Branicks Group AG (OTCPK:DDCCF) Q4 2023 Earnings Conference Call April 30, 2024 4:00 AM ET
Company Participants
Jasmin Dentz – Investor Relations
Sonja Warntges – Chief Executive Officer
Peer Schlinkmann – Head of Investor Relations & Corporate Communications
Conference Call Participants
Andre Remke – Baader Bank
Markus Schmitt – ODDO BHF
Stefan Scharff – SRC Research
Ingo Hillen – MMI GmbH
Operator
Hello, ladies and gentlemen, and welcome to the Branicks Group AG Full-Year Results 2023. At this time all participants have been placed on a listen-only mode. The floor will be open for questions following the presentation.
Let me now turn the floor over to Jasmin Dentz, Investor Relations.
Jasmin Dentz
Thank you, operator. So also, a very warm welcome from my end for our full-year results presentation today. And please note that this call will also be webcasted live on our branicksgroup.com website, and a replay of the call will be available on our website shortly after the end of the call. Your participation in this call implies your consent with this.
Our CEO, Sonja Warntges, will now give you an overview of our financials, our guidance and the current market development. After the presentation, we will be happy to take your questions. Please note that management’s comments during this call will include forward-looking statements, which involve risks and uncertainties. For a discussion of risk factors, I encourage you to review the safe harbor statement contained in today’s presentation. All documents relating our full-year 2023 reporting has been made available on our website.
I now turn the call over to Sonja and her remarks. Sonja, the floor is yours.
Sonja Warntges
Thank you very much. So good morning, ladies and gentlemen. Also from my side, a very warm welcome to Branicks’ 2023 full-year results conference call. Today, as usual, I’m joined by my colleagues from the accounting and Investor Relations department. And today, of course, I’ll give you a wrap-up of our 2023 full-year results and a short summary on what we have achieved in terms of agreements with our financing partners, highlighting that these agreements enable us to focus on our operational strength and value creation outlined in a measurable outlook, as well as clear midterm ambition.
First of all, before I dig deeper in all of the topics mentioned on slide number two, let me highlight that after the agreement with our bridge financing partners and the 2024 promissory noteholders, management capacity can now even more be focused on our operational business again to reach our goals. And our operational business is strong, especially our letting performance in our commercial portfolio showed record levels in 2023 and promise to generate predictable strong cash flows also in the future.
While we expect manageable devaluation effects, core institutional business continue to be a stabilizing factor. Our partners are committed, our assets are valuable and our platform and know-how has the potential for further successful activities, especially with regards to our new asset class renewals. I will elaborate on this in a moment.
The first, I know that many of you are interested in the improvement we achieved in terms of our financial maturities profile. The two points are decisive here. At the end of March, the lenders of the 2024 promissory note loans amounting to EUR225 million voted in favor of the company’s plan. In doing so, the promissory note loans in question were extended to June 30, 2025. On the other hand, we agreed an extension of the bridge financing completed in 2022 for the acquisition of the shares in VIB Vermögen AG, with a lender until 31 December 2024.
After repayment of EUR40 million end of March 2024, there are EUR160 million outstanding. The extension has been achieved on almost unchanged conditions. We achieved this agreement also in view of our financial covenants. And of course, we have an ongoing close look on that. We are aiming to reduce our LTV further in 2024 to achieve an even bigger headroom in the midterm. We are also confident to keep our interest cover ratio stable and above the 1.8% threshold.
Given the importance of monitoring our financial covenants, you’ll find them also on the next slide along with the improvements we achieved with regards to our financial maturities profile. In total, the average interest rate for end of December 2023 and end of March 2024 rose from 5% to 7.6%. Nevertheless, as you can see, the total amount of debt due in 2024 could be significantly reduced, also reducing the total interest expenses to be expected in the year 2024.
Let me also underline that our focus to deleverage our balance sheet, while monitoring our green bond covenants remains one of the highest priorities. LTV covenants should have peaked in Q1 2024 and will improve due to disposals and the planned redemption of the bridge financing over the course of the year. The ICR covenant was challenged by bridge costs and low fee income in 2023, with improvement expected in 2024, also due to the planned redemption of the bridge.
To sum it up, this slide shows that the agreed achievement significantly improved our maturity profile, and that we are sustainably and sufficiently financed until at least 2020. Having said this, let us now focus on our 2023 results, starting with an overview of our key performance indicators, compared to our guidance given in summer last year. As you can see, we have delivered on them. We have reached our GRI and FFO target, and are only very slightly behind the transaction target.
