DIC Assest AG (OTCPK:DDCCF) Q2 2022 Earnings Conference Call August 2, 2022 4:00 AM ET
Company Participants
Patrick Weiden – Chief Capital Markets Officer
Sonja Wärntges – Chief Executive Officer
Peer Schlinkmann – Head of IR
Conference Call Participants
Andre Remke – Baader Bank
Stefan Scharff – SRC Research
Inna Maslova – Bank Degroof Petercam
Sonja Wärntges
Good morning also from my side, ladies and gentlemen, and a very warm welcome to DIC’s 2022 Half Year Results Conference Call. Today, I’m joined by my colleague Patrick Weiden, CCMO Of DIC Asset; and my colleague from the Accounting and Investor Relations Department. As usual we give a short presentation of the highlights of our half year results, followed by a Q&A session.
Ladies and gentlemen, after a lot of quarters of superlatives, I would like to take the time now to talk about our strategy and how this pays off. Our future strategy focus is investing in the right asset classes and our decision to expand our investment focus to logistics was exactly the right one. The logistics asset class is experiencing high demand with a simultaneous shortage of new spaces coming to the market.
We have driven our growth on the platform organically and inorganically. We are focusing on office and have now established logistics as a second main pillar on our platform. Looking ahead, we now have a more granular, diversified and stable portfolio with a very sustainable recurring cash flow and a flexible growing institutional business with a respective amount of recurring fees and a good potential for transaction fees. And this altogether will drive our best-in-class demand in the future. And it is already reflected in the operational highlights of the first half year with an FFO of €53 million on a strong prior level and an increased contribution of recurring income.
A strong letting performance of 172,000 square meter, the best in DIC’s history, which also resulted in a strong like-for-like rental growth of 3.7% of our commercial portfolio and 2.7% of our managed portfolio. With the strong growth of the commercial portfolio through the VIB consolidation, the EPRA vacancy rate is now at a low level of 4.2%. The share of logistics properties grew to 19% in the overall portfolio.
In the commercial portfolio is now the largest asset class with 39%.In May, we published our latest ESG report and set our new ESG targets. In particular, we have set a target to reduce the CO2 emissions of our balance sheet portfolio by 40% per square meter till the end of 2030. And a few days ago, we successfully issued €100 million new promissory note with an ESG link, a clear sign to our investors having confidence in us and our strategy. And a personal note from my side. I’m proud to have been part of this company for a long time, and I’m thankful to work with a well-experienced team of over 350 employees every day. We have achieved significant milestones together, and I’m happy to continue this path with this strong team.
I’m therefore, more than delighted that the Supervisory Board of DIC has again placed its trust in me to lead DIC as the CEO for another 5 years. And also, my colleague, Johannes von Mutius has renewed his contract as CIO until the end of 2026.Exciting times lie ahead and DIC is ideally positioned for further growth even in these new challenging times. Before we now go into more detail of the H1 figure, let me start with our current view on the market and what concerns all of us these days. You can read it in the news, on the one hand, the Ukraine war, increasing and volatile interest rates, energy supply risks and the high inflation rate increase the macroeconomic uncertainty. On the other hand, the German economy is still very robust with a low unemployment rate and a lower than expected, but still positive growth. Overall, the commercial investment market in total saw an increase of 23% in the first half year, but ended up paralyzed in the second quarter.
This has, on the hand, lead to a sharp decrease of the transaction activities in the second quarter, and the investors went into a wait-and-see mode. The letting market, on the other hand, is very robust and seems unimpressed by these topics. Overall, vacancies in the top cities are moving slightly up, but remain on a very healthy level. In total, the letting markets are in a good shape with office lettings increased by 45% and logistics lettings up by 18% compared to last year’s period. There is ongoing high demand for high-quality office space with new working concepts as well as for logistics spaces. This will drive rents on the one hand, in addition to the positive impact from indexation-linked rental contracts. Let me explain what is our view on the market. The unemployment rates are low, war of talent goes on, and this needs the right places to work.
So we see office is staying stable. With more focus on location, quality, new work aspects and sustainability and nevertheless, the right tenant is key and will be more important in the future as well as the right rental contract. For these assets, we expect stable or growing rents in the office market, even when the vacancy rates will slightly go up. Logistics has a high demand on spaces, but there are not many free spaces. Here, we will expect rents also going up and the high demand need for new development. We also think that food and retail is interesting and will stay stable.
