Transcripts
DIC Asset AG (DDCCF) Q1 2023 Earnings Call Transcript
Operator
[Operator Instructions] And the first question comes from Andre Remke.
Andre Remke
Yes. Good morning, Sonja. Thank you for the presentation. A couple of questions from my side, please. First, you mentioned that you lost the management mandate in the first quarter, what was asset under management volume here? And does it only relate to property management? Did I get it right? This is the first question, please.
Sonja Warntges
Good morning, Andre. Thank you for the question. Yes, that’s right. You got it right. It was around about EUR500 million, and it was only the property management. So therefore, we had annual fees, as mentioned, of around about EUR400 million per year, which we lost now.
Andre Remke
And do you see the risk for any further cancellation or was it onetime effect or onetime contracts, so to say?
Sonja Warntges
We do not see further takeaway, so to say. So this was planned. It was the property management of the Wings Tower here. So we get the Wings Tower done. And at the end, the management of the property is now taken over by the new owner, and we did a takeover, and now it is gone. So it’s only property management of the development of the Wings Tower. But we do not see any other cancellations.
Andre Remke
So this is probably fair to say that it’s a very low margin business, right?
Sonja Warntges
Yes. It was only the property management, as said, and property management is a very, very low margin business, yes. But we developed this, and so we did it until the new owner had a new property manager, and now it is gone.
Andre Remke
Okay. Because the assets under management overall year-to-date declined by EUR600 million, and this is the bulk. There are no further write-downs on assets under management in the institutional business, right?
Sonja Warntges
Yes. The decline comes from the property management contract I mentioned, and on the other hand, from the sales of the Chemnitz asset end of last year, where we had the transfer of ownership now at the end of Q1.
Andre Remke
Okay. That’s clear. Then a second question, could you provide us with the terms of your mentioned refinancing activities, especially in terms of margins or all-in cost? What are the conditions at the moment for you?
Sonja Warntges
Yes. The conditions are, it’s a seven-year contract, and the interest rate is 4.48%.
Andre Remke
For the EUR505 million syndicated loan?
Sonja Warntges
Yes.
Andre Remke
And the — okay. The other was a repayment, the EUR245 million, right?
Sonja Warntges
Yes, definitely.
Andre Remke
Okay. Thank you. Then the last question. Given the situation of the transaction market at the moment and, of course, everybody is hoping for an improvement in the second-half, but how have you adapt your planned optimization of your financing structure if also the second-half would not offer any meaningful disposal opportunities at least, if this could be a risk? And how flexible are you in terms of refinancing of the bridge loan or would, at some point in time, then again, a capital hike could be not being ruled out?
Sonja Warntges
As you can imagine, we are working on more than one plan to get our goals done, yes. And I think the transaction market is very, very quiet as said, as you can imagine for everybody. But you have a split here in the different asset classes. So if you look on the office side, there is, so to say, ask and bit strip, yes, so there would be transactions, but they could not find the right price at the moment.
But you have a different picture on the logistics market. So logistics is, at the end of the day, very attractive also today. And so there are a lot of — there is a lot of interest in getting done transactions in the logistics market. But at the end of the day, it’s a very small market and so therefore, we look on disposals here as well as on office.
So you have seen that we have sold the Kaufhof in Chemnitz at the end of last year with very positive result. And so we use our network to work on these different, yes, types of sales, so to say. And we have some attractive assets on the market now. It’s more or less off-market market, so to say, but we see a lot of interest here. But definitely, we have to work a lot more than in the past to get things done. And it takes longer time on a total market, on the letting market as well as on the transaction market.
And yes, on the other hand, we do the refinancings, as you have seen. So we work on different work streams to get our goals done and delever and reduce the LTV until the end of the year. But I think at the end of the day, we will see transactions on the market. And I think we will definitely see more transactions in Q3 and Q4. It’s then a question of asset class and price, yes.
But you have to also keep in mind that as you see on our like-for-like ratios and also on the commercial portfolio is 4.7% on our own commercial portfolio with our assets that we manage. You see that the increase in the rents are, yes, driving also the value of the assets and then the new interest rate decrease, the assets at the end of the day, as at the end of last year for our commercial portfolio, it was a little plus, but it stays on the same level for the value of the asset. And so I think there is a good — or this is a good picture for the value of our assets also for this year, yes.