Let’s now have a deeper look at the results of our real estate platform in the full-year 2023 shown on slide number six. As already mentioned, our letting performance remained strong, and our teams once again performed exceptionally well. Letting performance of the Branicks platform in 2023 rose by 19% year-on-year to a record level of 446,600 square meters. In total, assets under management with EUR13.2 billion are slightly down by roughly 10%, mostly due to the disposals, which became effective in the course of the year and the evaluation effect of around about 6%.
The Commercial Portfolio saw a decrease from EUR4.5 billion, down to EUR3.6 billion, the Institutional Business from EUR10.2 billion to EUR9.6 billion. Like-for-like the rental income rose by 5.4% for the entire portfolio under management, both in the Commercial Portfolio with a plus of 2.7% and in the Institutional Business with a plus of 6.6%. Rent increases were realized primarily through indexation.
As of today, only 3.7% of the total annualized rental income expire in 2024, if these contracts are not prolonged. Over 70% of annualized rental income has a lease length until 2027 and longer. For larger expiries in 2024 and 2025, we have already proactively started discussions with the tenant.
On our next slide, let me highlight the development of our main income stream. As expected, our main income streams look similar to the picture we already gave you during our quarterly conference calls in the course of last year. On the one hand, there was a strong increase in net rental income, mainly due to the takeover of VIB and the like-for-like growth of our rental contracts.
On the other hand, we saw a sharp decline in the real estate management fees due to the challenging transaction market. Therefore, our recurring income on the platform grew by more than 23% and is a very stable base of our income stream. From the total of EUR50.9 million of real estate management fees, EUR6 million were generated from transactions.
In addition, we generated income from associates of EUR6.4 million, which is below the previous year result of EUR18.9 million, and this is mainly due to the sale of a joint venture investment for EUR10.1 million in the prior year period.
Now let’s take a closer look on the development of the FFO year-on-year that were overall in line with our guided expectations. Net rental income saw a strong increase of around EUR12 million. As previously mentioned, this was due to like-for-like rental growth of our Commercial Portfolio and the VIB consolidation for the first time for 12 months. Also, the recurring management fees, an increase of EUR8.5 million, that couldn’t compensate for the decline in transaction-related fees, which led to a negative effect of minus EUR46.0 million.
The net interest result was down by EUR32.2 million, affected by the VIB consolidation, refinancing activities as well as the unhedged interest costs for the VIB bridge. Our OpEx of the prior year was significantly improved by EUR13.2 million. This was despite the fact that we had one-off admin expenses for IT security and moving our headquarters in Frankfurt. All in all, this resulted in an FFO of EUR51.9 million for the full-year 2023.
Ladies and gentlemen, with regards to our strategy and the positioning of Branicks, it is important for me to point out that the transformation of Branicks Group in the direction of generating additional cash flows and value and extended management universe has already begun. We are convinced that our sound and long ESG expertise can be monetized way better in a changing real estate environment where these matters become increasingly important.
Branicks already has an excellent reputation in the field of ESG and occupies top positions in ratings, such as Morningstar’s Sustainalytics. Our properties have been awarded with certificates such as DGNB, LEED or BREEAM, which demonstrate the highest sustainability standards. We see growing demand from existing and potential tenants, who ask for energy-efficient real estate, and we offer such what is already reflected in our increased share of green buildings.
Earnings upside in this context not only comes from our Commercial Portfolio with regards to further boosting our rental income, but it is also a management fee driver in our Institutional Business, as well as our new asset class renewables. With more than 10-years of established sustainability expertise, Branicks set standards in the real estate sector in terms of analytics, consulting and the development, management and operation of properties.
Decarbonization and ESG criteria are increasingly becoming the focus of investor and user interest, and are an integral part of Branicks’ corporate strategy and business activities. The development of an additional asset class renewables, therefore, a logic step towards broadening Branicks’ business spectrum.
So on slide 10, we outline our ambitions to strengthen our focus on operational value enhancement and additional earnings potential in the area of sustainability in the Commercial Portfolio, as well as in our Institutional Business segment. On the one hand, this includes the consistent further expansion of the green building ratio as the equivalent of ecological assets, which already stood at 43.6% at the end of the last year.
