Presentation officenter financial strategy

www.officenter.be Page 1

Community building by acquiring business centres buildings

The strategy of OFFICENTERChrista Jouck en Koen Batsleer

Customer satisfaction is our only focus


STRUCTURE OF THE PRESENTATION

I. The Origin

II. Expansion mode : Growing the business

III. Product and customers

IV. Financing structure

V. The business model revisited

VI. Wrap-Up


I. THE ORIGINACQUISITION OF OFFICENTER HASSELT, april 2010

OFFICENTER was founded in 1980 as ‘business-center’ van 4.700 m², leased with ‘services’.

2000 – 2008 : stable lease-income, but increasing costs decreasing EBITDA yearly

A main customer occupying 40 % of the surface left in 2010 owners wanted to ‘stop’ business/sell building

The acquisition of OFFICENTER HASSELT was a profitable project of Christa and Koen, supported by some friends.

Acquired in 2010 with 10 ‘friends/entrepreneurs with the aim of developing Officenter :

From a ‘lessor’ to a ‘service company Not renting m² but ‘workstations’ With an additional services for flex-

offices and meeting rooms


I. THE ORIGINACQUISITION OF OFFICENTER HASSELT, 2010 - 2013

Transfering ‘OFFICENTER’ from a lease-company to a business center was dons succesvully in 2010 -11

Turrnover and EBITDA almost doubled after a transition period of appr. 2 years.

With OFFICENTER HASSELT, we proved that business centers have a potential market in ‘regional cities’

Officenter Hasselt is actually the host of more then 150 companies in Hasselt

Were we have created a real community : Monthly meet and Greet Sporting event Business inspiration event


II. EXPANSION MODE : GROWING THE BUSINESS ACQUISITION OF BC BERKENHOF OFC TURNHOUT, SEPT 2011

BERKENHOF was built in 1995 as a 2.600 m² ‘business center’, but it was > 65 % empty and the owner wanted to stop the business.

We have acquired this building, and have transformed it :: From a ‘lessor’ to a ‘service company Not renting m² but ‘workstations’ With an additional services for flex-offices and meeting rooms

Officenter Turnhout has realised our expectations : : We had an opening with more then 650 entrepreneurs

present in 2011 Less then 24 monthis, the building was fully ocupied with

more then 135 workstations. Actually, OFFICENTER TURNHOUT is the home for

more then 50 companies and is anchored in the local entrepreneurship community

With the acquisition of OFFICENTER in TURNHOUT we have proven that ‘our ‘model’ could be multiplied to other regional cities in

Flanders.


II. EXPANSION MODE : GROWING THE BUSINESSACQUISITION OF BEDRIJVENCENTRUM RUPELSTREEK OFC A12, 2012

Qitnhin 18 monthis, we have increased the occupation to 100 %, by creating our local ‘OFFICENTER COMMUNITY’.

Acutally, OFFICENTER A12 is the home base for more then 65 companies in this region and is used very frequently by our other OFFICENTER customers as a ‘meeting place’.

With Officenter A12 we have demonstrated that our‘business model’ is different from the ‘traditional’ “bedrijvencentra”.

Office-building ‘Bedrijvencentrum Rupelstreek’ Traditional B.C., 1.850 m², ca. 40 offices Owned by Eandis, KBC and the local government Occupation in 2011 < 50 %, <. 25 people, loss making.

We have acquired this building in 2012 and after renovation we have opened this 3th OFFICENTER together with 750 entrepreneurs and Minister –President Kris Peeters.

‘BEFORE’

‘AFTER’


II. EXPANSION MODE : GROWING THE BUSINESS 2013 : THE CREATION OF OFFICENTER MAASTRICHT

In 2013 have realised our 4de OFFICENTER in MAASTRICHT, crossing the border.

Together wit 15 entrepreneurs, we aquired an empty office building, with an optimal location to create a performant local business centre

After one year, the occupation rate (35-40 %) issomewhat lower then expected, but the local investors are convinced that this building will become a performant local business centre the following years.

.With Officenter Maastricht we demonstrate that our‘business

model’ is not limited to the Belgian territory.


II. EXPANSION MODE : GROWING THE BUSINESS OFFICENTER LEUVEN

We need min. 5 centers to have an optimal scale

Can be managed by 1 person (Christa), supported by 0.3 CFO (Koen)

Leuven is the logical 5th location for an OFFICENTER

Agreed upon in December 2013, acquisition March 2014, opened May 2014

Has-selt

Turnhout

Leu-ven Maas

tricht

Ant-werp


III. PRODUCT AND CUSTOMERSWhere do we make the difference ?

Christa1. Mgt. Experience of

business centers2. B2C experience3. Franchising

experience

Koen1. Focus on ‘savings’

on office costs2. Finpower-revenue3. Progressive user

(NWW)

Investors 1. Friends2. Entrepreneurs

long term savings

Standardised products

Pricing based on 100 % occupation

Minimal cost of management

Community-oriented

Long term ‘value’ focus, no short

term profit-orientation

Price ‘cost plus’, 20 % lower then: 1. Referencepoint

customers (renting appartement)

2. Competition“Alll in = alll in”

Price/Quality acceptable for

SME-er ‘staying forever in Officenter

Customer loyaty 2-5 x higher then

market average

No strong commercial

team needed ‘only on

demand offers’


IV. FINANCING STRUCTUREDifferentiator 1 : Buying the Building

Traditional ‘Corporate’ Model : High investment for start-up of B.C. :

Investment up front : furniture, ICT, marketing …

Start-up-losses (before achieving target capacity utilisation)

For Regus : appr. 1 Mio €/new centre !

