Good morning, ladies and gentlemen, a very warm welcome to DIC's First Quarter 2023 Results Conference call. Today, as usual, I'm joined by my colleagues from accounting and investor relations. We will give you now a short presentation of our results and highlights for the first quarter, followed by a Q&A session. Ladies and gentlemen, just a few weeks ago, we shared news of the most successful financial year in the company's history with you at the general shareholders meeting. We promised you that we would continue to work to achieve success for DIC Asset AG with the usual dynamic performance and presented our strategy to you. We are on track to do just that. The development of our business activities and the key financial figures for the first quarter of 2023 are in line with our expectations. The market environment remains challenging.
The transaction markets are showing a strong decline in the first quarter compared to the previous year. We therefore do not expect the markets to normalize until the second half of 2023 to implement our transaction targets. Nevertheless, the letting markets present a different picture characterized by a high proportion of renewals and significant like-for-like rental growth. In addition, our current focus is on the continuous improvement of our financial structure. In Q1, we successfully implemented initial steps here, including the refinancing of a logistics portfolio at the level of our subsidiary, VIB, and the sale of the Kaufhof property in Chemnitz, where the transfer of ownership took place in Q1. We are also proud regarding the development of our ESG activities on which we report in our comprehensive sustainability report that we will publish within the next two weeks.
We already recently announced that we had once again been awarded for the rating agency Sustainalytics. With an ESG score of 6.8, we improved on the previous year by 2.4 points. This puts us among the 10 companies in the international real estate industry. Again, this makes us proud, and the same time shows how deeply we have already anchored ESG in our corporate DNA. Now let's take a brief look at the changes of our real estate platform in the first three months of this year. In a year-on-year comparison, the commercial portfolio now accounts for a larger share of the total assets under management. After the successful consolidation of VIB, the commercial portfolio almost doubled to EUR 4.1 billion. Overall, the assets under management increased by 22% year-on-year to EUR 14.1 billion.
Compared to the end of last year, assets under management declined slightly due to the termination of a major property management mandate in the first quarter of 2023. This mandate generated EUR 400,000 of annual fee income. On the following slide, we show you our letting take-up in the first quarter. Our letting teams have once again performed exceptionally well. The letting performance of the DIC platform in the first three months of this year rose by 88% year-over-year to 123,400 square meter, partly as a result of the higher proportion of logistics lettings. We also achieved letting successes with retail properties and the hotel property managed for third parties in Hamburg. This included, for example, the rapid reletting of 20,400 square meters at the former Kaufhof location in Leverkusen to the fashion store Aachener.
With this direct reletting for a term of 10 years, we succeeded in securing the continued operation of the retail location in Leverkusen and the attractiveness of the city center. The property remains fully let and sustainably strengthens the rental cash flow of our commercial portfolio. Last year's strong rental growth continued positively in the first quarter as well. Like-for-like, the rental income rose by 7.8% for the entire portfolio under management. Both in the commercial portfolio with a plus of 4.7% and in the institutional business with a plus of 8.8%, rent increases were realized primarily through indexations and increased renewals. Our next slide, you can see the development of our main income streams. The development of our main income stream shows a mixed picture in Q1.
There was a strong increase in net rental income due to the takeover of VIB and a significant year-on-year growth in the commercial portfolio. We saw a decline in the real estate management fees due to a quiet transaction market, but that was expected. The share of recurring income rose to 100% by the end of the first quarter. We generated income from associated companies of EUR 900 million, which is below the previous year result of EUR 4.5 million due to lower transaction business. The development of our main income streams is also reflected in the year-on-year development of the FFO, sorry. The net rental income saw a strong increase as mentioned due to the VIB consolidation and the like-for-like rental growth of our commercial portfolio.
As we saw, acquired transaction market as expected, the decrease of the real estate management fee income was due to 0 fees from transactions in Q1 2023. The net interest result is down mainly due to the initial recognition of VIB, the bridge loan and one-off effects from the recent refinancing activities on the VIB level in the first quarter. Our OpEx increased in line with the growth of the platform and are on a normalized level, including VIB. In the previous year, EUR 4.9 million transaction costs were included. All in all, this results in an FFO of EUR 12.9 million for the first quarter 2023. Let's look at our valuation and adjusted NAV which takes into account both: the value of our balance sheet portfolio as well as the full value of our asset management business.
