Branicks Group AG (0QGG.IL) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. A very warm welcome to DIC's 9-month Results 2020 Conference Call. Today, I'm here with my Board colleague, Patrick Weiden, Dirk Oehme, our Head of Accounting; and our Investor Relations team headed by Peer Schlinkmann. As you know, the macroeconomic environment continues to be strongly influenced by the special situation due to COVID-19, especially today. However, based on the figures for the third quarter and the visibility we have for the remainder of the year, we are pleased that we are able to show a very robust performance so far. Therefore, we have refined our guidance for this year. I will give you more details at the end of my presentation. Now we see a return to normality in the letting and transaction markets. In our ongoing letting discussions, we experienced that our existing tenants as well as new prospective tenants are looking for stability with a reliable partner on their side. For the fourth quarter of 2020, we expect a strong final sprint -- sorry, in the transaction market, where core properties with long lease terms and tenants with good credit ratings remain in particular demand. Overall, through the year, with the exceptional in every respect, our business model has proven high stability and robustness. That's why we are very confident that we will reach our targets. Let me give you a brief overview of our highlights in the first 9 months of 2020, which I will present to you in detail on the following slides. We keep our focus on our growth target of EUR 10 billion assets under management, which we now expect to reach in the short term. As of today, we have seen a growth of plus 19% year-over-year to now EUR 8.7 billion assets under management. Secondly, we are on track with our acquisition targets. A total of EUR 483 million were notarized for both segments. Our letting teams are more active than ever, which is proof of the ongoing trend of our highlighting performance in the third quarter as well. Our property managers signed a total of around 214,300 square meter on site, which is an increase of 72% year-over-year. These lettings will further secure long-term cash flows in both of our business segments. All this is, once again, bearing fruit. Our key performance indicator FFO, Funds From Operations, rose by around 6% year-on-year to EUR 72.7 million, and therefore, we are fully on track for the full year 2020 FFO guidance. Our adjusted NAV, which also takes into account the full value of the institutional business, stood at a high level of EUR 21.56 per share as of the balance sheet's date. Now let me run you through some figures and key indicators of our real estate platform activities in the first 9 months. As already mentioned, the letting output of our teams remained on a high level. With an increase of 72% to 414,300 square meters, we still see a lot of activity on the rental market side. With a share of 73%, renewals are again on a high level and also the new lettings outperformed the previous year results. The letting volume of euro is higher at EUR 11.7 million versus EUR 8.2 million. We were able to conclude numerous larger leases. For instance, we extended a lease of around 14,000 square meters with insurance company, Allianz in Karlsruhe by 8 years and ahead of schedule until 2030 for the Institutional Business. For approximately 18,000 square meters, we prolonged a contract with the Baden-Württemberg state office of property and construction for the commercial portfolio property in Mannheim. Overall, the commercial portfolio, we were able to conclude all renewals in the first 9 months 2020, on average, at 1.7% higher rental conditions excluding the adjusted rental contract for the Kaufhof properties in Chemnitz and Leverkusen. In the Institutional Business, we have been reached on an average 9% higher rental conditions compared to the previous contracts. As expected, we saw a different like-for-like development between the 2 segments. On a like-for-like basis, rental income was up 3.6% across the entire platform. In the Institutional Business, a plus of 6.9% was mainly driven by a strong reduction of vacancies, while the 2.7% decline in the commercial portfolio is mainly due to rent adjustments for the Kaufhof properties and the planned repositioning of office spaces for 2 tenants in Wiesbaden and Frankfurt. In Wiesbaden, we have already started the process for the reletting of the roughly 10,000 vacant square meters. For the property in Frankfurt, the tenant movement is part of our redevelopment plans. We are currently in an early stage for the repositioning of the whole property. The tenant has still a contract of roughly 60% of the spaces until 2022. Already, we have started the marketing and will finalize our development plans over the next 2 years. On the lease maturity profile, only 1.7% of the rents are due to expire until the end of the year. Roughly 75% have a remaining term until 2024 or longer. Overall, our assets under management have grown year-over-year from around EUR 7.3 billion, to EUR 8.7 billion. This means an increase of plus 19%. In the first 9 months, we notarized a total transaction volume of EUR 837 million, which purchases amounting to EUR 483 million, and sales to EUR 354 million over both segments. In the Institutional Business segment, we added in total 3 new properties. The so-called