FI
H N
20 AL AN
15 F-Y CI
EA AL
R
R
EP
O
R
T
PROPERTIZE PICKS UP
SPEED WITH WIND-DOWN
IN DYNAMIC MARKET
Interim financial report, 21 August 2015
Highlights
> Wind-down achieved in first half of 2015: € 635 million (1st half of 2014: € 266 million)
> Total net exposure down to € 4,283 million (year-end 2014: € 4,918 million)
> Addition to the provision for impairments falls to € 16 million (1st half of 2014: € 71 million)
> Improvement of operating result compared to 1st half of 2014 to € 21 million
> Free available equity of € 549 million; € 49 million higher than initial equity contribution by
the Dutch state
On course with a professional and committed team
“The results for the first half of 2015 show that Propertize makes momentum with the reduction
of its portfolio. The net exposure decreased by € 635 million to € 4.3 billion and net operating
result for the first half amounted to € 21 million, compared to € 11 million for the same period in
2014. This performance has been achieved partially as a result of the quality of the organisation,
in particular the added value of our specific competencies in the field of Restructuring & Recovery
and (non-) performing loans. In combination with the intrinsic motivation of our employees, as
well as their knowledge and skills, Propertize could make full use of the dynamics in the property
market. In addition, there were favourable trends in the interest rates.The ambition of Propertize
is to repay at least the capital that the Dutch government has made available to the privatization
of Propertize, at the end of its mission, without making use of additional capital or guarantees
from the State. With a free equity capital of € 549 million, € 49 million above the initial deposit of
the Dutch State and further flattening of the level of impairments to € 16 million in the first half
of 2015, Propertize is also on track. The Board therefore looks back with satisfaction at the results
achieved in the first half of 2015”,
says Hans Copier, chairman of the Executive Board.
Progress of wind-down in the three portfolio buckets
> The progress of the wind-down of the net exposure is visible in all the buckets:
- Bucket ‘Healthy’ from € 1,168 million at year-end 2014 to € 1,102 million:
a decrease of € 66 million
- Bucket ‘Value Retention’ from € 3,268 million at year-end 2014 to € 2,879 million:
a decrease of € 389 million
- Bucket ‘Stop-Loss‘ from € 482 million at year-end 2014 to € 302 million:
a decrease of € 180 million
> The total volume of credit provisions rose by 2% (by € 40 million), to € 1,665 million
(year-end 2014: € 1,625 million)
Net profit: € 15 million (1st half 2014: loss of € 47 million)
> Further improvement of operating result to € 21 million
> Lower interest result on loan portfolio due to wind-down
> Strong improvement result property projects by € 6 million, to a loss of € 3 million
> Further decrease in operating expenses
2
PROPERTIZE FINANCIAL HALF-YEAR REPORT 2015
Equity position remains strong
> Total equity rose to € 1,193 million
> Free available equity of € 549 million; € 49 million higher than the initial equity provided by
the Dutch state
> Earmarked equity for possible future impairments practically unchanged at € 644 million
> Core Tier 1 ratio: 11.6% (year-end 2014: 9.6%)
Wind-down of funding in line with wind-down of portfolio
> Total funding through MTNs and ECPs reduced from € 3,501 to € 3,012
> Debts to foreign banks fully redeemed
Key figures
(in € millions)
Results
1st half year 2015 1st half year 2014 2nd half year 2014
Interest result loan portfolio
49 60 59
Operating expenses
20 28 26
Net operating result
21 11 25
Impairments
16 71 30
Total net result
15 (47)
(2)
Exposure
30 June 2015
30 June 2014 31 December 2014
Wind-down in deals and
regular redemptions
619 195 707
Impairments
16 71 101
Decrease net exposure
635 266 808
Net exposure
4,283 5,460 4,918
Loan to Value (LtV)
108%
116%
104%
Funding
3,012 3,805 3,501
Medium Term Notes
2,596 2,594 2,595
Euro Commercial Paper
416 1.211 906
Equity
1,193 1,179 1,177
Earmarked equity for future
impairments
(644)
(672)
(650)
Free available equity
549 507 527
Core Tier-1 ratio
11.6%
8.6%
9.6%
Number of Fte’s
190 203 198
Internal
176 166 183
External
14 37 15
3
PROPERTIZE FINANCIAL HALF-YEAR REPORT 2015
STRATEGY OF PROPERTIZE
TO BE CONTINUED
Propertize will wind-down its portfolio in an ethical, controlled, transparent and professional
manner until 2023. The aim is to achieve the highest possible proceeds with the lowest possible
risks and costs, without the need for the Dutch state to provide additional capital or guarantees.