Overall, the letting market is in a good shape and is expected to be over the next month.We expect the transaction market to be back in general at the end of Q3 and Q4. And we do not expect a real price decrease in commercial real estate besides a very high multiplier we see in the latest month, which were paid. With an efficient letting market, contracts initiation and a request for quality, we expect the core/core-plus market to work as well as the value-add market. Office, logistics and food-anchored retail will be interesting also for foreign investors who see Germany as a stable investing market. Ladies and gentlemen, we are well-positioned in this market. Over the last year, we have been growing organically and inorganically, have diversified our portfolio, have confirmed our sustainability view and strengthened our financials. And this is a very good basis on our way to be best-in-class in the German commercial real estate with dynamic performance in a dynamic environment. With the acquisition of a 60% stake of VIB beginning of April, we increased our own commercial portfolio by roughly €2.3 billion to €4.4 billion.
The combination of DIC as the office specialist and VIB as the logistics specialist — the platform is becoming for these asset classes the leading one in the German market. Now office and logistic assets together make up for 80% of our assets under management. With the consolidation of VIB, we strengthened our income streams from rents and therefore, the recurring and sustainable cash flow. In the logistics development pipeline was around 156,000 square meter, we created additional cash flow in the future. This pipeline will also support us on our ESG path as all projects are eligible to receive a green building certification. Overall, we now have more than €15 billion assets under management and total assets of round about €5.5 billion. One of the major points for creating values is letting.
With our own people working in our now 9 locations, we are one of the important landlords in Germany. And we know that every client has other requirements, which we have to fulfill. So we learn every day from and with our clients and because of short [Technical Difficulty] our dynamic performance, we are able to fulfill them and create rent increases. Therefore, the first half year 2022 shows with 172,000 square meter the best letting result in our history with a like-for-like increase of 3.7% in our own portfolio and 2.7% on our platform. And around 1/3 of it is coming from indexation. You can see some examples of our letting success on Page 7.
One key contract we signed in the office letting market was the renewal and new letting to Deutsche Bank in the property IBC campus in Frankfurt for a total of 38,000 square meter for a term of 10 years. As part of the deal, we are also in charge of establishing a new work concept for them. In the logistics letting market, we signed several contracts with terms of 5 years or longer. Biggest renewed contract with 21,000 square meter was signed at Interpark Kosching by our VIB colleagues. We are working also on our sustainability for many years now and therefore, have already reduced the emissions by 23% since 2018. But within the last month, ESG has become a major topic for real estate values in the future. So we have set up a very clear goal to reduce the CO2 emission by more than 40% per square meter in our own portfolio until 2030.
This means working on different aspects of sustainability, like innovative building technology, energy optimization measures or efficient district heating. And also the right and stable financial structure is important for our growth. With a major refinancing of our commercial portfolio end of last year, we secured the low interest rate level for the next 7 years. As of today, 90% of our financings, including — sorry, excluding the financing bridge 2024 are on a fixed term base. Even though the debt capital market currently shows a strong reaction to the volatile environment, we still see high trust from our debt investors. Some days ago, we issued a new promissory note with an ESG link in a total amount of €100 million and a coupon of 3.56%. After the repayment of our bond 2022 and the issuance of the new notes in July, we still have a strong liquidity position to fund our further activities.
All in all, our average interest rate will pro forma remain at a low 1.8% in total. Ladies and gentlemen, one of the major transaction in the first half year was the VIB acquisition. At the beginning of April, we closed the transaction by acquiring 60% of the shares. For roughly 16.6 million shares, we paid in total €849.3 million. This means €51.08 per share. VIB has reevaluated the portfolio by a well-known international appraiser. The value of the portfolio increased to €2.3 billion and the full value is reflected and allocated to the investment properties in the balance sheet of DIC.
The NAV of the portfolio of CIB is €58.62. Having a stake of 60%, the numbers of VIB are consolidate in DIC’s group accounts since April 2022. Therefore, the total assets grew from €3.5 billion to €5.5 billion by end of June 2022, driven by the more than double book value of our investment properties on our balance sheet to €4 billion coming from the consolidation of the investment properties from VIB of [ €2.267 million ].The liabilities increased by roughly €1.4 billion, driven by the bridge financing of round about €500 million. The consolidation of the financial liabilities from VIB was round about €600 million and a deferred taxes in amount of round about €208 million. The equity increased mainly because of the 40% noncontrolling interest at VIB. The acquisition grew the rental income stream and stabilizes the recurring income.