LOOK 21 property in the center of Stuttgart and a newly constructed office building, HangarOne in Cologne were signed in Q3. In total, we have achieved EUR 294 million of acquisitions for our clients. But also in the commercial portfolio, we successfully achieved the acquisition of 3 highly attractive properties until today. The latest acquisition was the so-called GATE NEUN, a multi-tenant office building in Stuttgart, which has lifted the total value of our commercial portfolio to almost EUR 2.1 billion. Now let us have a closer look into the specific development of the Commercial Portfolio segment. Overall, the portfolio has shown a stable development. As just mentioned, the total value has passed the EUR 2 billion mark. The EPRA vacancy rate was reduced by another 20 basis points to 7.1% as a result of our letting activities and portfolio additions. The average rent per square meter increased by 5% to EUR 10.50 and the WALT was slightly up at 6.3 years. Ladies and gentlemen, as mentioned, our latest addition to the Commercial Portfolio is the cash flow generating and refurbished property GATE NEUN in the Stuttgart metro region. The acquisition price was EUR 72 million, representing a 5.3% GRI yield. WALT under full letting is 8.5 years. The property will be modernized until Q2 2021 and is well connected with the located next -- and located next to the new Daimler Trucks campus, which will also be constructed until 2021. The property is currently pre-let by 56%, with 1 tenant already paying rents. On the sales side, we have already met our target for the Commercial Portfolio. After the balance sheet date, we sold 2 properties in Berlin and Düsseldorf, with a total volume of EUR 108 million. The sales volume was around 20% above the most recently determined market values. The sales profit from the 2 transactions amounted to around EUR 35 million and the cash flow to around EUR 60 million. The reason for the disposal of the property in Düsseldorf was due to the fact, that it is -- has a significant part of vacant hotel spaces, and we now had a good opportunity to sell it into the market. The decision to sell the property in Berlin was based on the fact that we wanted to crystallize the value improvements of the last years and also due to the point that we had only partial ownership rights there. Now looking into the development of the Institutional Business segment. We strongly pursued our growth path. The assets under management grew by 16% from EUR 5.7 billion to EUR 6.6 billion, which was mainly driven by transactions this year and transfer of ownership of notarized acquisitions in the last year. For example, the Stadthaus Cologne with a market value of more than EUR 500 million. Including the recent acquisitions in Stuttgart and Cologne, the assets under management will grow to EUR 6.8 billion on a pro forma basis. As of today, we have achieved about half of our acquisition target for the Institutional Business year-to-date, and there are more transactions to come in Q4. With EUR 500 million of committed equity, we are in a good position to further expand our real estate management platform for existing mandates and investment vehicles by at least another EUR 1 billion. On top of that, we have a strong pipeline and see high demand from investors. Therefore, we expect further equity commitments for new vehicles to come in the next weeks and months. Let me now give you some more details on the 2 recently acquired properties in the Institutional Business. Total investment costs for both newly built properties have been EUR 160 million. They are characterized by long WALTS of 12 and 9 years and are pre-let to high quality tenants. The micro location of the multi-tenant property in Stuttgart is defined specifically by its location in the Central Europaviertel and by its excellent transportation access. The property has landmark character because of its modern architecture. It is fully let to the high net worth infrastructure tenant Transnet, which operates the electricity transmission system in the state of Baden-Württemberg. The new building, HangarOne in Cologne with a lettable area of around 8,500 square meter, was developed on the historic airport grounds and is now part of the dynamic office market in the Ossendorf district. It is northwest of the inner city. The office building is defined by a high building quality and a competitive fit-out standard. It will completed mainly by the fourth quarter of 2020. Ladies and gentlemen, our activities in the first 9 months are also reflected in our strong set of results. The specific characteristics of our business model and the diversification of different income streams through our operating real estate platform, not only generate attractive profits but also deliver additional valuable advantages and help to mitigate risks in the current market environment. In detail, our gross rental income increased by 1% to EUR 76.3 million, compared with the same period of the previous year. Since the half year results and due to COVID-19, we reported higher valuation allowances for rent receivables to account for potential rent losses from deferred trends in the profit and loss account. In the third quarter, we have slightly adjusted additional valuation allowance by another EUR 0.5 million to EUR 3.6 million. This reflects the potential risk of additional rent losses in the future periods as a