Propertize expects that it will be able to repay the € 500 million provided by the Dutch state as
equity at the end of the wind-down period.
The most important pre-conditions for the realisation of this strategy are the recovery of the
property and property financing markets; the development of the interest rate level and the
set-up and continuation of a high-quality organisation.
This strategy was introduced at the end of 2013. Considering the results achieved in 2014 and the
1st half of 2015, Propertize will continue this strategy unchanged. The wind-down of the portfolio
is on course, even though there has been no fundamental recovery of the property markets yet –
with the exception of the residential property market.
Net exposure at the end of June 2015
The level of the additions to the provision for impairments showed a strong downward trend. The
operating expenses are well under control and also clearly show a declining trend. The wind-down
of the funding developed in line with the wind-down of the portfolio. The free available equity of
€ 549 million is € 49 million higher than the initial equity contributed by the Dutch State.
The break-down of the portfolio into various buckets is as follows:
Net exposure end of June 2015
7%
26%
HEALTHY
67%
VALUE CREATION AND RETENTION
STOP-LOSS
> Bucket ‘Healthy’ (26% of the net exposure (2014: 24%))
The bucket ‘Healthy’ consists of assets for which customers pay interest and make redemptions
and for which no loss on the outstanding balance is expected in the medium term. The interest
income is used to cover our operating expenses.
4
PROPERTIZE FINANCIAL HALF-YEAR REPORT 2015
> Bucket ‘Value retention and creation’ (67% of the net exposure (2014: 66%))
This bucket mainly consists of Dutch loans and property assets which offer opportunity for
optimising or creating value in the short or medium term, albeit that the cash flow and potential
value must obviously be higher than the costs of keeping the asset (or the loan). Active asset
management is therefore essential in this bucket.
> Bucket ‘Stop-Loss’ (7% of the net exposure (2014: 10%))
For some assets one cannot but acknowledge that they offer no scope for value creation and their
prolonged retention would have negative financial effects. In that case the quickest possible exit
is the best choice in order to minimise losses and risks.
5
PROPERTIZE FINANCIAL HALF-YEAR REPORT 2015
GOOD PROGRESS WITH
STRATEGIC THEMES
Good progress was made with the strategic themes adopted by Propertize for 2015. A new
valuation process and a new property information system were, for instance, implemented within
the scope of ‘Propertize in Control’. Of the approximately 16,000 properties serving as collateral
for our portfolio, all the relevant property information has now been recorded and unlocked
digitally.
As for the theme ‘Reinforcing and maintaining Human Capital‘, career talks were held with all the
employees in order to prepare them for their future, both within and outside of Propertize. In
addition, our key values (‘together’, ‘responsibility’, ‘professionalism’ and ‘respectful’) have been
integrated in the assessment cycle as part of Propertize’s culture development.
The theme of ‘Creating value through a smart wind-down’ has been fleshed out in particular by
using the widely available liquidity in the current market in an effective and pro-active way in the
wind-down. Together with our customers and partners several major deals were closed in the first
half of 2015. In addition, a major restructuring operation in Spain was finalised in full and the
sale of a large property project in Germany and a residential property portfolio in the Netherlands
were completed. The latter two had been presented in the balance sheet at year-end 2014 as
‘assets held for sale’.
Market developments
The economic recovery that is expected for 2015 has cautiously begun, but it is still fragile and
vulnerable. The developments with regard to Greece, for instance, and their possible effects on
the interest rate are an important factor in our wind-down assignment.
Propertize does not expect the Dutch office and retail property markets to pick up substantially in
the second half of 2015. Although the residential property market in the Randstad conurbation is
showing signs of improvement, there is not much evidence of recovery in other areas.
The part of our portfolio which is comprised of office financing in the Netherlands continues to be
a point that requires attention, given the development of the vacancy rate.
Progress of wind-down and portfolio developments
The graph below shows the wind-down of the total portfolio on the net exposure level.