Compared to quarter 2, 2021, the gross rental income in the second quarter 2022 increased to €50.2 million, a plus of more than 100% of this recurring income stream driven by the VIB consolidation. Together with the recurring fee income, these 2 income streams increased by €23.9 million and make a higher percentage of the total income now. The FFO in the second quarter remained stable compared to last year’s FFO, but has gained a new quality. To sum it up, with nearly the same FFO result, we have successfully transformed nonrecurring cash flows into recurring cash flows. Looking at the institutional base business, we are facing high commitment from our institutional investors. During the last week, we conceptualized 3 new funds with attractive investment profiles and strategies according to the actual needs from investors. In detail, we are in the launch phase for a value-add fund with a managed to ESG strategy.
The focus of these funds investment strategy is to reposition German commercial real estate, modernize office spaces and repurpose or densify properties under a managed to ESG strategy, supplemented by the acquisition of logistics assets with a €2 billion target volume. In addition, we also launched the next logistics and light industrial fund. The third fund is currently in the structuring phase. We plan to structure a retail fund. All in all, with more than €700 million, the equity commitments of our investor base remain on a healthy level. We will use them for planned and new acquisitions. And now let’s have a look on the development of the main income streams in the first half year.
As mentioned, the rental income has seen a massive increase due to the consolidation of VIB for the first time in the second quarter to €65.3 million. On the other side, the real estate management fees saw a sharp decrease as a direct result of the lower transaction activities in the second quarter. In total, the income from rents and management fees increased from €90.7 million to €104.8 million, with a much bigger part in recurring coming from the rents of our commercial portfolio. The share of the profit from associates saw a strong increase to €16.9 million, which is a direct outcome of the disposal of the shares in VIB’s former joint venture with VDP. The profit for the period adjusted for one-off costs from VIB transaction remain stable compared to last year’s period. By the end of H1 2022, the FFO I after noncontrolling interest reached roughly €53 million, which is on the high level of the previous year. The decrease of management fees and the higher OpEx were compensated by higher net rental income and profit from associates. Ladies and gentlemen, to sum it up, challenging times are ahead, and transaction markets are currently in a wait-and-see mode.
But nevertheless, with a portfolio of more than €15 billion assets under management, we have the size and the flexibility on our platform to achieve extraordinary returns. We have doubled our rental portfolio and significantly increased the share of recurring income streams to the takeover of VIB. VIB will remain a logistics specialist of the DIC Asset Group. We will deliver on our ESG targets, which mean more green assets, a higher share of green financing and the goal to become a preferred and active asset manager for managed to ESG strategies in our institutional business segment. This all will be achieved by a strong DIC team, including a long-term committed management and we will create value for all our stakeholders. Last but not least, I’m concluding my presentation with our guidance for this year. We confirm our guidance, including VIB effects on the main income streams.
On the transaction side, we have updated our figures to take the inorganic growth in the commercial portfolio into account. Therefore, we do not plan to further acquire assets for the commercial portfolio this year. And for the institutional business, we have adjusted our acquisition target to the range of €0.9 billion to €1 billion. For the disposals we have significantly increased our target to a total of €0.8 billion to €1.1 billion. Especially for the commercial portfolio, we are now targeting €0.4 billion to €0.5 billion. And we will lower our LTV towards our strategic level of 50%.
Thank you for listening to our today’s presentation, and now we are ready to take your questions.
Question-and-Answer Session
Operator
[Operator Instructions] We will take our first question from Andre Remke from Baader Bank.
Andre Remke
A couple of questions from my side. First, starting with the LTV, which you only mentioned in the last sentence. Well, you stick to your target of 50%. Is this realistic to be reached until year-end as you planned before? And the plan disposal targets, would this be enough to deliver on that target?
So maybe you can elaborate a bit on the road map to delever again the group? That’s the first question, please.
Sonja Wärntges
Good morning Andre. Thank you for the question. Yes, we will reduce the target — the LTV to our target of 50%. And our new disposal target, which we guided with this presentation is around about €400 million to €500 million. And this will lead us at the end of the day to roughly the number of 50%.
So with the transaction market, we cannot definitely say when we will reach this target until the end of this year or beginning of next year. But it’s our clear goal to get this target with the disposals we are guiding at the moment from our commercial portfolio.
Andre Remke
Okay. And the planned disposals from the commercial portfolio, will this mainly be from the VIB [Indiscernible] portfolio or also from the former DIC portfolio? And you mentioned the planned retail fund. This is probably based on the assets of VIB, right?
Sonja Wärntges
So we are still in the evaluation phase, so to say, we will definitely sell some assets of our so-called old DIC portfolio. And the second part is in evaluation so to say at the moment. But we think of selling some retail assets and maybe from the VIB portfolio, yes.
Andre Remke
Selling means directly to the market or into kind of fund for your institutional clients? Or both?
Sonja Wärntges
To say it clearly, what brings the best price at the end of the day.
Andre Remke
Okay. So it sounds logic. Then in general, what are your plans to refinance the bridge loan? I know you have time for another 2 years, but what could be the road map here? Would you, at this point in time, exclude a capital hike?
Sonja Wärntges
Yes, we have clearly defined how we will repay this bridge, and this has 2 pillars. The one is a capital increase and the other one is, yes, refinancing on the capital markets normally via a bond. At the times we have now, we don’t see a capital increase coming, but we do not lose this plan. So we have 1.5 years to go. And we think the markets will change, so we stay with this plan, Plan A, so to say.
But if we cannot reach the target with this plan A, we are preparing or we are in the preparing phase of Plan B so that we reached a target without a capital increase and offering a new bond.
Andre Remke
But new bond without a capital increase means you further probably have to sell from your enlarged commercial portfolio some assets, right?
Sonja Wärntges
Yes. As you have seen, we have launched a new promissory note of €100 million. This is one way. Another way is to sell assets, and it will be at the end of the day a mix. We are focusing on the plans of this mix, and we see what the market allows us to do.
But we have plans for even more of this than this €500 million that we can make sure that we can reach our plan. So at the end of the day, it will be a mix from refinancing as said, promissory note or something like this and selling of the assets. But the first step is to fulfill our original plans if we can.
Andre Remke
Okay. That’s clear. Then on the increased disposal target for — and the — also in the institutional business, is this based on clients’, let’s say, plans or demand to take profits here in such markets? And if you lose acquisition target probably due to a lack of transaction opportunities, why should disposals become more manageable for you in these markets?
Sonja Wärntges
Yes, that’s a very good question. But we also have the answer. So we are in deep discussions with our investors and with our more than €14 billion assets under management, we are a big player and have a lot of talk. So we have more than 180 investors in place, and we have a lot of investors, which — to whom we talk, who are not in place at the moment. And we see that there is a lot of interest from foreign investors at the moment.So they obviously see Germany as an interesting investing market.
And they see 3 major points to invest in. One is logistics. One is value-add and to get all these future needs done, like ESG or something like this and to profit from all these investments. And the third one is, as said, core/core plus office and food-anchored retail.And the point they are carrying about is that there is no transaction market at the moment, and therefore, no real price establishment in this environment. So I think after the summertime, the transaction market will be back on a stabilized price level, yes, as said, we don’t think that the prices go down that much.
Besides these very high factors we have seen in the latest month and then investors [Indiscernible] also. So there is a lot of liquidity in the market and they have to invest in the market. They have seen over the last month that real estate is a good investment and a safe investment in Germany. And if you look on the spreads, so they have alternatives to invest in, yes. But at the end of the day, if you look on the real spreads, taking the inflation into account, the threats have even increased. So as they see it, real estate is a very interesting market to invest also in the future with a little change in the focus asset value-add is interesting core/core plus and logistics.
Andre Remke
Okay. And the very last question then belongs to your guidance, which is unchanged on the real estate management fees of €105 million to €115 million. Well, you reached now after half year €40 million, it is down in especially in the second quarter. What is needed for the rest of the year to deliver on that? Do you need a strong pickup in transaction markets in general?
Or will the planned disposals deliver, let’s say, strong performance each year? So it’s a bit hard for me to believe that the second half is that much stronger than the first half.