Andre Remke
But as I see the market report, especially for the first quarter, they are also in the office segment, a decline of capital values of, let’s say, 6% or so despite the fact that this is already including higher rents. So the question is how — would you be at the last point, be willing to accept higher discounts to avoid massive dilutive capital increase? So is this also within your planning scenario?
Sonja Warntges
I don’t think that this is the right point. So if you see transactions, as said, it is a very — on a very, very low basis and is a very low basis, compared to the years before, definitely. But I think it’s a question of the unsecurity we have on different complex levels in the market, interest rate, transaction, the equity from institutional investors, and so on. There is a lot of equity, a lot of money in the market, which has to be placed, and it will be placed. And I think it will be placed in other ways than we saw.
So for example, at the moment, we spoke with some community, some towns who want to buy some of our assets. So that is a very special case, but there are cases, yes, and there are possibilities and I do not expect that we sell the assets with a very high discount, yes. So we definitely want to sell, but we have a lot of assets which we can sell, and I think we would find the right ones. For some of them, we have to take a discount. I think it’s definitely what we see. For some of them not. But at the end of the day, we decide on an individual basis from asset to asset, yes.
Andre Remke
Okay, perfect. That’s all from my side. Let’s hope for better [Indiscernible] and good luck to you and your team. Thank you.
Sonja Warntges
Thank you.
Operator
The next question comes from Stefan Scharff, SRC Research.
Stefan Scharff
Yes, good morning, Sonja. Stefan here from SRC. The first question is about your good like-for-like performance. I was just wondering a little bit, in the commercial portfolio, the like-for-like performance was almost 5%, but in the institutional business, it was 9%. So perhaps you can say a bit more here.
And my second question is about the structure of your commercial portfolio. You got a new rental contract for Kaufhof in Leverkusen with Aachener fashion house. So perhaps now that could be a good moment to try a sale transaction here or some other non-core assets in the commercial portfolio, even in these challenging times. Perhaps you can say here a bit more about your plans.
And third question would be the DACHSER prolongation in Biebesheim, near Darmstadt, quite a big prolongation and more than 30,000 square meters. But I could read in the press release that you will also do there some investments to lift the standards for ESG and the green standards for this property. Perhaps you can say here a bit more about the hike in rental income, but also the CapEx expenditures, which are necessary.
Sonja Warntges
Good morning, Stefan. Thank you for the question. So I come to Kaufhof, Leverkusen at first. Yes, this was — we had a discussion with the new [Indiscernible], so to say. He is very progressive in the market at the moment, but I think he has a very good concept, a very long experience. And so we decided to do the contract with him. And it’s a good contract also for the costs, which — where he now pays definitely more from than before from Kaufhof postpaid. And so it’s a good contract. We had to do a little bit work here. But at the end of the day, he took it as it is, and it was without a lot of risk incentives.
So it’s a good sign for ourselves and also for the town. So this is a very special situation here. And as you can imagine, we are in discussions here with some interest — or with some guys who are interested in buying this. And yes, definitely, it’s a possibility. But at the end of the day, as said, it’s not a market here. So you have to find or discuss with one or two possible guys who are interested and definitely, we are doing this at the moment. The first question, I can’t remember.
Stefan Scharff
The like-for-like, the difference between your commercial portfolio and the institutional business where it was much higher, the like-for-like hike?
Sonja Warntges
Yes, that’s a very good question. So the like-for-like growth in our institutional business mainly comes from the letting of the Global Tower here. So this is a development we are doing here where we have a joint venture, and we have a very lot of success here in the first quarter, end of last year and the first quarter, as we also do an additional contract now here in May. We have signed it, I think, yesterday. And therefore, the like-for-like growth in the institutional business comes mostly from — or that the gap between the normal like-for-like growth as we’re having in the commercial portfolio, around about 4% to 5%.
It’s also in the institutional business. And the add-on comes from these very interesting contracts in the Global Tower here because, at the end of the day, it was the latest contract. We have now nearly fulfilled the total tower within one year, and I think that’s a very big and good success story, and it brings us to these like-for-like numbers in the institutional business.
Stefan Scharff
I see. And the DACHSER Biebesheim, the investments there?
Sonja Warntges
Yes, that was the last question. So we have CapEx of round about EUR1.7 million here and we have a 10-year contract plus returns prolongation option for two years each.
Stefan Scharff
Okay. With a bit higher price in square meter prices?
