Economics Continuous Value Creation, Growing Value-added

Economics

gri 103-1 gri 103-2 gri 103-3

DIC Asset AG is a profitably operating company with a long-term horizon whose activities not only create values for the benefit of shareholders, employees, tenants and business partners but also contribute to the common good within the framework of its value-creation. We manage our company on the basis of clearly defined financial performance indicators and we brief the public capital market regularly and comprehensively about the progress achieved.

Our Principles of Economic Sustainability:
  • Investments in sustainable value-added through acquisitions and redevelopments of existing buildings
  • Stable long-term cashflows on the basis of an optimised diversified real estate portfolio
  • Yield-driven growth and corporate development in sync with our business model and its two earnings mainstays
  • Continuity in terms of diversified positive contributions to operating income and dividends, even in times of crisis
  • Balanced financial structure with a long-term horizon and diversified funding sources

Strategic Target Achievement 2019

At the centre of our corporate strategy is the generation of secure, steady long-term income via our own highly productive property management platform. We achieved the targets we had projected for our key performance indicators at the start of 2019 – exceeding some of them by a significant margin – and this even though we had raised the forecast for the FFO and the acquisition volume in the course of the year.

  • The gross rental income in the amount of EUR 101.9 million topped both the prior-year figure and the forecast of EUR 98–100 million that we ventured at the start of the year.
  • The FFO in the amount of c. EUR 95.0 million matched the forecast as adjusted during the year, and the fact reflects specifically the extra contribution to operating income by GEG after its acquisition in June 2019.
  • With a cross-segment transaction volume of more than EUR 2 billion, we reached a new record level. The total includes EUR 1.9 billion in acquisitions (forecast: EUR 1.0 billion to EUR 1.3 billion), most notably the club deal in a volume for more than EUR 500 million for the “Stadthaus Köln” asset. Profitable sales with a sales margin of 32 % accounted for another EUR 286 million (forecast: EUR 200–230 million).
  • As a result of the platform expansion via the acquisition of GEG in June 2019, our assets under management jumped up to EUR 5.7 billion.
  • Income from management fees rose by a significant 87 % to EUR 62.9 million.
  • Posting an adjusted net asset value of EUR 22.26 per share as of 31 December 2019, we reported the full economic value added by our business model for the first time.
  • The loan-to-value ratio (LTV) declined further and equalled 47.8 % as of 31 December 2019. Due to the diversification of our financial structure and capital structure, the average interest rate fell to 2.0 % by the end of 2019.
  • We continued our attractive dividend policy: The dividend increased to EUR 0.66 while the offer of a scrip dividend option was renewed.

GRI 201-1

Economic Key Ratios
Figure 2019 2018 2017

Number of properties*

93

101

113

Market value of real estate assets, in EUR million*

1,900.0

1,696.8

1,639.2

Lettable area, in sqm*

842,400

893,500

957,500

EPRA vacancy rate*

6.5%

7.2%

9.5%

Average rent per sqm, in EUR*

10.41

9.64

9.32

Gross rental yield*

5.4%

5.9%

6.4%

Annualised rental income, in EUR million*

101.8

97.6

95.5

Funds from operations (FFO), in EUR million*

95.0

68.0

60.2

Profit for the period, in EUR million

80.7

47.6

64.4

Cash flow from operating activities, in EUR million

64.8

61.9

56.5

Net asset value (NAV), in EUR million

1,244.2

1,085.8

900.0

Adjusted net asset value in EUR million**

1,607.2

1,322.8

n.a.

* All figures representing only the proprietary real estate assets held in the Commercial Portfolio; all figures excluding property developments and warehousing, except for the number of assets, the lettable area and the market value

** Figure calculated for the first time as of year-end 2019, using the key dates 31 December 2019 and 31 December 2018

Value-Added 2019

The economic value directly generated and distributed (EVG&D) is derived in compliance with the group’s GRI requirements from the consolidated statement of comprehensive income and the statement of changes in equity.

The economic value directly generated in the amount of EUR 392.0 million represents the sum of the total income in the amount of EUR 364.3 million, the share of profit or loss of associates in the amount of EUR 18.3 million and other comprehensive income in the amount of EUR 9.4 million.

