DIC Asset Aktiengesellschaft · Real estate company

DIC Asset
DIC Asset
DIC Asset
DIC Asset
DIC Asset

Letter to our shareholders

Economic trends were mixed in 2018. Multinationals and companies interconnected with foreign markets suffered as a result of conditions becoming tougher and difficult to predict due to the global trade dispute and also as a result of their own complexity. Often, it were big, long-established names and DAX heavyweights that found themselves in considerable difficulty again last year. At the same time, the German economy continued to grow overall; on both the labour market and the market for office space, absorption reached a level that slows companies looking to expand, and sales on the commercial real estate investment market almost routinely set a new record. The EUR 60 billion mark was surpassed, with just under half of transaction volumes attributable to office property, an asset class whose popularity by investors therefore increased by almost ten percentage points. The prime yield for office properties in the top seven cities dropped to 3.11 % at year-end. In a fiercely competitive market and price environment driven in places by short-term forces, our company was able to position itself favourably thanks to its many years of real estate expertise and good market connections.

DIC Asset AG impressively delivered proof of the profitability and dynamic nature of its unique hybrid business model in 2018. In the previous year, we had prepared – in part through our portfolio refinancing, which is paying off as planned, and also through extensive selling of non-strategic properties and joint ventures – to use the scope and strong real estate expertise available to us to take up an active position in the market in 2018. We were successful in all operating segments:

  • Our transaction team generated acquisitions worth some EUR 510 million, exceeding the forecast of EUR 450-500 million. In particular, we leveraged opportunities to bolster the profitability and quality of our Commercial Portfolio. At the same time, we made disposals from the Commercial Portfolio amounting to around EUR 100 million as planned and thus continued to push ahead with the portfolio’s optimisation.
  • Besides additional rental income from new acquisitions, the successful work of our letting teams in particular, which increased like-for-like rental income from the Commercial Portfolio by 2.7 %, made a valuable contribution to achieving gross rental income of EUR 100.2 million, a figure in excess of the forecast revised upwards in the course of the year.
  • Establishing our trading platform in the fund business also paid off. In 2018, we generated significant income from structuring transactions. As an active fund manager, we were very successful in selling two properties from existing funds and, via a share certificate transaction, created an advantageous exit opportunity for investors in the DIC HighStreet Balance fund. In addition, we structured two additional funds – the DIC Office Balance V fund and the DIC Metropolregion Rhein-Main fund – into which we incorporated start-up portfolios totalling approximately EUR 166 million. Acquisitions amounting to some EUR 105 million rounded out transaction activity in the fund business, which contributed to significant earnings growth.
  • The strategic reorganisation of the segment Other Investments is proceeding according to plan. The growing third-party business made a greater contribution to earnings as planned in 2018, while real estate assets under management in the third-party business more than doubled year on year. In 2018, we managed to sell our last remaining joint ventures and, in December, also contractually agreed the sale of our stake in TLG Immobilien AG. We expect to complete this transaction in the first half of 2019, and the significant resulting proceeds will open up potential for further growth.

Our business model is founded on our strength in asset and property management, which is deployed in all three segments. Excluding acquisitions and disposals, we increased the value of our own portfolio by around 10 % only through our real estate management.

This does not yet reflect several ongoing developments in our portfolio, such as the construction work to modernise the Hesse Regional Council building in Darmstadt that commenced in the autumn. Preparations are being made for further refurbishments and repositioning activities; we have expanded our capacity for these and expect our teams to be able to leverage significant additional potential for appreciation in our portfolio and fund properties.

The momentum of the fund business and the increasing quality of the Commercial Portfolio prompted us to raise the forecast for the Group’s key performance indicator – operating profit from real estate management (FFO) – from EUR 62-64 million to EUR 68 million in October after three strong quarters. Our expectations proved correct: FFO increased by a significant 13 % to a record EUR 68 million at year-end, confirming the forecast.

By increasing assets under management across all operating segments from EUR 4.4 billion to EUR 5.6 billion, we have once again created a much larger foundation for stable and sustained cash flows. With its diversified income structure, our hybrid business model is proving to be robust, scalable and flexible. Although consolidated profit was down year on year from EUR 64.4 million to EUR 47.6 million, the prior-year figure was impacted by non-recurring income of EUR 19.3 million from swapping shares in WCM Beteiligungs- und Grundbesitz AG for shares in TLG Immobilien AG, for which we distributed an extraordinary dividend of EUR 0.20 per share.

In view of the targets achieved and the Company’s long-term business prospects, we intend to distribute a regular dividend of EUR 0.48 per share, a significant increase compared with the previous year.

One item on our agenda for 2019 is to further expand our hybrid model in all segments. A number of agreed purchases already ensure some of the growth; overall this year, we intend to make acquisitions totalling at least half a billion euros. We are also focusing on stabilising our management income in fund and third-party business so that regular, predictable income is well in proportion to the dynamic and opportunistic profits that we are able to generate through trading activities in our hybrid model.

We consider ourselves to be first-rate when it comes to creating value through competent asset and property management. Overall, therefore, we are planning to increase operating profit year-on-year and forecast FFO of between EUR 70 and 72 million.

It is thanks essentially to the engagement of our employees that this report brings to a close a record year in real estate management. We wish to express our respect and thanks for their strong commitment and notable team performance. We extend our thanks to our business partners and shareholders for their trust and support in our myriad activities to successfully develop our Company. We realise that such high quality and loyalty is not a given in any working relationship, and we see this as a very significant source of motivation in our work going forward.

Frankfurt, February 2019

Prof. Dr. Schmidt / Sonja Wärntges