Redemptions and
transactions
4,918
-619
Total
Net exposure
end of 2014
6
PROPERTIZE FINANCIAL HALF-YEAR REPORT 2015
Impairments
Net exposure
end of Q2 2015
-16
4,283
Healthy
The wind-down of the portfolio per bucket will be explained in more detail below.
> Bucket ‘Healthy’
Net exposure
end of 2014
Redemptions and
transactions
1,168
-65
Impairments
Net exposure
end of Q2 2015
-1
1,102
The net exposure up to and including June 2015 (€ 1,102 million) has decreased by € 66 million
(6%) compared to the end of 2014 (€ 1,168 million). Of this amount € 65 million was realised
through redemptions and transactions and only € 1 million through an addition to the credit
provisions.
Value
retention
> Bucket ‘Value retention’
Net exposure
end of 2014
Redemptions and
transactions
3,268
-395
Impairments
Net exposure
end of Q2 2015
6
2,879
The net exposure at the end of June 2015 (€ 2,879 million) is € 389 million (12%) lower than at
the end of 2014 (€ 3,268 million) as a result of € 395 million in redemptions and transactions and
€ 6 million in reversals of impairments. The completion of the sale of a project in Germany
(ÜSQ-North) had an impact of € 224 million on the net exposure.
7
PROPERTIZE FINANCIAL HALF-YEAR REPORT 2015
Stop-loss
> Bucket ‘Stop-loss’
Net exposure
end of 2014
Redemptions and
transactions
482
-159
Impairments
Net exposure
end of Q2 2015
-21
302
The net exposure at the end of June 2015 (€ 302 million) is € 180 million (37%) lower than at
the end of 2014 (€ 482 million) as a result of redemptions, for an amount of € 159 million, and
impairments, for an amount of € 21 million. The completion of the sale of Woning-portefeuille
Nederland (Dutch Residential Property Portfolio) had an impact of € 85 million on the net exposure.
8
PROPERTIZE FINANCIAL HALF-YEAR REPORT 2015
FINANCIAL ANALYSIS
Profit and loss account, management view
(in € millions)
1st half year 2015
1st half year
Interest result loan portfolio
49 Operating result property
(2)
(8)
Release impairments on property
0
7
Interest expenses property
(2)
(8)
Result property projects
(3)
Other income
4
Total income
51 Operating expenses
20 Operating result (pre-tax)
31 Taxation on operating result
(9)
Net operating result
21 Impairments
16
71 Impairments attributed to property
0
7
Total impairments and discounts
16 Taxation on impairments and discounts
(11)
Net result impairments and discounts
5 Total net result
15 2014
60
(9)
(0)
51
28
23
(12)
11
78
(20)
58
(47)
Net operating result
Net operating result up to and including June 2015 amounted to € 21 million, which is € 10 million
(91%) better than in the 1st half of 2014. The interest result on the loan portfolio was € 11 million
lower than last year due to the wind-down of the portfolio. Interest income fell by € 17 million.
Interest expenses (funding) also decreased, by € 6 million. Taking into account the decrease in
interest expense on the property portfolio of € 6 million, the net impact of the reduction in net
interest income amounts to € 5 million.
The result of the property projects portfolio until June 2015 was € 6 million better than last year,
which is mainly due to the lower interest expenses. Important drivers for this are the finalisation
of a restructuring operation in Spain, resulting in the deconsolidation of our participation in PDU
(impact on the line ‘release of impairments on property’), and the sale of ÜSQ-North (impact on
the line ‘interest expenses property’).
The other income was € 4 million higher due to the results from assets and liabilities held for sale
(€ 5 million). The main reason for this was the realised sales result for the WNL portfolio, which
sale was completed on 30 January 2015.
Operating expenses fell significantly and were € 8 million (29%) lower compared to last year, due
to a € 3 million decrease in staff costs and a € 5 million decrease in other costs. Staff costs were
lower due to the lower average staffing level, both for internal and external staff. It is our policy
to carry out our activities as much as possible with internal staff, who can work in a challenging
environment at Propertize. The number of external employees hired by Propertize decreased by
62% compared to June 2014. Total other expenses decreased mainly due to a € 3 million decrease
in the costs of (legal) advice and a € 1 million decrease in the cost contribution to be paid to NLFI.
