agreement with PwC for Euro 154,000 per annum. Including this new lease, PwC occupies 46% of the building’s NRA. The lease was signed at Euro 280 / sqm implying a premium of about 8% vs the blended average rental value in place at Monte Rosa at the time of the signing of the lease.

Bank branches: in February 2019, COIMA RES signed a 9-year lease agreement for a bank branch located in Milan which was previously vacant. The new tenant is active in the healthcare services sector. The branch represents 1,700 sqm, i.e. 18% of the total vacant surface within the Deutsche Bank branches portfolio. The new leasing agreement will contribute to Euro 240,000 of additional gross rent per annum for COIMA RES on a stabilised basis. Up to Euro 50,000 of capex will be spent by COIMA RES to readapt the premises.

Acquisitions
Tocqueville: in July 2018, COIMA RES completed the acquisition of the Tocqueville office complex in Milan Porta Nuova for Euro 56.0 million at an EPRA Net Initial Yield of 3.5%. Tocqueville is a 10- storey building with commercial surface of 10,922 sqm, situated between the Microsoft and UniCredit headquarters in Porta Nuova, Milan. The fully-let asset generates Euro 2.4 million in annual gross rents and represents a sizeable Core + opportunity: average in-place rents of Euro 245 / sqm are more than 50% below Porta Nuova prime rents. The main tenant’s lease covers 89% of NRA and expires in early 2021. The acquisition contemplates a medium-term capex plan which would bring Tocqueville’s estimated net stabilized yield on cost to a level of 5% (based on expected net rents post refurbishment, acquisition price and capex).

Pavilion: in May 2018, COIMA RES has signed with UniCredit a preliminary purchase agreement to acquire the Pavilion complex in Milan Porta Nuova for Euro 45.0 million. The acquisition closed in November 2018. The underwriting business plan foresaw the possibility to change the end use of the asset to reconvert it into a mix of offices and high street retail and with a capex period of up to two years followed by leasing period. The complex was subsequently fully leased to IBM in August 2018 at an EPRA Topped-up Net Yield of 7.2%. A Euro 23.9 million revaluation was recorded in Q4 2018 on the Pavilion property which is valued by independent appraiser CBRE at Euro 70.0 million, implying for the IBM lease terms an EPRA Topped-up Net Yield of 4.8%.

Disposals
Since IPO, COIMA RES has performed disposals representing 18% of its portfolio at a blended premium to acquisition price of 8%. Recent acquisitions and disposals showcase the attractiveness of COIMA RES investment strategy: to create value through active management of a high-quality asset base while carefully controlling risk.

Eurcenter: in December 2018, COIMA RES sold the Eurcenter property located Rome for a price of Euro 90.3 million to Zurich Italy Real Estate Fund. The sale price represented a premium of 13% vs the asset acquisition price (August 2016) and a premium of 4% vs the book value of the property as of June 30th, 2018. The “roundtrip” levered IRR achieved by COIMA RES on the Eurcenter investment is 20% (unlevered IRR of 11%). The sale price implies a net stabilised yield in line with the prime net yield of the EUR area in Rome of 4.75%. The disposal of the Eurcenter represents the largest single office transaction in Rome in 2018, a market characterised by lower transaction liquidity vs Milan. At the time of the disposal, the Eurcenter was COIMA RES’ second largest property, representing 12% of COIMA RES’ portfolio.

Bank branches: in September 2018, COIMA RES closed, through COIMA CORE FUND IV, the sale of 2 Deutsche Bank branches for a combined price of Euro 1.5 million, at a premium of 6.2% vs the previous book value. The 2 branches were in Desio and Varenna (secondary locations in Lombardy, North of Italy). Since its IPO, COIMA RES has sold 26 Deutsche Bank branches for an aggregate sale price of Euro 41.5 million and in line with the contribution value at the time of the IPO.

Refurbishment projects
Bonnet: the project is well on track for delivery in 2020 within the overall budgeted cost of Euro 164 million, including the initial Euro 89 million acquisition price and total capex and other capitalised costs of Euro 75 million. Overall capex and other capitalised costs spent in 2016-2018 for the Bonnet project amount to Euro 12.7 million with a further Euro 62.3 million expected to be spent in 2019-2020 (of which Euro 22.2 million that will be spent by COIMA RES in 2019-2020 given its 35.7% stake in the project). The overall completion of the project is planned for 2020. Formal pre-leasing activity has commenced in September 2018, with brokers already appointed. Early feedback from prospective tenants is positive.

Gioiaotto: with the aim of upgrading the hotel’s standard to the NH Collection level, the NH Hotel Group has performed renovation works in an amount of Euro 4.0 million. The works started in Q4 2017 and were completed in July 2018. The fund which owns the Gioiaotto property, which is 87% owned and fully consolidated by COIMA RES, has contributed Euro 1.4 million to this amount.

Board of Directors appointment mechanics
On April 12th, 2018, the Annual General Meeting approved a new mechanism for the appointment of Board members on an annual term going forward (vs the previous three-year term). The current Board of Directors has been in place since April 12th, 2018 and will be in place until the Annual General Meeting approving the 2018 financial results currently planned for April 17th, 2019.

Shareholders’ Agreement renewed for further 3 years
With reference to COIMA RES shareholding structure, in 2018, the Shareholders' Agreement between Qatar Holding LLC and the founding shareholders Manfredi Catella, COIMA SGR S.p.A. and COIMA S.r.l. has been automatically renewed for further 3 years until November 30th, 2021.

Outlook
At this time of uncertainty in both Italy and Europe, COIMA RES is focussing on Milan offices, Italy’s largest, most transparent and liquid real estate market. Milan accounted for more than 60% of the overall Italian office market, both by number of transactions and investment volumes over the last four years. Milan is characterised by strong supply and demand fundamentals, in particular due to scarcity of Grade A space, which represent only 10% of total office stock, but accounts for 70% of total take up. This imbalance suggests demand may outstrip supply by a factor of 2-3x over the next few years and underpins strong near-and-medium term rental upside.

As far as the current portfolio is concerned, COIMA RES will consider further asset rotation in order to increase its exposure to Milan and to balance tenant concentration.

COIMA RES continues to carefully and selectively assess investment opportunities, with Milan being a tactical focus given its growth potential and relative through-the-cycle resiliency. Asset selection will emphasize Core and Core + office assets. COIMA RES will also selectively evaluate coinvestment opportunities in Value-add projects in JV.

Others
The Annual General Meeting will be convened in due course pursuant to current laws and regulations.