Sonja Wärntges
Yes. If you look in the past and into the last 2 years, you can see that we also have done most of the work in Q4, unfortunately. So December was always a very hard month for us, and I think last year and the year before, we had done more than 80% of our result in the last quarter. And this was also reflecting the market during corona and so on. And we also think that the transaction markets are coming back in Q3, end of Q3 and Q4.Nevertheless, I think for a professional commercial real estate player as we are, we have to find our niches and we have to find the right assets for the right investors.
And we think we are on a good way, so our transaction teams find possibilities to buy and also to sell. So we are on a good way here, we see a pipeline, we have a pipeline. And yes, we need a little bit of luck, and we need a little bit of stabilizing the market to get it done until the end of the year because it’s always a time frame, yes. But we see us in a good shape. And as my colleagues from transaction and [ EBU ] business, we are convinced that we will get this done in Q4.
Operator
We will take our next question from Stefan Scharff, SRC Research.
Stefan Scharff
As Andre took all the important questions, I would say, so also from my side, all the best for the next 5 years. And also, we also hope recovery in the transaction markets to come over the summer and over the second half of the year.
Sonja Wärntges
Thank you, Stefan. Thank you very much.
Operator
We will take our next question from Philipp Kaiser.
Unidentified Analyst
Yes, just a couple of follow-up questions as Andre asked all the exciting ones. Following his question regarding the real estate management fee, so is it kind of possible — let’s assume the — we do not see a real recovery in the second half of the year of the overall transaction market. Is it possible to reach the guidance due to unplanned kind of trends for assets on the commercial portfolio and the institutional fund alone? So as you pointed out in the presentation, you have launched 3 additional fund products. So given that, is it possible kind of to reach at least the lower end by internal transactions? Or do you need really a sharp recovery, especially in the last quarter of this year?
Sonja Wärntges
Yes. So as said, we are selling some assets of our portfolio. We are planning to do this via mix of our old and new portfolio. And as always, if we get the same price, we want to bring the assets in a front because then we care about the assets, we have cared about into the last year. We know the assets exactly.
We have a business plan for them, and we can get fees out of this. So if this is possible to the same price when we sell it on the market, that’s perfect and we will do this. So as said, we see us as a specialist in commercial real estate, and we have — and will find the right transactions in the right niches. So you have different investors who have different needs, and they are also preparing for Q3 and Q4, what we hear, so they need to invest. And I think the transaction markets will be back as said, and they will be back in Q4, and we will use our chances here. And even if they are not as not back as said from all the companies like GLL and CBRE, the expected transaction market between €65 billion and €70 billion for this year, so that means it’s on the 5 years average level, we will do our transactions.
Unidentified Analyst
Okay. So but for now from the increased disposal volume, nothing is really earmarked for a transfer to the institutional business?
Sonja Wärntges
As said, if we can bring it into institutional business, and we have a lot of demand from investors who want logistics, who want retail and who want value-add, especially value-add assets, we do this, yes. So if the investors want to pay the same price as the market and want to stay with us as the preferred asset manager, we will do this.
Unidentified Analyst
Okay. Perfect. And given the current interest rate hike, so the — how is hunt rating going? So any kind of a cloud from the sky or the interest is still high for the institutional front product?
Sonja Wärntges
Yes. The interest for the institutional fund products is still high. As said, I think you have to look on the spreads between the state bonds and real estate market. And this also to the institutional investors. And what we see is high interest from foreign investors as said.
So they obviously see Germany as an interesting investing market, staying interesting for the next months in the future. And so we are in a good shape in a lot of discussions, and we see a lot of interest, yes. It has to be realized to be honest till the end of the year. But at the moment, it’s big interested, it takes a little bit longer, yes, it takes a lot of discussions on several levels from the institutional companies and a lot of talks and a lot of more details and convincing them from the asset management side, but at the end of the day the interest is there, yes.
Unidentified Analyst
Okay. Perfect. And just one last question regarding the administrative expenses, they more than doubled compared to last year, driven by the VIB acquisition and I think also one-offs on the VIB side. Could you give us an indication for the run rate for the second half of the year, if it’s possible?
Sonja Wärntges
Yes, it’s round about €7.5 million.
Unidentified Analyst
Okay. Per quarter, perfect.
Sonja Wärntges
Yes. Yes.
Operator
We will take our next question from Inna Maslova from Bank Degroof Petercam, your line is open, please go ahead.
Peer Schlinkmann
I think we should take the next one, please.
Operator
Okay. We will take our next question from Jochen Schmitt.
Unidentified Analyst
Jochen Schmitt speaking. I have one question on the balance sheet. In the quarterly report, you state that the purchase price allocation of the VIB transaction was prepared on a preliminary basis. So my question is, is this just a precautionary remark? Or how do you assess the likelihood that in the annual report ’22, there might be a major change of the PPA regarding the investment properties compared to the 6 months report?
That’s my question.
Sonja Wärntges
No, we do not expect a change here. But at the end of the day, after 1 quarter, we always call it preliminary because we have more detailed information after 9 months. And so we don’t expect any change here. But at the end of the day, we will do the final purchase price allocation at the end of the year. But as said, we expect no surprises or no other numbers here.
Operator
We will take our next question from Manuel Martin.
Unidentified Analyst
I have a follow-up question on the PPA and the purchase price allocation. If I see it correctly, there was no goodwill in the balance sheet after the VIB acquisition. Is that correct? Or could there be some additional goodwill coming?
Sonja Wärntges
Yes, you see it correct. There is no goodwill from the VIB transaction in the balance sheet. So the price is allocated to the assets and the liabilities in total.
Unidentified Analyst
Okay. It looks very clean. Okay. Then I have a question a bit more on the energy topic. I mean, we all see gas prices going up.
Maybe we’re going to face a gas shortage in the winter, who knows. Any plans from your side or from the tenants, how you’re going to handle the gas topic and how to pass through the costs for higher gas or energy costs? Will there be a time lag which you might have to finance expensive energy costs and get it later back from your clients? Maybe you can elaborate on that, please.
Sonja Wärntges
Yes, thank you for this question because it’s a very interesting one and a very time-consuming at the moment. So we have built up a taskforce to clarify this. As you said, one point is that we cannot increase the prepayments at the moment. You can set them up only once a year. And so we have to analyze all the contracts, so we are analyzing the contracts at the moment where there are risks and what demand there is. And at the end of the day, we want to go in discussion with our tenants to increase the prepayment so that they don’t have a surprise then beginning of next year’s and a liquidity problem.
And we do this in certain or on certain levels and according to the branch and the size of the tenant. And that’s what we are analyzing on the one hand. On the other hand, we are analyzing also for ourselves where can be savings and what can we advise as a tenant — as a landlord to our tenants what they can do to save energy and to change. It’s also a part of our ESG strategy, if you look at lights or something, where you can pick up the low-hanging fruits. So this is a very specialized talk for us working on the different streams of this interesting upcoming questions here. And we want to make sure that our tenants don’t have a liquidity problem when they get the bill for 2022 and the new bill for prepayments of 2023.
So that needs to be analyzed and discussed with them.
Unidentified Analyst
Okay. I see. My last question is — unfortunately has also to do with costs. What about inflation? I mean in terms of, for example, supply chain disruptions, do you see any effect on your projects that you’re having or shortage of labor costs or material?
Maybe some words on that, please.
Sonja Wärntges
Yes. So we see the prices going up during the last month. So, yes, it’s a pass so to say. But at the end of the day, we can calculate this and we have most of the times — we have fixed prices, even if they cannot be realized sometimes, and we have to discuss with our partners. But the more — the bigger problem is the availability.
So we have to get the things we need. And therefore, we have to have some other ways or have to buy from other partners or something like this to get the things. And that’s the more interesting and challenging question than the price itself because the prices were set up some months and years ago, and we’re discussing some additional premiums if our partners have problems, but the availability of the goods is the bigger challenge for us.
Unidentified Analyst
Okay. Okay. And so you’re not being a bit squeezed in margins? I mean, if prices of material construction prices are going up and you have fixed the price for disposal or whatever to the clients?
Sonja Wärntges
No. So we don’t have real problems here. So at the end of the day, as said, the prices were fixed, and we have nearly finished all our developments at the moment on the construction side, so we are not in projects where we are in the building phase besides one at VIB and also this is in a very good shape. And for the new construction development, we have, especially in VIB, some logistic projects there. They are in the calculation phases.
So they have not started, so we can calculate the new prices and the times there. So we don’t have a problem there at the moment because we are not in the construction phase.
Operator
We will take our next question from [Christine Rowley Davis].