Deducted from this sum total is the distributed economic value in the amount of EUR 319.9 million, which breaks down into the sum of EUR 252.3 million in total expenses (thereof EUR 27.9 million in payroll and benefit costs), the net interest expense of EUR 32.3 million, taxes in a total amount of EUR 17.2 million (thereof EUR 13.8 million income tax payable), the dividend payments for the previous year in the amount of EUR 33.9 million, offset by the capital increase against contributions in kind in the amount of EUR 16.1 million, and miscellaneous expenses in the amount of EUR 0.3 million.

This results in an economic value of EUR 72.1 million remaining in the company, a sum that matches the increase in group equity in the 2019 financial year.


GRI 201-1

Economic value directly generated and distributed
in EUR million 2019 2018 2017

Total income (incl. net proceeds from sales)

364.3

241.6

381.9

Share of profit or loss of associates

18.3

15.8

29.0

Other comprehensive income

9.4

44.4

35.7

Economic value directly generated

392.0

301.8

446.6

Total expenses (incl.carrying amount of assets sold)

-252.3

-164.7

-305.3

Net interest expense

-32.3

-36.8

-35.1

Taxes

-17.2

-8.3

-6.1

Dividend paid for the prior year

-33.9

-43.9

-27.4

Shares issued through capital increase

16.1

19.3

0.0

Miscellaneous costs

-0.3

-0.4

-0.7

Distributed economic value

-319.9

-234.8

-374.6

Economic value retained by the company

72.1

67.0

71.9

Breakdown of the distributed economic value
in EUR million 2019 2018 2017

Distributed to employees (payroll and benefit costs)

27.9

18.2

19.0

Distributed to lenders (net interest expense)

32.3

36.8

35.1

Distributed to public authorities (taxes on income and profit)

13.8

6.2

5.9

Distributed to shareholders (dividend payments – capital contribution in kind)

17.8

24.6

27.4

Other distributed economic value

228.1

149.0

287.2

Distributed economic value

319.9

234.8

374.6

Economic development

Optimising the Income from Property

With a lettings total of 211,300 sqm (previous year: 264,400 sqm), the leases we signed will generate annual rent revenues worth EUR 32.7 million (previous year: c. EUR 35.7 million). Measured by the annualised rental income, the Institutional Business accounts for 56 % (EUR 18.4 million) and the Commercial Portfolio for 44 % (EUR 14.3 million) of the letting performance. The increase in like-for-like rental income in the Commercial Portfolio by 2.0 % from EUR 87.1 million to EUR 88.9 million shows that our focused letting efforts contribute significantly to the portfolio’s optimisation in addition to the transaction activities. The average lease term improved from 5.8 years to 6.0 years. The EPRA vacancy rate dropped by 70 basis points year on year, showing 6.5 % by 31 December 2019.

Transaction Total Crosses the Mark of EUR 2 Billion

While the previous year already achieved a peak value of EUR 1.2 billion, we managed to almost double the turnover in 2019 with a new record total of EUR 2.2 billion. We fully met or exceeded out targets both on the acquisitions side and on the sales side.

Spending c. EUR 1.9 billion on acquisitions for both of our segments, we clearly overshot our initial annual forecast of EUR 1.3 billion. The acquisition volume totalled EUR 301 million in the Commercial Portfolio and EUR 1,581 million in the Institutional Business. Of course, the expansion of our Institutional Business by integrating the complementary business of GEG played a key role to accomplish this. Overall, we acquired 21 properties, thereof 5 for the Commercial Portfolio and 16 for the Institutional Business.

Inversely, we got the sales of 15 properties in a combined volume of EUR 286 million notarised: eleven of these, adding up to c. EUR 154 million, were sold in order to optimise the portfolio while four properties in a combined volume of c. EUR 132 were sold in conjunction with our active fund management mandates. As a result, we cleared the year-end target of EUR 200–230 million. With the realised transaction prices, we achieved a sales margin of around 32 % across segments during the 2019 financial year.

Value-Creation through Upgrades and Refurbishments

Major property development activities in 2019 included the comprehensive modernisation of the “Wilhelminenhaus” in Darmstadt, seat of the Regional Council of the State of Hesse (a Commercial Portfolio asset) and the refurbishment of an office property in Wiesbaden that will be occupied by the BKA Federal Criminal Police (an Institutional Business asset). The two properties were structurally altered in close consultation with their prospective occupiers. The contractually agreed deliverables were achieved on time and within the planned budget. By combining development services and the negotiation of long-term leases, we accomplished significant appreciation for our portfolio assets.