In addition, Branicks has started a cooperation with Encavis Asset Management AG in the Institutional Business segment, to establish an independent Renewables asset class. The aim is to develop and offer investment vehicles in the field of solar and wind power plants in Germany and other European countries. The first fund with a target volume of EUR300 million is being set up for this purpose and will be launched on the market shortly. In the solar sector, in particular, the use of land and buildings within our existing office and logistics asset classes also opens up additional yield potential.
We are convinced that the cooperation with Encavis as a specialist in the field of Renewable Energy and Branicks as an expert in investment vehicles and commercial real estate is an ideal combination to offer investors attractive investment opportunities in this dynamic market, and to further develop Branicks’ business spectrum in a value-driving manner.
Moving now to page 11, you will see that within our commercial portfolio, our ongoing optimization of the portfolio continued during the reporting year. Our two strategic asset classes, logistics and office, now account for 79% of the market value of the Commercial Portfolio, up from 73% at the end of last year. The EPRA vacancy rate was slightly up year-on-year, mainly because of disposals. And finally, our WALT remained at a high level.
Compared to former years, our key performance indicators remained very solid, what we lined out on page 12. We all know that 2022 was a record year. But still with regard to our long-year performance, we can stay the growing balance sheet portfolio, it leads to a very robust annualized rental income and a high square meter prices. Our long-term efforts and achievements regarding letting activities lead to a reduction trend regarding vacancy rates and a solid level of growth.
In this context, let me focus on VIB for a moment. VIB showed a very strong performance in 2023, achieving upper ends of this forecast with a gross rental income of EUR86.9 million, funds from operations of EUR72.6 million and a consolidated net income of EUR130.8 million. VIB’s vacancy rate remains with 2.1% at a very low level, and they are forecasting it to remain in the low-single-digit percentage range.
While they are expecting FFO before taxes and minorities in 2024 to be between EUR66 million and EUR72 million. VIB continues to pursue that strategic focus on logistics and light industrial sector, as well as on their profitable and liquidity-rich second business area, Institutional Business, that they built up within 1 year. On a Branicks level, we also see further opportunities arise from the expansion of our third-party business for Institutional Investors to VIB. Our 69% stake of VIB, therefore, remains a core asset for our future success.
Another core element of course, remains our Institutional Business. The split-up of assets under management in this segment on page 14 also demonstrates our focus on the asset classes, office and logistics. Core investment partner basis here continues to be well balanced without any dependencies from single mandates. Branicks currently manages 33 vehicles, for a total of 171 million institutional investors. The strategic and operative setup that I have presented to you during the last minutes is the right setup for the expected market environment.
With regard to the office rental market, JLL has an optimistic view and sees a continued high demand in prime space that is becoming increasingly difficult to find due to a declining new construction pipeline. Existing shortage of logistics base may lead to users switching to surrounding areas, causing these rents to rise.
In this context, Colliers predicts logistic rents to raise due to low vacancy rates, continued limited supply and an overall decline in number of new construction projects. As I have mentioned before, we see a growing importance of sustainability topics in both asset classes. Also uncertainties remain and the market continues to pose challenges, we expect an overall gradual recovery as of second half 2024 also with regards to the transaction environment.
The improvement of the transaction market from H2 2024 onwards is also one of the core assumptions outlined in our business and restructuring plan 2026 that was confirmed by an independent business review. It foresees a clear solid bottom-up asset-by-asset transaction plan, with external asset disposals above EUR1 billion until 2026. An increasing source of income will result from management fees from the Institutional Business. In line with our Performance 2024 action plan, OpEx shall be reduced by 5%, while vacancy rates and WALT remained relatively stable.
In line with our maturity profile as presented to you at the beginning of the call, interest expenses are expected to be substantially reduced from 2025 onwards. Together with negative valuation effects to fall, the stabilization of earnings position and an improvement of our loan to value below 50% in 2025, the interest cover ratio will increase over time. From 2025 onwards, we expect an increase of funds from operations as well as a return to net profit in 2026.
In view of our expectations for the current business year, we expect gross rental income in the range from EUR160 million to EUR175 million, real estate management fees between EUR40 million to EUR50 million, FFO I after minorities and before taxes of EUR40 million to EUR55 million, acquisitions of EUR150 million to EUR300 million, whereas we expect all of them in our Institutional Business. And last but not least, disposals of EUR650 million to EUR900 million, whereas EUR500 million to EUR600 million in our Commercial Portfolio and EUR150 million to EUR300 million in our Institutional Business.