The first decrease is in line with the downward trend of the expenses of legal advice that started
in 2014, caused by the fact that we try to have our in-house lawyers handle as much cases as
possible.
9
PROPERTIZE FINANCIAL HALF-YEAR REPORT 2015
Operating result
The pre-tax operating result consists of taxable results of € 7 million at entities belonging to
Propertize’s fiscal unity, and of tax-exempt (mainly foreign) results of € 20 million. The taxes are
allocated to the operating result and impairments and discounts based on their economic nature.
This, on balance, results in a negative effective tax charge of € 1 million, leading to a total net
result for the first half of 2015 of € 15 million.
The impairments in the first half of 2015 were much lower than in the first half of 2014
(€ 62 million) and include an amount of approximately € 30 million in reversals of impairments
for two properties. These reversals were caused by, on the one hand, a sales transaction and, on
the other, a positive adjustment of the expected realisable exit value. Overall, the coverage ratio
of the credit provisions in relation to the non-performing loans showed a slight increase, viz. from
49% to 52%.
The net result up to and including June 2015 amounted to € 15 million, a € 62 million improvement
compared to the first half of 2014. In addition to the improved net operating result, this was mainly
caused by significantly lower impairments.
The figures stated in this interim financial report have not been audited.
Outlook
The Board of Directors refrains from issuing a formal forecast. However, based on the expected
market developments and the potential impact on the valuation of our portfolio, the Board
expects to close the year 2015 with a (limited) loss.
10
PROPERTIZE FINANCIAL HALF-YEAR REPORT 2015
CAPITAL MANAGEMENT
AND FUNDING
Capital management
Equity
In € millions
30 June 2015
31 December 2014
Total Tier 1 capital
1,193
1,177
Dutch Central Bank prudential filter
(644) (650)
Total own funds for Solvency purposes
549
527
Total Risk Weighted Assets (RWA)
4,750
5,487
Solvency ratio (%)
11.6%
9.6%
Due to the addition of the positive result for the first half of 2015 to the equity, the free available
equity increased by € 22 million. This means that the own funds for solvency purposes is now
€ 49 million higher than the equity originally provided by the Dutch state. Due to the low level
of impairments in the first half of 2015, the level of equity earmarked for future impairments
decreased by only € 6 million. These developments resulted in an increase in the Core Tier 1 ratio
from 9.6% at the end of 2014 to 11.6% as at 30 June 2015.
Funding
In the first half of 2015 the external funding attracted in 2014 was further reduced in conformity
with the wind-down of the property and property finance portfolio. On aggregate the funding
attracted externally was € 3,012 million as at 30 June 2015 (2014: € 3,501 million): a decrease
of € 489 million. As at 30 June 2015 the percentage of MTNs in the funding was 86% (short-term
ECPs: 14%). The remainder of the funding can be specified as follows:
Funding
(In € millions)
Coupon
Nominal
Maturity
Contractual
rate
amount
Bookvalue
(years)
expiration
30-06-2015 31-12-2014
XS10524028
Floating
250
250
250 0.8
4 April 2016
XS10434997
Floating
1,000
1,000
1,000 1.8 10 March 2017
XS10392812
0.5%
750
749
748 1.8 27 February 2017
XS10330237
1%
600
597
597 3.8 18 February 2019
Total
2,600
2,596
2,595
Outstanding ECP’s
416
906
Total funding
3,012
3,501
11
PROPERTIZE FINANCIAL HALF-YEAR REPORT 2015
RISK MANAGEMENT
Non performing and performing gross loans
NPL and PL
Gross loans by
bucket
26
1,009
NPL - 58%
PL - 42%
Gross loans
R Jun 2015
€ 5,628 mln
VALUE RETENTION
NPL
R Jun 2015
€ 3,232 mln
STOP-LOSS
HEALTHY
2,197
Quality of the portfolio
The credit quality, for example expressed as Loan to Value (LtV) and the volume of non-performing
loans of the Propertize property finance portfolio, deteriorated slightly in the first half of 2015
compared with 2014. The levelling of the pace of the rate of deterioration found in 2014 has
continued in 2015. The still lasting poor market conditions continue to cause customers to have
insufficient means in their own reserves to comply with the interest and redemption obligations
not covered by the property’s operating cash flow.
The level of the non-performing loans increased slightly (58% of the portfolio as at 30 June 2015
against 57% at the end of 2014). The absolute increase is less than expected, which means that
the level of impairment charges was lower than in 2014. Of the non-performing loans an amount
of € 1,665 million (year-end 2014: € 1,625 million) had been provisioned, resulting in a coverage
ratio of 52% (year-end 2014: 49%). The bucket ‘Healthy’ consists almost fully of performing
loans; the bucket ‘Stop-Loss’ almost fully of non-performing loans. The bucket ‘Value retention’
consists for 40% into performing loans and for 60% into non-performing loans.
Liquidity
In the first half of 2015 Propertize’s liquidity position was more than sufficient and within the
agreements made. Propertize’s goal is to maintain a minimum cash position of € 100 million at
any moment, a goal that was also realised during the first half of 2015. Every month a liquidity
prognosis is prepared, which is used to determine the liquidity needs. This prognosis is discussed
within the ALM Committee.
Developments in the area of operational risk management
No new significant operational risks were identified in the first half of 2015. In order to recognise
and monitor risks, use was mainly made of Risk Monitoring & Reporting, an Operational Loss
Database and In-control Statements. The management of strategic risks has further improved.
12
PROPERTIZE FINANCIAL HALF-YEAR REPORT 2015
Other information: consolidated balance sheet
Consolidated balance sheet
Start Propertize
(In € millions)
30-06-2015
31-12-2014
31-12-2013
Assets
Tangible fixed assets
4
2
2
Investments in associates and joint ventures
1
2
2
Property projects
305
387
810
Outstanding loans (gross)
5,643
5,847
6,702
Provisions
(1,665)
(1,625)
(1,786)
Loans to customers (net)
3,978
4,222
4,916
Assets held for sale
-
309
Net exposure
4,283
4,918
5,725
Deferred tax assets
9
9
9
Other receivables
51
44
45
Other assets
37
62
67
Cash and cash equivalents
133
299
244
Total assets
4,518
5,336
6,094
Equity and liabilities
Share capital and share premium reserve
3,117
3,117
3,117
Other reserves
(1,940)
(1,891)
(1,068)
Retained earnings
15
(49)
(823)
Equity attributable to the owner of
the parent company
1,193
1,177
1,226
Debt certificates
3,012
3,501
Other provisions
19
19
14
Amounts due to banks
2
262
4.446
Deferred tax liabilities
199
207
249
Current tax liabilities
8
17
8
Other liabilities
85
152
151
Total equity and liabilities
4,518
5,336
6,094
13
PROPERTIZE FINANCIAL HALF-YEAR REPORT 2015
General information
This interim financial report was released for publication by the Executive Board on 21 August 2015.
Disclaimer
This interim financial report only includes factual data and information. The data and information
are based on internal management reports of Propertize B.V. The data and information should not
be interpreted as an opinion or a recommendation with regard to the purchase of the securities
issued by Propertize B.V. This interim financial report contains no opinion on the financial results
of Propertize B.V. or any recommendation to act or refrain from acting in any way.
Propertize B.V. accepts no responsibility for reviewing or updating, or any obligation to review
or update, any information on account of new information or changes in policies, developments,
expectations and suchlike.
About Propertize
Propertize gives loan management, restructuring & recovery and asset management new
meaning with a name in which property, maximize and monetize come together. With the right
people and an efficient organisation, Propertize will wind down its loan portfolio and property
projects in the coming years. We are aware of the extraordinary context within which we operate.
In our organisation, commercial real estate and the public dimension come together. Propertize
is located in Utrecht and employs almost one hundred and eighty people. NLFI is the sole
shareholder of Propertize. Utrecht, 21 August 2015
Executive Board
Hans Copier, CEO
Jack Mondt, CFRO
Reinout van Riel, CPO
14
PROPERTIZE FINANCIAL HALF-YEAR REPORT 2015
COLOFON
Concept and design
Ambitions, ’s-Hertogenbosch
Text
Propertize, Utrecht
PROPERTIZE DAALSEPLEIN 101 - 3511 SX UTRECHT - POSTBUS 71 - 3500 AB UTRECHT T +31 (0)30 - 702 28 00 I PROPERTIZE.NL