Sonja Warntges
Yes. Let me look. It’s around about 10% overall.
Stefan Scharff
Okay, okay. And if I take a look at your rental expiry profile, which is slide six, I can see next year is just 6%. That’s not too much, but then in ‘25, you have 14% in your rental expiry. Perhaps you can say here a bit more what that is.
Sonja Warntges
Yes. So I think it’s the two-years contract here in the [Indiscernible] it’s the old stock exchange headquarter here where we have only two years contract and which is also renewed, and we are still working on this contract, because it’s a very interesting office and a very interesting letting contract. So we are still in discussions with the existing large tenant and also a new one, and that’s the major point here in the next year.
Stefan Scharff
Okay, I see. Thank you.
Sonja Warntges
Thank you.
Operator
So the next question comes from Jochen Schmitt, Metzler.
Jochen Schmitt
Thank you. Good morning. I have four questions, please. First question, could you give us more details on the LTV? What is your expectation for this figure if the investment fund already set up by VIB is settled completely cash-wise? It seems to me that the fund has not been completely settled yet. That’s the first question.
Sonja Warntges
Good morning. Yes, thank you also for the question. The fund has not completely settled yet, definitely. So it’s around about 51%. And the number you see here in the balance sheet is that we have not cashed it, so to say. So we have the receivable there, which will be paid, I think, at the end of June. That’s the first one. And the LTV, as said, we want to reduce it of around about 50% or below 50% at the end of the year, but the plan includes not 100% selling of the shares of the VIB fund, so to say.
Jochen Schmitt
Okay. Sorry, just to follow-up. But if the cash inflows for the 51% stake sold to investors is to come in, then the improvement should be around 2 percentage points in the LTV, is that right?
Sonja Warntges
Yes, 2% to 3%. That’s right. Yes.
Jochen Schmitt
Okay. Thank you. Second question, how should we think about valuation downside risk of your commercial portfolio with regard to your targets to reach an LTV below 50% until year-end? That’s the second question.
Sonja Warntges
Yes. That’s a very good question. So we are working on the expectations here, and we are also working on the numbers. So we have identified the total commercial portfolio where we see a risk, so to say, because of the market trends included in the evaluation and the rents we have here. And so we have a very detailed program, which we are working on for the assets where we see a potential risk. And we are still in discussion with our different departments of letting, selling, and so on to get this handled.
But at the end of the day, as I said, with the increasing letting numbers, and yes, the expectation we have for the interest rate for this year, that’s also the question. You can imagine, I don’t have a crystal ball here. We do not see a risk here, a big risk here for the evaluation of our commercial portfolio.
Jochen Schmitt
Third question, very briefly. Do you plan to stream up the cash of the new syndicated loan on VIB level by an intragroup loan to DIC level?
Sonja Warntges
We are evaluating different possibilities, so to say, how and — what we want to do and how we can do this, but this is definitely one of the options we are working on and which we have in our mind what we can do there.
Jochen Schmitt
Okay. And my last question is on your cash flow statement. There is a figure of EUR189 million for acquisition of other investments. Could you provide a breakdown here? Thank you.
Sonja Warntges
This is mainly the portion we have signed for the VIB retail fund for the deconsolidation of this fund.
Jochen Schmitt
Sorry, just to follow-up, I think this should be around EUR100 million, shouldn’t it? And then this would still mean that you had almost EUR90 million of this acquisition or CapEx acquisitions for other investments? Am I right here?
Dirk Oehme
Hello. This is Dirk speaking. We have another investment in already existing warehousing funds that we took, and we have that other receivable that you see on the balance sheet that is here in the cash flow statement included as an investment. So it’s not yet the cash money that we received for selling the properties.
Jochen Schmitt
Thank you very much.
Sonja Warntges
Thank you.
Operator
The next question comes from John Cahill of Stifel.
John Cahill
Hi, good morning, everybody. It’s John from Stifel. Can you hear me okay?
Sonja Warntges
Yes, we hear you good.
John Cahill
Great, great. Thank you. I’ve got two questions, the first one is just on your LTV targets. Really pleased to see that the intention is to get that below 50%. With the very clear guidance you’ve given on acquisitions and disposals, looks like it couldn’t be this year, given the acquisitions and disposals are fairly evenly balanced. I’m just wondering what kind of time horizon you were looking at for achieving that target.