Beyond 2024, our midterm ambition is to transform Branicks Group towards a profitable ESG-focused and value-generating asset expert, and sustainably strengthen cash flows and financial position. Our ambitious is clear, we want to substantially improve our earnings and cash flows and return to net profit and positive net cash flow in 2026. And we have a clear midterm ambition to further reduce our debt that will go along with improving the respective KPIs.
Today, I’m concluding my presentation with some key takeaways. We are sustainably and sufficiently financed until at least 2026. We see strong value and earnings potential within our business activities. We enhanced our business model with a stronger focus on Renewables. We have independently confirmed business plans which targets a very substantial debt reduction until 2026. And last but not least, 2024 will be a transition year to return to operational strength and value creation.
Having said that, I would like to hand over to the moderator for your questions. Thanks.
Question-and-Answer Session
Operator
[Operator Instructions] First questions come from Andre Remke, Baader Bank.
Andre Remke
Hey, good morning Sonja and thanks very much for the presentation. A couple of questions from my side, please. Starting with your mentioned disposal plan until ’26 million of roughly EUR1 billion, which segment will be affected most, will it be the office, space or logistics? Because you stated that there is a bottom-up asset-by-asset plan. And do you prefer direct sales? Or could we — is there a chance that we see as in the past that you’re putting some assets into funds? Or is there still no real appetite on that? This is the first question, please.
Sonja Warntges
Good morning, Andre, thanks for your questions. Yes, I have said that we have a very detailed asset plan for 2024 and we have an overall plan until 2026. I think you can imagine that the plan is very clear for the next nine to 12 months. But we have overall plan, we’re not — each asset in place, so to say, for 2025 and 2026, having a picture what we want to say, but not a clear asset plan. And the segment we are talking about is all the three segments. So retail as a focus as we have said, we see us as a partner for logistics and office. So we want to sell the retail portfolio, so to say.
And on the other hand, segment logistics is very interesting for external investors. As I have said, the market is very interesting but also the logistic needs, so to say, is very high. So on the one hand, logistics; on the other hand, office. But logistics is a very common market, so to say, office is a very special market. So we have also office assets in the sales process at the moment. But these are very special assets, one by one, with very special buyers, so to say. So the segments are all three of our core operating segments.
Andre Remke
So there is no majority that you — at the moment, the values of the office as well as the logistics is almost the same. So will it be only the same for the years to come? Or is there an overweight in that you put more logistics assets on the market, just as a rough indication?
Sonja Warntges
Yes. As you can imagine, logistic we have bought the logistic assets, so to say, via buying VIB on the peak of the market. So with our purchase price allocation, we have high values for these logistics assets in our balance sheet. On the other hand, we see the office market as a very special market as said. And I think at the end of the day, if you look on our evaluation — the devaluation, so to say, in the Commercial Portfolio was 6.8%. And it was nearly the same in the logistics as in the office, asset class, so to say. And therefore, it depends more on the asset itself and the potential buyers with that — and that’s also a clear statement from my side.
You have to find a special buyer for the special assets. So as we have done with the Kaufhof in Chemnitz, we have sold it with profit, so to say, and nobody had thought of. And at the end of the day, we are searching for such special buyers in our office asset class. For the logistics asset class, there is a more common interest from a lot of potential buyers and we, more or less, have to select between the potential buyers there.
Andre Remke
Okay. Thank you. And in the last call, you said that you also think about JVs as a kind of option. Is it a structure off the table? Or is it still under review?
Sonja Warntges
No, for the joint venture, it is more the Renewables new asset class where we are digging in at the moment. I don’t think that we will focus on that in our real estate asset class, so to say. But for new asset classes, as we have mentioned last week in our communication, we have a special knowledge here, very deep special knowledge. But I think it makes sense to start this business with a partner so that we get the real focus on the end that we can start the business from day one on. And so we have realized this in the last month, but this is only for the renewables asset class and not on our normal real estate segment, so to say.
Andre Remke
Okay. And the — referring to my question, whether you prefer direct sales or put it into funds for — at least for the asset-by-asset plan for this year, say all will be direct sales, right?
Sonja Warntges
So at the moment, it is with investors, who have really high quotes of real estate in their portfolios. It’s definitely difficult to launch new funds on a real interesting basis for us. So at the end of the day, what is a good idea is to sell maybe a fund to another fund, from one investor to another investor by selling the shares of the funds, yes, but not to bring our Commercial Portfolio, a part of the Commercial Portfolio into a new fund.