So, acquisition of building is too much leasing of building is ‘logic’ in this sector

This also minimizes the ‘capital needed’ if you want to grow fast

Regus has doubled in size in 2013 vs. 2010

‘Small Enterprise ‘Approach : Yield demanded for Offices app. 8-9

% of ‘buying cost’ (decrease in market value of office buildings)

Yield is substantially higher than cost of bank financing

Traditional ‘office buildings’ are not suited for business centre use

Structural changes in the buildings must be done by ‘owners’

Acquisition-cost of building for Officenter is less then 50 % of total investment pro center !

With OFFICENTER, we wanted to buy the buildings, but we did not have the financial means …


2 ‘Key Elements’ of the Market Today : Leverage is ‘inversely’ related to size :

‘Jan met de pet’ can finance more then 80 % of his house

A SME finances 70-80 % of its investment Many multinationals aim at a leverage of

less then 50 %

Yield of ‘Offices’ is exceptionally high : Houses, apartments : 2-4 % Retail : 5-6 % Offices : 7-9 %

An ‘entrepreneur’ finds an interest rate of 7 % ‘high’.

Looking for ‘private investors’ who see this as ‘their building’ will create a intrinsic ‘higher’ return

IV. FINANCING STRUCTUREDifferentiator 2 : Subordinated Loan à 7 %

Assets Liabilities

Equity

Building with Subordinated loanyield 7-9% 7%

Bank financingInterest 4%


75 % bank financing : feasible if Officenter Holding gives ‘support’ (cash deficiency clause to addt. Mortgage)

> 25 % ‘own funds’ : Officenter Holding : 40 %, of equity, only 5 % of ‘total investment’ Locale entrepreneurs : 60 %, of equity + 2 x this amount in loan

Direct return in ‘intrest-renumeration’ of 4,5 %, acceptable for entrepreneurs Long term value creation by repayment of bank financing over 20 years.

IV. FINANCING STRUCTUREDifferentiator 3 : Local majority

Total financing need : 2.550.000

OfficenterLocal

Investorss per 5 % per 4 %40% 60% 5,0% 4,0%

14% Equity 350.000 140.000 210.000 17.500 14.000 16% Subordinated Loan 420.000 420.000 35.000 28.000 70% Bank financing 1.785.000 1.785.000

2.555.000

Pro investor : Equity : 5% 17.500 Investors must be : ==> pro rate 95 m² office space 1. located in the business centreSubordinated loan : 35.000 2. or have a broad network in the region ==> Intrest pro year : 7% 2.450 or, on global investment : 4,7% 52.500


V. FUNDAMENTAL ISSUEThe paradigm of the actual financial market ‘long term returns’

1980 Traditional model' 2013 lower 'intrinsic' profitability of companies 2013 lower 'intrinsic' profitability of companies Profitability of companies : 6 % Profitability of companies : 6 ==> 5 % Profitability of companies : 6 ==> 5 % Intermediation margin of financial market : 2 % Intermediation margin : 2 ==> 2,5 %

==> Capital market 'captures' 50 % of value created ==> capital market captures > 2/3th of the profitability but, pension is OK since it is 3 x its face value pension captures < 2,5 % = inflation rate …

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The ‘financial’ market will oblige people to look for other (direct ?) long-term investments then pension funds.


Operational excellence is the fundamental in our/every business model Our only focus is customer satisfaction … no ‘dividends’ will be distributed. Retention rate from 50 % to > 90 %

We have our ‘advantages of scale’ with 5 business centers Is optimal, growing will mean more then 1.3 FTE overhead ….

? What is the mean of our sector ?

With our ‘unique’ financing structure, we combine different aspects : We aim at ‘7 % equity return’, which is :

The double of the return of pension funds in their long term Creates with the low intrest-rates a cost of capital of 4-5 %, lower then the market-rate in our sector (6-9 %)

We (Officenter Management) ‘control’ the ownership of all these buildings We are co-investors, risking our own money in this project (all our personal funds are engaged in this project) We take the risk, but have a main upside potential if our business in succesfull

We ‘anchor’ a local investor team which is partially occupying the building

The combination of ‘operational excellence’ and ‘local ownership/funding’ should create the optimal risk/return equilibrium

VI. CONCLUSIONS

Small Business & Entrepreneurship

Presentation officenter financial strategy