potential result of a further economic downturn, for example, due to new lockdown regulations by the government on the back of an increasing COVID-19 infection rate. This results in a temporarily lower net rental income of EUR 61.7 million compared with EUR 65.5 million in the same period of the previous year. Without these higher valuation allowances, we would have achieved a comparable NRI margin of 86%. At the same time, our real estate management fees increased by 56% to EUR 60.6 million, and thereby, more than compensated the temporary effects of the lower net rental income. In addition, we generated a sales profit of EUR 2.5 million, and profit from associates of EUR 8 million from our core investments in the Institutional Business segment. The reduction in the profit from associates is linked to the discontinuation of our former TLG investment, which we sold in 2019. In total, this was also overcompensated by the strong fee growth from our growing real estate platform year-over-year. The positive development in the first 9 months of the year is also reflected in the growth of the FFO, which increased by 6%. The main drivers included the increased contribution of real estate management fees and the ongoing optimization of our financial structure, which resulted in an overall reduction in interest expenses year-over-year. The increase in operating expenditures is mainly due to the first-time consolidation of TLG for full 9 months compared to the previous periods. If you look at the segments in detail on Page 12, the Commercial Portfolio delivered roughly EUR 1.6 million, less FFO than in the prior year period due to the COVID-19-related higher valuation allowances and higher personnel and administrative expenses. The improvement in the net interest result partly compensated a reduction in the net rental income. In the Institutional Business segment, the inorganic growth resulting from the acquisition of TLG in June 2019 and a subsequent launch of new vehicles is reflected in the real estate management fees and operating expenditures. In the previous year, the TLG dividend of EUR 12.9 million was still included in the share of profit from associates. Without the TLG dividend, the share of profit from associates improved by EUR 3.4 million to EUR 8 million. In total, the Institutional Business segment shows a strongly increased FFO contribution of EUR 39.1 million in the 9-month results. And what happened on the valuation side of our business model? On Slide 13, you see that the shareholders' equity per share slightly decreased as of September 30, 2020, mainly due to the effect from the distribution of the cash dividend and the dilution effect from the capital increase and the resulting higher amount of roughly 8.4 million shares since beginning of the year. Adding the fair value adjustments for our commercial portfolio, the EPRA NAV stood at EUR 17.06 per share. The adjusted NAV, which takes into account the full value of the Institutional Business segment, was EUR 21.56 per share. Our financial structure also continues to show a strong credit profile. We have no significant maturities until mid of 2022. Only a limited portion of debt needs to be refinanced in 2021. The weighted average term of loans and borrowings is nearly unchanged and stood at 3.8 years. Our average interest rate is at 2%. The net LTV temporarily slightly increased to 48.2% due to the cash dividend paid in Q3. We expect a reduction in the fourth quarter towards our strategic goal of 45%. Including the full value of our Institutional Business, the adjusted LTV is at 42.7% compared to 41.8% end of last year. After the acquisitions for our Commercial Portfolio, and the payout of the cash dividend, we still have a strong liquidity position of EUR 318 million, which we will use to further fund our growth. Ladies and gentlemen, as usual, I'm closing my presentation with the outlook for the year 2020. The good news is, after nearly 10 months of the year, we have now more visibility but we do not know what happens in the next days and weeks. So we are working on our targets. And as of today, we see our goals coming and work hard to achieve them. Saying this, we are refining our guidance as we continue with our successful course. We increased our expectations for the gross rental income to at least EUR 98 million and adjust our expectations for the real estate management fees to EUR 80 million to EUR 85 million. In total, we slightly increased our FFO guidance towards the upper end of our latest guidance to EUR 95 million to EUR 96 million. On the acquisition side, we stick to our target. We see currently a good momentum in the market and expect a vivid Q4. On the disposal side, we keep our guidance unchanged. Ladies and gentlemen, our business model has proven its resilience in a very special situation, which we will still remember in years, I think. Roughly 3 months ago, when I presented our half year results, I said that agility, team spirit and high-quality management have never been more important. Today, 3 months later, I can reconfirm yet that these characteristics make the difference between success and failure, and hence, are still true. During the next weeks, we will work with the same dynamic performance to ensure that we are able to achieve another strong result by the year-end. Many thanks for your attention. And now, we are ready to take your questions.