Andre Remke
Okay, understood. And then another question, you mentioned that the earnings from the ESG expertise will — you mentioned it, the past earnings contribution from traditional real estate management, you already elaborated a bit on that. Will there be kind of KPI? Or how could we or you measure these exposure? Or is it more meant as a general strategy to focus even more on ESG?
Sonja Warntges
This compared to the big numbers we have maybe from a recurring income stream from our Institutional Business, it’s a low number compared to this, but it’s definitely an interesting number. And what we have seen is that the part of ESG we have done so far, in addition for free, so to say — not really for free, but for a very low price. And what we have seen is that we have a very educated and interested ESG department here established, and this is a very interesting market. And so we have built up, so to say, a new asset management. We’ll also see where we say we are doing the asset management as we have done in the past.
On the one hand, for our own portfolio. On the other hand, for the institutional investors. And on the third hand, and I think this is new also for investors who are not invested in our Institutional Business, so as a real asset management service. And saying this and talking this — about this with investors, they ask us for some ideas for new work. So what can we offer them, how new they work, how the office should look like and so on. And so we have this as the second part in our asset management concept integrated.
In the third part was ESG part as a special service in our asset and property management concept, where we look at the assets where we say what can we do, on the one hand, the normal ESG things, yes? But on the other hand, a real concept establishing by our own employees, followed by a clear restructuring of this asset so that we not only say we can do this, but also elaborate on what we have said. And this asset, a property management contract, as that as we have done in the past is one part of it. And if I thought…
Jasmin Dentz
Enlargement.
Sonja Warntges
Enlargement by the two files, the one is new work and the second is ESG. And because we have a very good track record, as you see, we have increased our own green building ratio in the meanwhile to over 40%. So that means that nearly half of assets we have in place are clean buildings. I think this is a track record where we can look at and where we can say, okay, this is also, for new investors or existing investors, a very interesting case to create value on the assets in a very challenging market. And that’s the concept here, our new asset property management concept.
And therefore, where we have a clear price indication and we have the first investors who are interested in it, with whom we work on this, and so I think it’s a good management concept, and we will get additional income stream out of it.
Andre Remke
Okay, excellent. Then the last question after your refinancing activities, did you already receive any reaction by S&P? Or what are your expectations based on the current BBB rating with a negative outlook?
Sonja Warntges
Yes, we are in steady contact with S&P. But at the end of the day S&P has, as you can imagine, a total different look on what’s happening. And I think they — it’s my impression, they looked at our plan and they said, okay, it’s interesting. And as the consultant who is under independent business review and also the court — and the S&P, they looked and said, okay, that sounds good, yes. But at the end of the day, we only increased the rating if we have a clear result out of this and not only a plan, yes? So I think they have understood the plan and they have — they got it, yes, and they are — and we are confident, so to say, I think the right word. But they only will increase or change the rating if we have got the result out of our plan, not on a planned basis.
Andre Remke
Okay. I think that’s fair enough. And what is your — the risk for your business and restructuring plan. If the transaction market will not improve in the second-half as you expect and maybe remain probably at a muted level for a longer while, is there a bear scenario also included?
Sonja Warntges
The plan — as you can imagine, that’s a plan and we have included our ideas there. And I think these are very solid ideas and not fake, so to say. But on the other hand, you have to focus on one plan and that’s what we are doing. On the other hand, as you know, I’m also the CFO of the company, so we create alternatives in our actions, so to say. And we are following these alternatives as options, so to say. But as said, we are focusing on our plan. We have agreed with our financing partners on the one hand and with the consultants on the other hand.
So having done these contracts, we can focus on this, but also my colleagues focused on this in the last month, so that we are not beginning now. We have begun all these things much earlier than in the past, in the end of last year. So we are not in an early stage of doing this plan or executing these plans, we are in a very good stage, although we have only April now. And on the other hand, as I said, we have additional options. We are preparing additional options so that we are not — that we are independent and not only dependent on possible transactions.
Andre Remke
Excellent. Okay, thank you very much, Sonja. That’s from my side.
Sonja Warntges
Thank you, Andre.
Operator
[Operator Instructions] The next questions come from Mr. Markus Schmitt, ODDO BHF.
Markus Schmitt
Yes, thanks for taking the questions. I have also a couple. So first of all, could you please provide what the unrestricted cash on hand is as of today and the remaining debt maturities as of today for 2024? I guess there are some movements in terms of bank debt already since end of December, that would be helpful for the beginning.