Unidentified Analyst
I have a question on the accretion to the FFO 1 that you presented in the presentation for the public tender offer back at the end of January called VIB. And back at that point, you showed €0.19 of pro forma accretion to 2023 if you were to acquire 51% of VIB. And one of the key assumptions in that was that you issued equity to fund — part from the transaction. It now looks as if kind of Plan B is much more likely that you’re going to fund this with disposals. How does that change the accretion analysis in VIB?
Sonja Wärntges
This presentation was so to say illustrative, so we don’t have the guidance for next year at the moment. So we are working on this. But for the first time, we have consolidated VIB, so we have to have a deeper look into this and do the guidance for next year. But at the moment, we don’t have any idea how this — that changes, yes.
Unidentified Analyst
Okay. And then just a second one on the exceptional costs in the FFO, you’ve extracted I think €8.7 million of exceptional costs in H1 added back. Should we expect anything material in terms of exceptional costs or integration costs with VIB to come in H2?
Sonja Wärntges
No, we don’t expect any additional one-offs for the future. So we have calculated and have it in the P&L there. So we don’t expect any additional costs coming for the future.
Operator
We will take our next questions from Inna Maslova.
Inna Maslova
If I may, a couple of questions on VIB, which is the company we follow in relation to the revaluation that you announced at the end of May. Would it be possible to provide a bit more background as to how much revaluation has taken place in relation to the standing portfolio versus the development pipeline? Because if I just run the numbers now, the implied yield on the basis of the latest valuation stands at 4.1%, which seems a bit low now. So I will — that’s the first question from my side.
Sonja Wärntges
Yes. Thank you for the question. So yes, as you have mentioned, we have — our VIB has reevaluated the portfolio and has, yes, taken into account also the development. So they have 5 developments, one big development in — near Munich, and they have taken into account developments for the first time. And therefore, they have evaluated round about €230 million for the developments they have in place there.
And this was not in the past.
Inna Maslova
Okay. So just to be clear, the main valuation gain of €230 million, that relates to the adding development, right?
Sonja Wärntges
Yes, that’s the major value here, yes, because it’s a very big development, yes.
Inna Maslova
Indeed. And Sonia, may I perhaps also ask what — how do you see the level of interest there and certainly on the level of rents because the original development — let’s say, the development yield targeted was between 6.5% to 7%. Certainly now with the valuation of — with the evolution of construction costs, do you foresee any adjustments to that? Or can we expect for the development yield to stay the same?
Sonja Wärntges
I have also problems with my technique here. Yes, we have — yes, at the moment, we have a factor here of between 15% and 16% of times of this development. And I think this is a realistic number. So I don’t expect a change here. As far as I see it now after a few weeks now, but this is still in — it’s not in a construction phase.
So this is only the ground there, and we are still searching for tenants, and we have a lot of interest here in different branches, so to say. And we are in deep discussions, and I think there is a lot of interest for — in this region. And at the end of the day, we also see the calculations coming up in the prices. And so we see the calculation of VIB as it was done as realistic. And so 15 to 16x seems also realistic.
Unidentified Analyst
Okay. Very clear. And perhaps a very last question from my side regarding the asset transfer into funds. If I follow a little bit on what you’ve been saying that there is a potential, so there are currently 2 funds where you are positioning yourself for higher logistics exposure. Could it mean that some of the VIB’s assets could be transferred to one of those funds?
Sonja Wärntges
Yes. So VIB for the future should be the logistic arm, so to say — as you say in Germany, so the logistics specialist in DIC company. And therefore, we will focus on logistics and light industrial in their own portfolio of VIB and we’ll not have logistics and light industrial in the DIC commercial portfolio. So at the end of the day, we are discussing with the management team of VIB that we — that they established a 2-pillar business model there, so that they focus in their commercial portfolio on logistics and light industrial. And one of the ideas we have is to set up a fund there in VIB, but on VIB level with their non-logistics and light industrial assets. But this is still in discussion.
So we have not finalized this. And so we are analyzing and seeing what the next week on discussions bring there.
Operator
It appears there are no more questions at this time.
Peer Schlinkmann
Hi, this is Peer speaking. Thanks for joining us today in our conference call. If you have any follow-up questions, as usual, please don’t hesitate to contact us. Max and I from the Investor Relations team are available the whole day. Thank you.
Sonja Wärntges
Thank you very much.
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