[Operator Instructions] We now take our first question from [ Marcus Schmidt ] from [ Prisma ].

Just a couple for me. Firstly, could you please comment a bit on the transaction market and how the market is evolving right now? When you compare the pre-COVID level with the current market, is activity similar or 5% lower or 10% lower? Maybe you could assess this a bit. And also, because you implied Q4 could see additional transactions, so what is your overall assessment of the market environment and sentiment right now?

So Marcus, thanks for the question. Yes, I see the transaction market in a very good shape at the moment. So as I said in the Q2 results presentation, we have seen observer position, I call it that way, for 3 to 4 months from April to June, July. But since August, the market is back. We see a little bit difference between the market before corona and now. What does it mean? It means that there is more attention on the right tenants, meaning public tenants and nearly public tenants are more attractive than before. And thereof, we see much higher prices than before. So the multipliers have even a little bit increased in the last weeks and months. And we see these activities going on also at the moment. And if nothing special happens I say this very clearly, with respect to the decisions that may be taken today or tomorrow from the government, we think that it will go on until the end of the year and also beginning of the next year. If we look at our business, we have a very fulfilled pipeline at the moment with a lot of transactions going on. And we think that we can close them until the end of the year, but we have to take into account that we need services to evaluate the assets and so on that have to go there, they have to be there. And I hope that's -- it is allowed over the next week so that we can close our transactions there. But to answer it, the market is in a good shape. We see a lot of transactions going on, and we do not see a decrease of the multipliers and the prices.

Okay. Great. Then a question regarding your planned notes issuance, which you pulled eventually. Could you tell a bit what your price expectation was for the proposed notes, because this must have been the only reason for not completing the issuance, I guess? So maybe you can comment a bit what your expectation was for the EUR 500 million proposed notes.

Yes, I expected this question. Why have we started this transaction? I think we are in a very professional shape. We have worked a lot over the last years. And so we are on an ongoing basis to stabilize our financial -- yes, our financials and to find new investors and to broaden our basis, yes. This is one point. The second point was always -- I was always asked a question, do you want to have a rating and so on. And so I always said, no, there's a lot of work and costs a lot and so on. And so we decided that we want to go this way and ask S&P for a rating. And we would like to get their ideas and feeling what our rating proposition was. And therefore, we did this -- yes, this transaction, yes. We got the S&P rating. It was sub investment-grade for the company and investment-grade for the bond, for a probable bond. And we saw that there is a lot of interest in -- with the basis for such a bond. What we also saw, and I think looking back, I say clearly it was the wrong market. So we expected to have an interest rate nearly to our average interest rate. We have now, as you can see in our presentation, 2%. So it would not make sense to have a bond which has 2.5% or 2.75%, and that was our expectation, yes. As I said, I think it was the wrong market on the wrong market surroundings. And therefore, we couldn't get our expected interest rate. And therefore, we said thank you, we try to get this in a better market circumstances.

Okay. Good. And then just finally, just a request, not a question really. Could you maybe include the overview of the Commercial Property by asset class in your presentation? Because I think you included it in the half year presentation, but it was taken out from the Q3 presentation. This would be helpful going forward to have that data included -- maybe worth to consider for you.

Yes. Thank you, Marcus, Peer speaking. Something we definitely add to our company presentation on the back of the Q3 results. But of course, we will show these this table going forward in our company presentations again.

We will now move to our next question from Andre Remke from Baader Bank.

The first question is with regard to your asset under management target of EUR 10 billion. You stated that the short-term target now, if I'm right, this was a midterm target so far. Is this simply as we move ahead in time or it will be becoming more confident to reach this earlier than anticipated so far due [indiscernible] investor demand. What is your view of that? This is the first question.