Sonja Warntges
Good morning, Markus. So as you can imagine, we are not in the Q1 call here. At the end of the day, we had the cash on hand last year. So as you can see in the report, we have some restrictions there. There were EUR181 million, if I have the right number in my head, and we have paid back nearly EUR130 million of this restricted cash we had on the balance sheet end of last year. And we have paid, as also said in the presentation, EUR50 million of the bridge loan back, so that we have only EUR160 million in place there. And then you can take later on about what we have paid back, and that’s the cash on hand we have now. In addition, we have got the leases, so to say, but it’s rather [Indiscernible] number, yes.
Markus Schmitt
Okay. You broke up a little bit at the beginning on my side. Could you repeat maybe the first two indicators, that would be helpful.
Sonja Warntges
On the first two indicators?
Markus Schmitt
Yes, you said for the, let’s say, pro forma cash calculation. I mean the first two numbers I did not hear. I just got the EUR 50million or EUR40 million bridge repayment. But the first two numbers, the line broke up, so I could not hear it fully.
Sonja Warntges
Okay. So we had restricted cash on the balance sheet at the end of last year of EUR130 million. We have paid back now in the meanwhile and we had paid back the EUR40 million of the bridge loan, so in addition, around about EUR170 million.
Markus Schmitt
Okay, EUR170 million, okay. Thank you. Then coming to the covenants. You said the covenants have peaked now in Q1. So can you tell what the ICR was in Q1? And in addition, when I analyze the Q4 ‘23 EBITDA, take the interest rates mentioned on slide four, and I got hardly to the 1.8 times threshold. So could you explain again how you want to stay above that level with obviously some headroom, which is needed?
And part of this question would also be, I think, the EUR164.5 million EBITDA is a reported number, not adjusted. And if so, what are your EBITDA adjustments assumed for ’24? Because you said you will have some OpEx reductions, so I think you will have maybe higher nonrecurring number in terms of costs in ’24 compared to ’23, so this would be helpful to understand.
Sonja Warntges
So thank you for the questions. But once again, this is the 2023 call, not the Q1 call 2024. And therefore, you can expect ICR on a little bit higher level for Q1 2024 than 1.8%, so I can say this. And sorry for that, but we have not got all your — for the next question. Could you repeat that part, so that I can…
Markus Schmitt
Yes, yes. Sure. I think you had an EBITDA number for the full year of EUR 164.5 million. And my question is, I think that is a reported number, not an adjusted EBITDA number, yes, because the ICR is applicable to adjusted EBITDA. And my question is also what’s the — what are the assumed EBITDA adjustments for 2024? Because you said you want to improve your cost base. So there will probably be a severance payments or whatsoever. So the nonrecurring items as part of this calculation will likely go up in ’24 compared to ’23. So my math would be, whatever, if you confirm that EUR164.5 million is a reported EBITDA number and going — or starting then from Q4, I need to add some adjustments to the figure to get to the EBITDA level, which is relevant for the ICR calculation, that is the logic.
Sonja Warntges
I think for the deeper calculation, you should call us after the call here to get the calculation, as I think you need to. For our overall statement, as I said in the presentation, we see the 1.8% as the floor, so to say, and we expect to accrue the number. And as I said, we think that is also the case in Q1. And I think for your calculation, it makes sense to call out later that we…
Markus Schmitt
Okay. Then one final question from me, please. This is in terms of the valuation. I mean it’s — I was a little bit surprised that you had actually a mild valuation effect at minus 6.8%. I see many other CRE owners, which were at 14%, 15%, 16% during last year as a whole. So maybe could you explain in this context what your average of weighted cap discount rates where you applied. I think you provide only ranges in the annual report. So the weighted average would be helpful.
And the second part of the question is, given that the transaction market is still very weak and interest rates remain on high levels, why do you believe really that the negative valuation effect will be even lower in ’24 compared ’23? I mean the average current year recognized in 2023 was only 0.4% according to your notes in the annual report. I know your rental growth is good and logistics is a demanded asset class, I think, but it’s a little bit unclear for me what you gain to hope from that negative valuation effect will be even lower in ’23 compared to ’24.
Sonja Warntges
Well, I cannot analyze our competitors at the end of the day. But what I knew from the portfolios when we have looked at this, and some of them were total portfolios where we bought a part of it and our competitors bought a part of it, so right now, some of the portfolios. So the first thing is, as you know, we are having [Multiple Speakers] we are balancing at cost in our balance sheet. So we are not focused on the evaluation or we were not focused on the evaluation in the last year. So we didn’t drive the evaluation up, so to say, as I have always said.