Among the other portfolio developments that we are now controlling and implementing on behalf of institutional investors with the takeover of GEG are two high-rises in prominent locations in Frankfurt am Main:

The “Global Tower” with its 30 floors and a lettable are of around 33,000 sqm in the heart of the financial district, formerly housing the head office of Commerzbank, is being converted into a prime office tower in compliance with the highest green building standards. The completion is scheduled for late 2020. The shell and core works were largely concluded by the end of 2019; at the moment, our team is managing the basic fit-out and the marketing of the high-end office units.

The “Riverpark Tower” represents a landmark project directly on the bank of the River Main. After decades of use as a commercial building, it is being redesigned and entirely redeveloped into a tower block. The project, designed by the internationally renowned architect Ole Scheeren combines innovative building qualities with international architecture in an outstanding location.

Divestment of the Equity Interest in TLG

During the first half-year of 2019, we completed the sale of the equity interest in TLG as planned, thereby ending our commitment. The proceeds from it, totalling c. EUR 376 million, were used effectively to fund the expansion of our proprietary management platform.

Expanded Financing Spectrum

Through our financial management, we ensure that DIC Asset AG and its equity investments are solvent at all times. Moreover, we strive to achieve the highest possible level of stability against outside influencing factors while simultaneously maintaining degrees of freedom that ensure the ongoing development of our company. Our funding needs are covered both via classic bank financing and via the capital markets. For the first time, we included the promissory note market in our financing strategy in 2019.

To keep our financing structure as stable as possible, we generally conclude long-term financing agreements, in most cases with maturities of 5 to 8 years. Current financing arrangements are negotiated on a non-recourse basis, which means they do not permit unlimited recourse to the group of companies. Around 91 % of the financial debt is hedged against interest rate fluctuations – generally at a fixed interest rate. The balance sheet equity ratio rose to 36.5 % by the end of 2018 (31 December 2018: 36.0 %). As a result of the rising market values of the real estate in our Commercial Portfolio and our optimised funding structure, the loan-to-value ratio (LtV) dropped by 530 basis points to 47.8 % (31 December 2018: 53.1 %).

For details on the current performance of DIC Asset AG, see our Annual Report, Semi-Annual Report and our Quarterly Statements under investor relations.

Outlook in 2020

In consideration of the situation caused by the COVID-19 pandemic and of its likely effects on the present and future business performance, the Management Board of DIC Asset AG adjusted its forecast for the 2020 financial year in April 2020

  • growth in assets under management, with an acquisition volume of EUR 0.7–1.1 billion across segments plannde, thereof EUR 200–300 million for the Commercial Portfolio and EUR 500–800 million for the Institutional Business
  • sales in a volume of c. EUR 400 million across segments, with assets from the Commercial Portfolio accounting for c. EUR 100 million and assets from the Institutional Business for c. EUR 300 million
  • gross rental income from the Commercial Portfolio in an amount of EUR 94–98 million
  • income from property management of EUR 80–90 million
  • FFO on high prior-year level of EUR 94–96 million
  • medium-term growth of assets under management to EUR 10.0 billion

The Management Board assumes that the COVID-19 pandemic will impact the expected rental income and the real estate management fees of DIC Asset AG during the 2020 financial year. In early April, tenants (including, inter alia, retailers in the non-food segment, gastronomy and hotels) representing a monthly rental volume of c. EUR 1.5 million indicated a need to suspend their rent payments for periods ranging from a single month to three months. These requests are in line with the Act to Mitigate the Consequences of the Covid 19 Pandemic that was proclaimed on 27 March 2020. The Company is in dialogue with its tenants, and is striving to find a mutually acceptable and optimal contract-based solution. In some important cases, the Company has already agreed to certain arrangements.

The government measures imposed nationwide are expected to dampen the transaction activity on the German real estate market in general. With a view to a lower-than-planned transaction volume or later-than-planned transfers of possession, benefits and burdens for properties either in the Commercial Portfolio or in the Institutional Business portfolio, the Company expects that acquisition-related gross rental income will either be reduced or contribute to earnings after the end of 2020, while also anticipating lower transaction-based real estate management fees and, as a result of this as well as due to possible rent reductions, lower recurring real estate management fees, too.

Given its earnings strength, DIC Asset AG upholds its dividend proposal as well as the dividend policy it followed over the past years, still intending to propose a dividend distribution in an amount of EUR 0.66 for the 2019 financial year to the annual general meeting, with shareholders to be given the choice to receive the dividend alternatively in the form of new shares.