Yes, you have noticed this right. So we have changed a little bit the time line for our goals. So if you can imagine, we were not really confident during the last months, especially in Q2 when the market is back, will it come back? How long will the lockdown take and so on. And we're seeing the markets back and see that we can do the transaction and that we are a reliable partner for all the stakeholders in the transaction market. So we get the transactions. And also the interest from the institutional investors to do the business with us. I said it in the presentation, we have EUR 500 million equity also in place here, and we see additional equity coming in the last years -- in the last weeks and also in the next weeks. We are confident that we will reach the EUR 10 billion mark in a shorter-term than we have expected, yes. Yes, keep the fingers crossed that lockdown will not cross these plans. But from our perspective, at the moment, we see it coming in the next months, I would say. So it also depends a little bit how can we close the transaction, how fast can we go. So it depends will it be at the end of this year or beginning of the next year. But we are sure that we can reach the goal in a faster time line.

Excellent. Probably a follow on -- kind of follow-up question. If I get it right, then growth in the Institutional Business, this is more or less driving with assets under management. So it brings me to the point that S&P in the rating notes mentions that there would be a downside risk for the -- if the EBITDA contribution from this business would increase significantly. So how do you evaluate it or put it into respect to your growth plans for the 2 segments?

No as I always said, we want to grow in both of the segments. And as I said, we have to grow even more with the assets under management and Institutional Business to get a 50% ratio out of the 2 segments. 50% ratio means an FFO, yes? And what we also see is that we have already EUR 200 million bought for the Commercial Portfolio. Our goal was EUR 200 million to EUR 300 million so I think we will also make transaction in the Commercial Portfolio in the rest of the year so that we have also reached the lower side of our range. And yes, I do not know whether we get EUR 300 million, but we will definitely get more than EUR 200 million. On the other hand, in the Institutional Business segment, we like to drive the assets under management to get the recurring fees out of it. And on the other hand, we drive the developments there to get the development fees, but this is part of our day-to-day business to do refurbishments in the assets. And on the third part, we drive the transaction fees, where we always said we want to have a platform there. So that we get on the one hand, the acquisition fees out of that. But on the other hand, the disposition fees. And that's what we are doing at the moment. And so therefore, we drive the 2 segments, and we are working on the goal that we get 50% out of it. And if you look in the segment, profit and loss, in the presentation you see it, we are a little bit short in the Commercial Portfolio side. But that's -- the reason, therefore, is the corona pandemic because we had the allowances in profit and loss, and we had a little bit more in our costs, meaning that we had IT things to do and that we have more legal consultant fees and so on, but this is only a timely lag.

But those costs, IT costs and legal costs, et cetera, which you calculate for the FFO -- it burdens the FFO of the Commercial Portfolio?

No, it's part in the Commercial Portfolio and part in the Institutional Business. So we split it on special premises, yes. But at the end of the day, we have additional costs. We had additional costs in the last 6 months. This will stop now because we have all the IT things in place, and we know what's going on, on the legal side. But at the end of the day, it will split and if you don't increase the income, you have more costs and therefore, lower FFO, yes. And we see also the allowances in our top line in the Commercial Portfolio. And I said it very clearly, in my presentation that we have also put in another EUR 500 million in our allowances for the rents because we do not know what's the outcome of the today's or tomorrow's decision of the government is, and maybe there will be a lockdown-lite, so they call it. And then we do not know whether we will have lower rents or we have to do a scribe down for some rents in the upcoming months.

So in a nutshell, the FFO from the Institutional Business will be about 50% this year. And probably, if the Commercial Portfolio is coming back, without any first costs, then this could be more equal over the next year? Is this what I should assume, at this point?

Yes. This is right in a nutshell. And the 50% is an average, yes, it may be 51% or 48%, but the average, 50% is the goal, yes.

Okay. Then another topic, the letting result, you recorded very strong figures for also the third quarter. This is completely in contrast to -- or in opposite to the reported strong declines reported by the real estate brokers for the period. How would you explain this? Is it a onetime effect to re-initiation in your portfolio? Or how should we see this?

Yes, that's a very good question. That's what I always say when I look into the newspapers, I get a depression, yes. But if you look -- or if I see how -- on what we are working and what the results are, yes, it's totally different, yes. So at the end of the day, I can only say that's what we see. We have this letting results. We see that yes, some of our tenants want to stay, they pay more -- we have 1.7% in the renewals more in the rents than we had before. So I can only say there is a lot of dynamic in the letting market as well as in the renewal as in the new letting market. We see that our developments will be let. So I think if you have the right asset with the right rent, then you can let. And our tenants want to have a reliable partner, and they get it from us. At the end of the day, we see this until the end of the year, and we do not see a decrease in the demand.