So we talked with the evaluators, because we have very big portfolio, at the end of the day, with EUR40 million. So sometimes, we have more numbers than they have. So we are discussing with them, yes, what we haven’t driven then. And so I think values are on a comparable level.
Second, our portfolio is a very granular portfolio, and it is not the high-end portfolio. So it has steady cash flow, with good trends and so on, and we are working on this in a very good manner. But we have not a big portfolio and we have not bought the assets over the last year with factors of 30 or something like this. And therefore, I think it’s only a part of some of the competitors’ evaluation number we have here.
In addition, we have good contracts, and that’s what I said. So if you look on indexation, we have a lot of indexation in the last year. And we have worked on our floor, so to say, this is the letting and so on. And even if some of the investors say we are not interested in your communications about lettings, I think it’s the sense of our business and it’s very interesting to see what we are doing here. And we have done our homework here. And so you can see that we have driven the lettings and also by indexations, where we have good contract here in place yes.
And saying this, this is the opposite, so to say, of the increase of the interest rates evaluated here this year. But at the end of the day, we have established a department for — only for evaluation because we think it’s the right time to look on this and to analyze what’s coming up, what the contracts are and so on, and working exactly on this point in our asset and property management. And I think this is the effect of this year. And if you look on our annualized rents, they have even grown in the total portfolio, compared to last year. And this is the major point of our evaluation basis. And for the rest, my colleague can answer the question, I hand it over to him.
Peer Schlinkmann
Yes, you asked about the discount rate and the average one, and this is hard to say because as Sonja just said, it’s a very granular portfolio and the valuation is asset by asset basis. So I just can repeat what we said in the annual report that it’s between 3.7% and 7.5%, really depending on asset by asset basis. So — and I also think that an average wouldn’t make any sense because it would just say all the assets would be the same, and that’s not true. And therefore, yes, that’s what we can tell you.
Markus Schmitt
Yes, I would also say range doesn’t also merely make sense from my perspective then, because it’s very difficult to compare this then to valuation regimes of other companies. But having — but putting that at side, could you just explain what the like-for-like fair value change was at market values? Because that is — part of your LTV calculator, I think you stepped from German GAAP to IFRS or to a fair value consideration. So what is the like-for-like fair value decline under market values in 2023?
Sonja Warntges
6.8% in the commercial portfolio and 6% in the overall portfolio.
Markus Schmitt
That is still a very low number, I would say, compared to what other players did in the market. Is it not a fair opinion?
Sonja Warntges
Thank you for the compliment. We are working hard. Well done, yes?
Markus Schmitt
Good. Then you’ve obviously done a good job in the year. Okay. So all that for me. Thank you very much.
Sonja Warntges
Thank you.
Operator
The next question is coming from Mr. Stefan Scharff, SRC Research.
Stefan Scharff
Question is on slide 11. Looking at your vacancy level, you mentioned that it was up year-over-year due to some disposals. How was development on a like-for-like level? And what is your expectation here for your rents and for the development in office market in general?
Sonja Warntges
Good morning, Stefan, I haven’t got the first part of the question. Can you please repeat it? It’s a very bad line here.
Stefan Scharff
Okay. The first part of the question was that you mentioned that your vacancy was up a little bit due to the disposal, and what was your rental levels if we make it on a like-for-like?
Sonja Warntges
Yes, the rental level like-for-like was 5.4%. And the first answer, one moment 0.6%.
Stefan Scharff
Okay. And on slide two, you stated that you have a well-filled transaction pipeline. Can you give us more color here? You did it a bit about the funds business, but what may we expect to come in the next month to give a further relief for your capital?
Sonja Warntges
Yes, as said, sorry for talking not in details here because we are in a very narrow market year-end. We want not to talk about things we haven’t done. So at the end of the day, as said, our disposal plan remains on the three segments. We have different market conditions, so to say. So on logistics, we have a lot of interest in the office side. We are in discussions and processes with special buyers. And also for the retail we are in the process here. And so it’s all the three segments on different processes with different buyers. But yes, it’s not a special one, so to say.
Stefan Scharff
Okay. And regarding your Performance ’24 action plan, you mentioned some cost reductions. Can you give us a bit more color here? What kind of cost reductions is possible? And what — to what extent this could help for your profit and loss in this year and also for ‘25 and ‘26?