The NAV per share increased to EUR 18.48 at the end of March 2023, versus EUR 18.29 by the end of December 2022, mainly due to the comprehensive income in Q1, 2023. The adjusted NAV per share increased similarly to EUR 22.03. On the next slide, we give you a quick overview of our financial structure. As also mentioned in our last conference call, we are focused on the optimization of our financial structure in 2023 through refinancing activities and want to also reduce our loan to value ratio back to a level below 50%, primarily through the use of sales proceeds to reduce our overall debt. We already made some progress here in Q1.
As of the balance sheet date, the loan to value was reduced by 50 basis points since the start of the year, especially due to the transfer of ownership of the Kaufhof Chemnitz in the first quarter. In Q1, we also agreed on a new syndicated loan for a total of around EUR 505 million. Roughly EUR 245 million were used to repay an existing financing for 45 properties at the level of VIB. This also led to a higher level of cash on hand of EUR 498 million and an increased average maturity to 3.8 years for the total outstanding financial debt. Ladies and gentlemen, as usual, I'm concluding my presentation with a final look on our guidance for the current fiscal year.
We confirm the guidance numbers as of today as we expect a normalization of the transaction market in the second half of this year and therefore a strong increase in our management fees stemming from transactions. We are targeting disposals from our commercial portfolio to mainly use the equity release to reduce our leverage as planned. Thank you for taking the time to join our conference call today, and we are happy to answer your questions now.
Ladies and gentlemen, if you would like to ask a question now, please press 9 followed by the star key on your telephone keypad only once. If you wish to cancel that question, please press 9 followed by the star a second time. The first question comes from André Remke . Please go ahead. Your line is open.
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 the assets under management volume here? Did it only relate to property management? Did I get it right? This is the first question, please.
Good morning, Andre. Thank you for the question. Yes, that's right. You get it right. It was around about EUR 500 million, and it was only the property management, so therefore we had the annual fees, as mentioned, of around about EUR 400 million per year, which we lost now.
Do you see the risk for any further cancellation, or was it a one-time effect or one-time contract, so to say?
We do not see further takeaways, so to say. This was planned. It was the property management of the Rings Tower here. We get the Rings 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. It's only property management of the development of the Rings Tower. We do not see any other cancellations.
This is probably fair to say this is, very low margin business, right?
It was only the property management asset, and property management is a very, very low margin business. We developed this, we did it until the new owner had a new property manager. Now it is gone.
The asset under management overall, year-to-date, declined by EUR 600 million, and this is the part there are no further write-downs on assets under management in the institutional business, right?
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.
Okay. That's clear. 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?
Yeah. The conditions are, it's a seven-year contract and the interest rate is 4.48%.
For the EUR 505 million syndicated loan?
Yes.
For the, okay, the other was a repayment, the EUR 245 million, right?
Yes, definitely.
Okay. Thank you. The last question, given the situation in 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 opportunity? At least this could be a risk. How flexible are you in terms of refinancing of the bridge loan? Would at some point in time is then again, the capital hike, could be not being ruled out?
As you can imagine, we are working on more than one plan to get our goals done. I think the transaction market is very, very quiet asset, as you can imagine for everybody. You have a split here in the different asset classes. If you look on the office side, there is so to say, ask and bid trap. There would be transactions, but they could not find the right price at the moment. You have a different picture on the logistics market. Logistic is, at the end of the day, very attractive also today. There are a lot of, or there's a lot of interest in getting done transactions in the logistics market.
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. You have seen that we have sold the Kaufhof in Chemnitz at the end of last year with a very positive result. We use our network to work on these different, yeah, types of sales, so to say. We have some attractive assets on the market now. It's more or less off market, so to say, yeah. We see a lot of interest here, yeah. Definitely you 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.
Yeah, on the other hand, we do the refinancings as you have seen. We work on different work streams to get our goals done and delever and reduce the LTV until the end of the year. 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.
You have to also keep in mind that, as you see on our like-for-like ratios and also on the commercial portfolio with 4.7% on our own commercial portfolio with our assets that we manage, you see that the increase in the rents are driving also the value of the assets and then the new interest rates 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. I think there is a good or this is a good picture for the value of our assets also for this year.
As I see the market reports, especially for Q1, they are also in the office segment. You have a decline of capital values of, let's say, 6% or so, despite the fact that this is already including higher rents. The question is, how would you be at the last point, be willing to accept higher discounts to avoid a massive dilutive capital increase? Is this also within your planning scenario?