Okay. Very last question. Could you give us an update on your plans to step into the logistics market. Is there already something in the pipeline? Or it's still too early? Or other way around? Have you, probably, realized that prices are too high [indiscernible] to reach reasonable transaction?

At first, we want to step more in the logistics market. We already have some logistic assets. We had it always. We had the first 2-level building from Amazon in [ Bahnhof Deutz ], unfortunately, we sold it. But at the end of the day, what I would like to say, we have some logistic experience here, and we have also some assets here. But what we see is that regarding to the market, the circumstances in the market also during COVID-19, we think that logistics is very attractive. Germany is logistic company, #1 in Europe. And we think that this will also go on this trend. But everybody has seen this, and everybody wants to buy logistics. But at the end of the day, we want to broaden our asset class basis with logistics. We see that there are transactions in the market, that there are good transactions in the market, and we also have some in the pipeline. So on the one hand, we will expand the assets in the Commercial Portfolio, but at the other hand, also in the Institutional Business. Yes, we have some in the pipeline. We get them. This is also an interesting question because we are not seen in the market until today or we're not seen as the logistic player. But I think the market has seen this, and now we get the transactions also. And yes, it will grow. It's not tomorrow, because if you compare office with logistics, you see that if you buy 100,000 square meter office space like we did it in Cologne last year, you have a size of more than EUR 500 million. If you buy 100,000 square meter logistics, we have EUR 30 million, yes? So it will take us a little bit of time to get the logistics increase, but we will definitely do this. And we will do it in at least 2 ways. The one is to buy existing assets in the market. There are [ the yields ] decreasing. That's definitely right. On the other hand, we try to get into the development market that we do forward deals like we do it in the office area and therefore -- if we step in an earlier point of time, we can get it to better yields and to better prices. And maybe we will look in foreign countries. That's what we are thinking now that we have a logistic partner not only in Germany, but also in countries in the neighborhood of Germany.

But this is only the case for this special segment. You will not open your overall strategy to foreign markets also in, let's say, offices, hotels, et cetera?

No. It's the first step, this is only for the logistic market because you see it in the way it is logistic is defined. Therefore, we have said we want to open our minds also for foreign countries in logistic.

Okay. But do you consider also for the other asset classes at a later point in time to open your expertise?

No, not at the moment.

We will now move to our next question from Stefan Scharff from SRC.

Yes. I have just 1 or 2 questions left. One question is, after the positive numbers framework from the first 9 months, your FFO target was only very slightly lifted to the range of EUR 95 million to EUR 96 million, which would be a record. But normally, you could perhaps expect it more to be EUR 97 million or EUR 98 million, coming close to EUR 100 million. Perhaps you can say a little bit more here. It's only the [ thoroughs ] about the development of the COVID-19 pandemic here in Germany or perhaps are there some other issues to be remembered? The second question is about the like-for-like rents. In the commercial portfolio, the like-for-like rents, slightly down 2.7%, and you speak about repositioning of 2 office properties in Frankfurt and Wiesbaden. Perhaps you can also say something here.

Stefan, thanks for these questions. Yes, FFO, it's always a good question. But if you see what we have refined in our targets, you see that we are on the upper level of the rent, and we have refined our Institutional Business fees to EUR 80 million to EUR 85 million. So as I said, we are -- in 2020, we are or we had 6 months, 5 to 6 months where transactions were on a very low basis and so on. So we have a time lag here. And therefore, we are working to get our transactions done. But at the end of the day, we do not know whether we can close them. And normally, the fees are based on a closing. So if we get our transactions done, maybe a little bit more than we have now in plan, yes. We will definitely get not all the fees out of it. And therefore, we have to be conservative on our FFO guideline. And I think if we get to the EUR 96 million, we are still in a very good shape, and we have some fees left then also for 2021 for the signings, but not closings in the Institutional Business in 2020. So it's a very good outlook for 2021, then. We are 6 weeks ahead of 2021. So we have to also think about next year. And the second question, you said it right, 2.7% minus in the like-for-like, it's mainly driven by the Kaufhof decision for Chemnitz and Leverkusen. By the way, in prime, for Kaufhof prime, which where Kaufhof is out now, we are in very good discussions with new tenants, and I think we will get them in a short notice. We see 2 -- I call it, refurbishments, one in Wiesbaden and one in Frankfurt. But we have not taken it out from our normal numbers because they are not totally empty. So they are not totally in repositioning at the moment. But for the levels, we are now in discussions with new tenants, we have to do something. We have to do the pump shoots -- fire pump shoots, fire protection, yes, and so on. And therefore, we need some weeks to go, and we are in discussions with new tenants, by the way, also public tenants. So I think we will get the end of this year, beginning of next year. But we need that time to do the work here.