Sonja Warntges
Yes, definitely. It’s according to our Performance 2024 plan we have communicated last year. And as you can imagine, it’s the OpEx, what we want to reduce. And so we had a very deep look on all our costs. So we have the, yes, administrative costs reduced. And at the end of the day, we also have a look on our employees in our strategy. But therefore, we have reorganized our operating department, not mostly driven by cost reduction, but more driven by efficiency and responsibility. We have done a lot of work so far. But as you can imagine, this needs a little time to be seen in the calculations of the profit and loss.
And therefore, we have done most of the work already, but we will see it in 2024 and also in 2025, because it took some time to get this established and then to get the results out of it. But it’s — in terms of OpEx, it’s onetime cost with onetime effect. So as I mentioned, we had IT security costs because we have to increase that, to get not hacked and so on. We will have not have them again. And also personnel and other admin costs we have reduced, but we don’t see them in full in 2023, but more in 2024.
Stefan Scharff
Okay, I see. And the last question about the new asset class, the Renewable Energy and the plan for the fund, the EUR300 million fund to come soon. What could this mean for your P&L? What profit contribution this could mean for ’24 or, let’s say, for ’25 and ’26?
Sonja Warntges
Yes, that’s difficult to say. So therefore, I have read in the morning that we have a big range for our FFO. So that’s totally right. Because as you can imagine, if you have such a year and you have a new asset class, it’s not clear to say when do we launch this and we get the profit out of this. But I think the fee arrangement are nearly the same we have in our normal funds, so to say. So we think we have a good pipeline there. We have a good partner there. We see a lot of interest in the market from the investors there.
So we will get the fund in place in the first-half of the year, and then we will get the investment in the second-half of the year, but it depends a little bit when and how fast this could drive. So we think that will be a low number. And also we have the low number of fees in our calculation for this year. So it will be around about EUR1.5 million or EUR2 million out of this new asset class. But the interesting thing is to get this established, to get the trust of the investors here for this asset class, and to start with the new asset class this year. So it will not be the big number in 2024. But we expect them to grow in 2025 onwards.
Stefan Scharff
Okay, I see. Thank you very much.
Sonja Warntges
Thank you, Stefan.
Operator
Next question is coming from Ingo Hillen, MMI GmbH.
Ingo Hillen
Hi, good morning. Thank you. Yes, about the presentation. I think first interest would be a little bit more color, I think this was asked before already, about the sales. I understand that there is, I think, a lot of interest in logistics. And yes, anything more to this maybe for the first half year or for the first half of 2024 would be helpful. And a completely different story, I use — why didn’t you think, obviously, of not paying a dividend or not having paying a dividend of [Indiscernible] to get some cash into Branicks and then pay your debt? Thank you.
Sonja Warntges
So good morning, Ingo. Thank you for the question. As I said, I cannot say really more here. So as I have said, we are in the processes for the disposals, for the disposal plan. As also said, we have started these processes end of last year. So we are in a very good stage here. But on the other hand, it takes a lot of time to get all these assets in the process, [Indiscernible] and so on, and find the right investor.
But one of the biggest thing at the moment is to get the right investor in place, because some of them are interested, but at end of the day, transaction security is one of our major points. And so therefore, we need a little bit more time to get the right investor here in place and that we are confident that we can make the transaction with them. So this takes a little bit of time. But at the end of the day, I think at the end of Q2, we will see here the first results. Unfortunately, I cannot say more at the moment on our sales processes.
And the second question, Jasmin, do you remember?
Jasmin Dentz
For dividend.
Sonja Warntges
Dividend. As you know, VIB is a listed company and they make their own decision. So I cannot to pay a dividend and use it for paying back my liabilities. So yes, that was the only thing I can say…
Ingo Hillen
I mean — I’m sorry, second question. I know that VIB is a listed company, and I know that any shareholder is — only 1 share is entitled to make his own dividend proposal. And if there’s a 69% shareholder makes a dividend proposal, it will go through if we vote in favor of his own proposals. So this is not really, yes, a good answer for me.
Sonja Warntges
Then I — that is I have no good answer. By the end of the day, that’s the way it is…
Ingo Hillen
Okay, thank you.
Operator
Thank you for your questions. I will now hand back for the closing to Jasmin Dentz.
Jasmin Dentz
All right. Thank you, operator. Thanks to everybody on joining our call today. This concludes our call, and thank you a lot for joining us. And our next event in the financial calendar, as you know, is our Q1 results on Monday 16, and we are looking forward to join with you there. And also in the time in between, stay healthy, and let’s talk soon. Bye. Thank you.
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