Peer Schlinkmann
Thanks, John. Peer speaking from the IR team. Thanks for your question. Yes. I mean, including all the targets we have coming from the disposal targets, et cetera, and the FFO, we expect to achieve this year our targets, of course, to come to 50% by end of this year. But as usual, I mean, we couldn’t exactly accurate give a view on the timing, exact timing here. So it could be also after the balance sheet date end of December. But given all these measures we have in place and targets, we’re expecting it to come down to 50%, and this includes then the disposals of EUR300 million to EUR500 million disposal of the commercial portfolio. This includes the FFO contribution throughout the year, plus, of course, also the cash income from the placement of the shares of the VIB retail fund.
John Cahill
Okay. Great, that’s very helpful. Second and last question, please. Your portfolio initial yield has come down and this was slightly over the last 12-months. I just wondered, given that the risk-free rate in Germany has increased significantly over that period, how that could be? Maybe a bit of detail on that, please.
Peer Schlinkmann
This is — just nothing to do with the valuation of the portfolio just through the changes in the portfolio through disposals, yes, we had especially the disposal of the Kaufhof property by end of last year, yes.
John Cahill
Okay. So basically, you disposed of some high-yielding assets.
Peer Schlinkmann
Exactly, yes.
John Cahill
Great, that’s very helpful. Thank you very much.
Operator
So at the moment, there are no further questions. [Operator Instructions] There’s one question coming from Markus Schmitt, ODDO BHF.
Markus Schmitt
Yes, good morning. Thanks for taking the question. I have a couple, so the first one is on your bond covenant calculation. There is no exact calculation in your documents, but I assume it’s basically reflecting the adjusted LTV because the two figures are almost the same. But when this is correct, then your bond covenant calculation is subject to market values and not book values. Is this correct because there’s quite limited headroom?
Sonja Warntges
Yes, that’s correct.
Markus Schmitt
Okay. And could you please explain how fair value changes were in Q1, because you had an asset sale and see in the total market value, number came down, but I see in the appendix that the amount of fair value adjustments went up slightly. So could you break this out, if possible, and if applicable at what market value discount you sold the assets in the quarter.
Peer Schlinkmann
Hi, Peer speaking. So we had no valuation changes in Q1. So nothing from this side. So maybe we can take this offline and then go through the numbers again. So we’ve seen different in the numbers. But as I said, regarding the bond covenants, we’re referring to the market values of the properties, yes.
Markus Schmitt
Yes, okay. I mean the math is a little bit cloudy for me, but maybe we can — and then a question on your short-term maturities. So I think the 2023 bond will be repaid from cash on hand if the bond market will remain like this for the rest of the year. Is this the plan?
Sonja Warntges
Yes, that’s the plan.
Markus Schmitt
Yes, okay. And is it for your strategy to shift assets from the commercial portfolio into the managed vehicles in the institutional business in order to manage the debt maturities and LTV? Is it something you’re discussing with investors and customers on the institutional side? Or would this not help because I see that the adjusted LTV calculation includes all the fair value of the institutional business or shifting assets and that would not have an effect then? Maybe you could clarify a little bit.
Sonja Warntges
So at the moment, we are selling the shares of the existing so called warehousing funds, yes, and the warehousing assets where we have some on the balance sheet, but we do not plan to shift further assets from the commercial portfolio into funds at the moment.
Markus Schmitt
Okay. And finally, could you disclose the total value of unencumbered assets and if a higher share of secured funding is something you’re working on as well as maybe one tool in terms of managing the debt structure. So is there any target in terms of unencumbered assets ratio?
Sonja Warntges
Normally, we have on all assets secured debt financed normally by banks, and we have only two unencumbered assets, and I think they have a volume of around about EUR10 million to EUR12 million.
Markus Schmitt
Okay. So basically, no headroom you would say, in terms of unencumbered assets to utilize it for future — for further secured funding in the assets?
Sonja Warntges
No. Besides these two, none.
Markus Schmitt
Okay, good. Okay and thank very much.
Sonja Warntges
Thank you.
Operator
So thank you. There are no further questions at this point. So I’d like to hand it back to the speakers.
Peer Schlinkmann
Hi, Peer speaking here. Thanks again for joining today’s conference call. As usual, if you have any follow-up questions, please don’t hesitate to contact the IR team, my colleague, Max and I’m available for any question. So enjoy the rest of the day and the week and hope to speak to you soon. Bye-bye.