And the rent expiry profile, I could see, it's EUR 5.6 million in '21, and then it jumps a little bit to EUR 9.5 million, almost double in 2022. Are there some bigger rental contracts expiring in 2022?

Yes. There are some bigger [ expirements ], but we are still in negotiations. It's -- one single-tenant where we have negotiations, and I think we will end it until the end of the year, if nothing happens now, so that we are on a good way to also close discussions end of the year, beginning of next year and then expiry dates will go down.

Okay. The letting performance was good, it was 72% up. And if I took you right, you made no big compromises in the square meter prices for prolongations or also for new rental contracts. Is this right? Or would you say that you also -- they are more accessible for some better or lower square meter prices to rent more space.

Hi, Stefan. Peer speaking. Sonja mentioned already during the presentation. So the renewals we signed in the Commercial portfolio was 1.7% above the previous conditions. We have -- except for the Kaufhof situation you're aware of, of course, there's a reduction. But overall -- and that's what we want to highlight here is that we see a clear higher level of average rents within the renewals. So overall, we've been something between 6% to 7% because Institutional Business, we had also seen a very high level of plus 9%, but it's also driven, of course, off bigger discussions we had with tenants. But I think, especially for the commercial portfolio where we collect the rents, 1.7% is a very good sign that -- and one thing I want to mention and highlight is there's no discussions through the portfolio with all the tenants with regard to rent reductions. And this applies to the whole portfolio. So we're talking about office, retail, mixed-used properties, et cetera.

Okay. Okay. And perhaps just one remark. You showed the FFO without the trading result, and you made some good trading results in the recent weeks. So perhaps if you show us FFO 2, you could include the trading gains. So that could perhaps also be helpful to show the value of your portfolio and the quality.

Yes, that's a very good idea. So we think on this. Thank you for this.

We will now move to our next question from Jochen Schmitt from Metzler.

One question on your FFO target for 2020 with regard to the Institutional segment. Is it right to assume that you are confident to announce and to close, at least, some further transaction volume in Q4 '20? Or would your target also be achievable by just closing already announced deals? That's my question.

Thank you, Jochen, thank you for this question. Yes, I think status today, we will close some transactions this year. So that means not only signing, but also closing. And therefore, we will get our fees out of it. And on the other hand, we are in discussion where we think that we cannot close it until the end of the year, mainly driven, by the way, by the government, by the state and so on because a lot of people are in home office there, and they are very slow at the moment with decisions. But at the end of the day, to answer it clearly, yes, we will close some transactions, and therefore, we will get the fees out of it, and we will only sign some transactions, and we will get the fees next year.

We will now take our next question from Georg Kanders from Bankhaus Lampe.

I had one question really. There seems to be this contradiction between your optimism regarding the assets under management development and the reduction in the fee income. Maybe you have given the reason that this is only timing difference and that we can expect a good Q1. This was the first question. And the second question is, could you give a split between transaction-related fees and yes, the ongoing fees income? [indiscernible]

Yes, good morning, Georg. I have to search for the split. Yes, to answer the first question, definitely right. Yes. We will see on the one hand, to be clear, I hope that we get this. I think it, and -- but I'm not 100% sure. I said it clearly, we have to wait for the decisions taken today and tomorrow, and we hope that all the evaluators and all the people we need to close the transactions to do their signings are available and will go out and are prepared to drive through the different places, yes. But if so, I can answer very clearly, yes. To your second question, you see it on Page 10. So you can see the split here between the transaction and performance fees and the recurring fees. In the last year, we had EUR 15.2 million on transaction performance fees. Now we have EUR 25.3 million in the first 9 months, and we had the EUR 23.7 million on the AM, PM and the development fees. And now we have the EUR 35.3 million for 2020 on a comparable basis. In total, EUR 60.6 million compared to EUR 38.9 million the year before.