I don't think that is, that this is the right point. If, 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. I think it's, it's a question of the insecurity we have on different complex levels in the market, interest rates, 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, yeah. I think it will be placed in other ways than we saw. For example, at the moment, we spoke with some communities, some towns who want to buy some of our assets. This is a very special case.
There are cases, there are possibilities, I do not expect that we sell the assets with a very high discount. We definitely want to sell, we have a lot of assets which we can sell, 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. At the end of the day, we decide on an individual basis from asset to asset.
Okay, perfect. That's from my side. Let's hope for a better second half and good luck to you and your team.
Thank you.
Thank you.
Next question comes from Stefan Scharff, SRC Research.
Good morning, Sonja. Stefan here from SRC Research. 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%. Perhaps you can say a bit more here. My second question is about the structure of your commercial portfolio. You, you got a new rental contract for Kaufhof in Leverkusen with Aachener Modehaus. 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.
A third question would be the Dachser prolongation in Biebesheim near Darmstadt. Quite a big prolongation and more than 30,000 square meters. 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.
Good morning, Stefan. Thank you for the questions. I come to Kaufhof Leverkusen at first. That was, we had a discussion with the new, with the new Aachener, so to say. He's very progressive in the market at the moment, but I think he has a very good concept, a very long experience. We decided to do the contract with him. It's a good contract also for the costs which where he now pays definitely more from than before from Kaufhof was paid. 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.
It's a good sign for ourselves and also for the town. This is a very special situation here. As you can imagine, we are in discussions here with some interest or with some guys who are interested in buying this. Yeah, definitely it's a possibility. At the end of the day, as said, it's not a market there. You have to find or discuss with one or two possible guys who are interested in and definitely we are doing this at the moment. The first question, I can't remember.
The like-for-like, the difference between your, commercial portfolio and the institutional business where it was much higher, the like-for-like hike.
Yeah. That's a very good question. The like-for-like growth in our institutional business mainly comes from the letting of the Global Tower here. 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, in the first quarter. We also do an additional contract now here in May. We have signed it, I think yesterday. Therefore the like-for-like growth in the institutional business comes mostly from. The gap between the normal like-for-like growth as we have it in the commercial portfolio, around about 4% to 5%. It's also in the institutional business.
The add-on comes from these very interesting contracts in the Global Tower here. Because, at the end of the day, with the latest contract, we have now nearly fulfilled the total tower within 1 year. 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.
I see. I see. The Dachser in Biebesheim, the investments there?
Yeah, that was the last question. We have CapEx of around about EUR 1.7 million here, and we have a 10 years contract plus three times prolongation option for two years each.
Okay, okay. With a bit higher price in square meter prices?
Yes. Let me look. It's around about 10% overall.
Okay, okay. If I take a look at your rental expiry profile, which is slide 6, I can see next year is just 6%. In 2025 you have 14% in your rental expiry. Perhaps you can say here a bit more what that is.
I think it's the 2 years contract here in the uncertain . It's the old rather stock exchange headquarter here, where we have only 2 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. We are still in discussions with the existing tenant and also a new one, and that's the major point here in the next year.
Okay, I see. Thank you.
Thank you.
The next question comes from Jochen Schmitt, Metzler.
Thank you. Good morning. I have 4 questions, please. First question, could you give 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.
Good morning. Yeah, thank you also for the question. The fund has not completely settled yet, definitely. It's around about 51%. The number you see here in the balance sheet is that we have not cashed it, so to say. We have the receivable there, which will be paid, I think, at the end of June. That's the first one. The LTV, as said, we want to reduce it of around about 50% or below 50% at the end of the year. The plan includes not a 100% selling of the, yeah, of the
Shares.
Of the shares of the VIB fund, so to say.
Okay, sorry, just to follow up, 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?
Yeah, 2%-3%. That's right, yeah.
Okay. Thank you. Second question, how should we think about valuation downside risk of your commercial portfolio with regard to your target to reach an LTV below 50% until year-end? That's the second question.
That's a very good question. We are working on the expectations here, and we are also working on the numbers. 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. We have a very detailed program which we are working on for the assets where we see a potential risk. We are still in discussion with our different departments of letting, selling and so on, to get this handled. At the end of the day, as I said, with the increasing letting numbers and the expectation we have for the interest rates 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.
Third question, very briefly, do you plan to stream up the cash of the new syndicated loan on VIP level by an intra group loan to DIC level?
We are evaluating different possibilities, so to say, how and what we want to do and how we can do this. This is definitely one of the options we are working on and which we have in our minds what we can do there.
Okay. My last question is on your cash flow statement. There is a figure of EUR 189 million for acquisition of other investments. Could you provide a breakdown here? Thank you.
This is mainly the portion we have signed for the VIP retail fund for the deconsolidation of this fund.
Sorry, just to follow up. I think this should be around EUR 100 million, shouldn't it? Then this would still mean that you had almost EUR 90 million of these acquisition, or CapEx acquisition for other investments. Am I right here?
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. It's not yet the cash money that we received for selling the properties.
Thank you very much.
Thank you.
The next question comes from Jan-Niklas Höh, Stifel.
Hi. Good morning, everybody. It's Jan from Stifel. Can you hear me okay?
Yes, we hear you good.
Great. Great. Thank you. I've got two questions. The first one is just on your LTV target. I'm 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, that looks like it couldn't be this year, given that acquisitions and disposals are fairly evenly balanced. I'm just wondered what kind of time horizon you were looking at for achieving that target.
Thanks, Jan. First speaking from the R 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 the 50% by end of this year. As usual, I mean, we couldn't exactly accurate, give a view on the timing, yeah, exact timing here. It could be also after the balance sheet date, end of December. Giving all these measures we have in place and the targets, we expect it to come down to 50%, and this includes then disposals of EUR 300 million-EUR 500 million, disposal of the commercial portfolio.
This includes the FFO contributions throughout the year, plus of course also the cash income from the placement of the shares of the VIP retail fund.
Okay, great. That's very helpful. Thank you. Second and last question, please. Your portfolio initial yield has come down ever so 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, how that could be? Maybe a bit of detail on that, please.
This is just, nothing to do with the valuation of the portfolio, just through the changes in the portfolio through disposals, yeah. We had especially the disposal of the Kaufhof property by end of last year, yeah.
Okay. Basically you've disposed of some high yielding assets.
Exactly, yeah.
Great. That's very helpful. Thank you very much.
At the moment, there are no further questions. If you would still like to raise a question now, please press nine followed by the star key. There's one question coming from Manuel Martin, Oddo BHF.
Yes, good morning. Thanks for taking the questions. I have a couple. 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. 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.
Yes, that's correct.
Okay. Could you please explain how fair value changes were in Q1 because you had an asset sale and the total market value number came down? I see in the appendix that the amount of fair value adjustments went up slightly. Could you break this out, if possible and, if applicable, at what market value discount you sold the assets in the quarter?
Hi. It's First speaking. We had no valuation changes in Q1. Nothing, nothing from this side. Maybe we can take this offline and then go through the numbers again, so where you're seeing-
Yeah.
-different in the numbers. As said, regarding the bond covenants, we referring to the market values of the properties, yeah.
Yeah. Okay. I mean, the math is a little bit cloudy for me, but maybe we can.
Yeah, we can work through that. Yeah.
Great. A question on your short-term maturity. 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?
Yes, that's the plan.
Yeah. Okay. 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? I see that the adjusted LTV calculation includes all the fair value of the institutional business or shifting assets, and that would not have any effect then. Maybe you could clarify this a bit.
No, at the moment, we are selling the shares of the existing, so to call warehousing funds, 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.
Okay. Finally, could you disclose the total value of unencumbered assets and if a higher share of secured funding is something you are working on as maybe one tool in terms of managing the debt structure. Is there any target in terms of unencumbered assets ratio or so?
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 EUR 10 million-EUR 12 million.
Basically, no headroom, you would say, in terms of unencumbered assets to utilize it for further secured funding in the assets.
No.
Okay.
Besides these two ones, not.
Okay. Good. Okay. Thank you very much.
Thank you.
Thank you. There are no further questions at this point. I'd like to hand it back to the speakers.
Hi, Peer speaking here. Thanks again for joining today's conference call. If usual, if you have any follow-up questions, please do not hesitate to contact the IR team, my colleague, Max, and I'm available for any questions. Enjoy the rest of the day and the week and hope to speak you soon. Bye-bye.