And could you give a hint on how much of these are development fees? I think there's a strong contribution from this.

Yes. So in the EUR 35.3 million, we had nearly EUR 10 million development fees. And in the last year, we had around about EUR 6 million, EUR 5.7 million, I think.

And so this is for the fee income, the reduction has nothing to do with, for example, the sale in properties where you expected some performance fees. So it's just simply a timing issue?

Yes. It's definitely a timing issue. And I can also say, clearly, if you have performance fees, the prices are even on a high level and higher than we have expected. So for the selling purposes, we do also in the Institutional Business, we see higher prices than we have expected.

Our next question is from Manuel Martin from BHF.

Three questions, maybe one by one. The first question is a follow-up question on your guidance. The fine-tuning of your guidance, is there kind of interconnection between increasing the rental guidance and lowering the fee guidance, or is this the kind of way how you can, let's say, fine-tune the FFO by your own will?

It's Peer speaking. Yes, you're right. I mean, fine-tuning is definitely driven by the fact that we have now much more visibility on the last weeks of the year, and given the fact that we see now the upper end of the previous range in the Commercial Portfolio. We said 94 to 98, which was a broader range than we have given out earlier and was special at the time in April when we refined our guidance due to the COVID-19 situation. And now, we're looking at 98, at least. We have, of course, more visibility, and that's why we said 95 to 96 is the FFO guidance. And if you then take to the account, given the timing effect on the transaction side for the Institutional Business segment, we have narrowed also the range from 80 million to 90 million; now to EUR 80 million to EUR 85 million. And if we then take the midpoints of these new ranges, then you will -- we will end up at this new 95 to 96 FFO guidance.

But the increase of the rental guidance, is it because of the decision of DIC not to sell too early in the commercial portfolio? Or is it due to the transaction market that it takes a bit longer?

No, at the end it's a mixture of several effects. I mean the one thing is, of course, the effect from the COVID-19 situations are not that bad as we initially have expected in April, then we have seen much earlier transactions through the year. And of course, some disposals we had in our business plans are more happening towards the end of the year. So it's a mixture of several effects we see here in the gross rental income.

Okay. Then talking about the gross rental income, this leads to my second question. On a quarter-to-quarter comparison, the rental income has decreased just slightly, despite having seen also some acquisitions in your commercial portfolio, I think. Is there kind of timing difference? Or why do we see a slight decrease there in rental income quarter-on-quarter?

Are you talking about the net rental income or on the top line gross rental income?

So I'm talking about gross rental income.

I mean, we had -- at mid-year, we had this adjustments due to Kaufhof. So I mean, we have to split in our guidance. Remember, on the one side that we said from the deferred rents, we do not have signed new agreements for. We see the effect in the other operating real estate expenses in the P&L. And for -- with the tenants where we were able to renew the contracts by saying on the one side, we temporarily reduced the rent for time period X at the end for -- that prolonged the original contract by several months. You see now the effect in the gross rental income, especially then in Q3 and the lowering. That's why you see it on a quarter-over-quarter basis that you see some reduction in the top line.

So if I understand that right then some prolongations with lower rent was the reason for...

Yes, that was the situation we said on the half year results -- I mean that we enter into actively into discussions with tenants who were directly affected by the COVID-19 situation. So taking Kaufhof as the good example here, where we said, okay, we reduce the rent now, given the fact that we, on the other side, have prolonged the contracts for more than 13 years.

Okay.

And this impact is, of course, then what you see in the Q3 number on the top line side.

Okay. Understood. And last question on the [indiscernible] rent, don't know whether you have that number right now, but maybe you could give us the rent collection rate for the third quarter, if it's possible?

Yes. So we are back to pre-corona times, and we have nearly 99% of our rents collected.

As there are no further questions, I'd like to hand the call back to our speakers for any additional or closing remarks.

It's Peer speaking again. Thanks for listening today to our conference call. If you have any further questions, please drop us an e-mail or give us a call. Me and my team are available for any follow-up questions. Thank you. Have a nice day. Bye-bye.

Thank you. Bye-bye.

Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect.