Corestate Capital Holding SA
XETRA:CCAP
Corestate Capital Holding SA
XETRA:CCAP
Price:
0.25
EUR
1.21%
Market Closed
Market Cap:
€41.5m
Add Note
Add Target
Capture your thoughts and set a target
Decide at what price you'd be comfortable buying and we'll help you stay ready.
Based on
Margin of Safety
0%
10%
20%
30%
40%
50%
Your Price Target
Linked to
current price
· In Buy Zone
Loading
Note attached
Choose the stock you wish to monitor with a price target
Popular Picks
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
US |
|
Bank of America Corp
NYSE:BAC
|
US |
|
Mastercard Inc
NYSE:MA
|
US |
|
UnitedHealth Group Inc
NYSE:UNH
|
US |
|
Exxon Mobil Corp
NYSE:XOM
|
US |
|
Pfizer Inc
NYSE:PFE
|
US |
|
Nike Inc
NYSE:NKE
|
US |
|
Visa Inc
NYSE:V
|
US |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
Coca-Cola Co
NYSE:KO
|
US |
|
Verizon Communications Inc
NYSE:VZ
|
US |
|
Chevron Corp
NYSE:CVX
|
US |
|
Walt Disney Co
NYSE:DIS
|
US |
|
PayPal Holdings Inc
NASDAQ:PYPL
|
US |
Earnings Call Transcript
Earnings Call Recording
Other Earnings Calls
Ladies and gentlemen, good day, and welcome to the CORESTATE Quarter 1 Results 2020 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Dr. Kai Klinger. Please go ahead, sir.
Hello, everyone. A warm welcome to our earnings call today for the presentation of the results for the first quarter of 2020. As usual, I'd like to direct your attention to the forward-looking statement and disclaimer wording on Page 2 of our presentation. This safe harbor language applies to the presentation and all comments we'll be making today. I would also like to mention that everything is being recorded. After the call, a replay will be available on our website. Our CEO, Lars Schnidrig; our new CIO, Nils Huebener; and I will guide you through the presentation, followed by the usual Q&A session. The time frame for today's call is about 30 minutes. Now it's my pleasure to turn the call over to Lars. Lars, the floor is yours.
Many thanks, Kai. And also from my side, a very warm welcome to all of you. When we speak about the highlights of the first quarter 2020, of course, we need to speak about corona and its impact on us. We have summarized it in 3 key words: responsibility, resilience and recovery. Firstly, and of course, most importantly, responsibility, especially for our staff and our clients. We have done everything to ensure the healthiness as far as we can. Our staff is mainly working remotely, and the client's contacts are done via calls or video sessions. This is not absolutely perfect, but our team has managed to keep up our operations and maintain the quality our clients are expecting from us. Resilience. When we started the year 2020, our ambitions were to continue on our growth path and to deliver on our guidance. Our deal team prepared in the first weeks a lot of transactions, and we were very optimistic to show a good year for the company again. This has changed dramatically. We realized not only a harsh slowdown in the real estate investment market, but also the clients' appetite hasn't changed. My new colleague, our CIO, Nils, will talk about this a bit later on. What have we done to prepare ourselves for the new reality? We have shifted the focus from growth to derisking the company, its operations and its balance sheet exposure to preserve liquidity and ensure our financial flexibility. One decision in this context was to raise the dividend for 2019. This decision was definitely not an easy one for us, but our foremost responsibility now is to ensure liquidity and to set up the company in order to benefit from the upswing after the crisis. That's where we come to recovery. We and all our clients see the basic market drivers like demographic changes, urbanization and the need for investing absolutely intact. So we expect the market to come back, and we will see catch-up effects from shift of transactions later in 2021. The real estate investment market will benefit from the ongoing 0 interest rate policy of the ECB. Let me please also speak a bit about our Q1 operations and results. As said, the start was promising, but all new investments came quite suddenly to a closedown at the end March when corona dynamic accelerated. Nevertheless, we achieved an organic growth of more than 2% in our core business, real estate assets under management. We will speak later about our assets and the various -- in the various segments. Now it's my pleasure to introduce you our new CIO, my new colleague, Nils Huebener. Nils, the floor is yours and all please flip to Page 4.
Thank you, Lars, and good afternoon to everyone. I'm pleased to be here. I spoke to a lot of clients and potential investors over the last weeks. I'm doing real estate investments since more than 20 years now for Deutsche Bank, for SEB and also as Global CIO for BNP Paribas Real Estate. But I cannot remember markets to close down so quickly as it happened in the second half of March and beginning of April. Since then, everybody has to deal with a massive increase in near-term uncertainty on the political, macroeconomical, the operational and client side. This comes along and is partly also due to a credit crunch making financings for new investments difficult and more expensive, in particular, in value-adds or opportunistic assets for developments. On the deal sourcing side, we still see some market opportunities, especially currently, of course, in core and core+, but not comparable what markets have shown in normal days like in the years before. Real estate investors are telling me that they are still looking for profitable and sustainable assets. But currently, most of them are waiting on the sidelines.In terms of performance, so far, various segments are hit differently from the crisis. But one must clearly distinguish between rental problems occurring on fund levels and delayed building projects, which also have no direct impact on our balance sheet, but on the time schedule for reselling the assets. Our retail, hotel and leisure assets partly realized postponements and, to a lesser degree, losses of rental payments on fund levels. Residential proves, once again, to be very defensive as our portfolios are only in the larger and still prospering cities in Germany, Austria or Switzerland. So no negative news from them. Also, our office portfolio is predominantly in bigger cities, especially in Germany, but also in the Benelux countries. So far, we realize very limited negative impact here, and the same applies to our logistics assets, which was acquired via STAM Europe. When it comes to micro living, a closer look is required. The student homes depend on the University's reopening schedules. Most of our facilities operate still on a high occupancy rate. Students or their parents hesitate to cancel the lease agreements. For our serviced apartments in Germany's metropolitan regions covering below EUR 250 million of our AUM, the picture is slightly more negative. The serviced apartments target the mobile workforce, people staying for a rather short period in one place to work, but will live somewhere else. These assets show temporarily clear, reduced occupancy rates. We all do not know how long and how severe this crisis will be. But let me, nevertheless, try to give you a preview on what the next months will be based on my numerous talks to the clients. As we speak, the first very careful and prudent steps to reopen public life in Germany are taken. And this will lead also to a revival of the real estate investment market, but, of course, very slowly. Clients are carefully waiting to see who puts his toe into water first. And you may expect that the risk appetite is massively reduced, so the first moves will be in core or core+. Probably, retail and hotel assets will be on the sidelines for a longer time. Core and core+ currently means predominantly residential in the big German cities. That's not only what we here at CORESTATE can offer, but the core universe, in general, is something I personally bring a lot of experience and a 20-year plus track record along. CORESTATE's focus in the past years was to broaden the footprint in micro living and value-add investments. These assets will not be the first on investors' list. But once the market has come back to a certain level of stability, clients will look for higher yields and a bit more risk, and then our micro living comes back on the menu. With this, I would like to thank you for listening and hand back to you, Lars, and please flip to Page 5.
Thank you, Nils. As you all know, we had to postpone our AGM due to the corona-driven restrictions in Luxembourg, and we have now decided to hold the convention as a purely virtual one on June 5. There are 2 main topics on the agenda: the election of a new supervisory Board; and the waiving of the dividend, as said before. The new candidates, shown on this slide, are the result of a very structured and diligent search process supported by an international executive consultancy. The main criteria were according to the principles of good corporate governance, diversity and gender, professional background and experiences. So let me quickly introduce the lady and gentlemen to you. Running for becoming the Chairman of the Supervisory Board is Dr. Georg Allendorf, a former MD and Head of Real Estate Europe at DWS Deutsche Asset, who has accompanied, very actively, the establishment of real estate as one of the most booming alternative investment classes in Germany. With a focus on capital markets law and compliance, Dr. Gabriele Apfelbacher was a very long-time partner at the international law firm, Cleary Gottlieb Steen & Hamilton. Timothy Blackwell, running for becoming the Deputy Chairman of the Supervisory Board, can look back on a remarkable career and loads of experience in banking, especially with 2 of the world's largest financial institutions. He was Head of Europe at UBS Asset Management and Head of Real Estate Investment Management at Credit Suisse. Also with a very reputable career in real estate fund management and banking, Marc Driessen was Managing Director and Vice President of Board of Directors at HansaInvest and also a member of the Management Board of HSB Real Estate (sic) [ HSH Real Estate ]. Bringing in long-standing experience in finance and accounting, and as such, running for becoming Head of the Audit Committee, Olaf Klinger currently serves as CFO of the MDAX company, Symrise.So you see a range of prominent figures bringing in enormous competences and experiences that will definitely help our company in this time of the crisis, but also in managing the recovery afterwards and to support the growth of the group post the crisis. Now please turn to Page 6. You know this chart from our previous calls. It shows the development of our assets under management. And it's a very appropriate sum up of our product offerings, the market's appetite and our future growth path. As I said before, our core business, real estate AUMs, have once again reached a new record high with an organic increase of more than 2% since the end of 2019.Our new acquisition, STAM Europe, was closed on 15th January, and bringing in, initially, net assets of around EUR 1.4 billion. Another EUR 0.5 billion is already secured. Our entire AUMs figure are now at around EUR 28 billion. Since the end of 2019, we have further reduced the non-real estate portfolio by EUR 0.3 million -- EUR 0.3 billion, excuse me, such these non-core assets have been nearly halved since we acquired them via Hannover Leasing in 2017. When we dive a bit deeper into the segment, you will see beyond a slighter shift due to the first-time consolidation of STAM, we now have roughly 9% of our asset in logistics and other assets. The improvement of our logistic competence is an important step in the diversification of our product range. Our sourcing pipeline, on the right side of this slide, also shows the impact of the crisis. At the end of 2020, we had a tangible pipeline of more than EUR 6 billion. Currently, it is reduced to -- due to the crisis to EUR 4.3 billion. Nevertheless, in absolute terms, deals in advanced status are still on a very high level of roughly EUR 1.2 billion -- EUR 1.5 billion, which reflects our sourcing and delivering capabilities.Please turn to Page 7. Let me give you now the usual update on our mezzanine business at HFS. We could sum it up as follows: once again, stable margins and again, slightly growing fund volumes. At the end of March, the committed fund volume exceeded for the first time EUR 1.3 billion based on high demand, attractive projects and our capabilities to serve. As in the past, this money goes predominantly to German residential developments, mainly to the top 7 cities, making currently up for more than 70% of the lending volume. Currently, we are financing 62 projects with an average size of around EUR 22 million. Of course, we have since years done regular tests on the projects and on the borrowers. These analyses have been further intensified since the start of the crisis. But so far, neither any negative results nor any approach to a critical risk level occurred. Nevertheless, the crisis might lead to longer building and building permit processes and to slower sales of apartments. So we cannot fully exclude that the repayment periods might be temporarily a bit longer than usual, although due to the emerged temporary credit crunch. Why do we think the business model will continue to work in and after corona? The massive housing scarcity in the metropolitan areas is something we and mainly all market participants expect to stay for longer.In combination with very high and still further increasing regulation on the banking side, our leading market position in terms of size, quality and speed in this niche, we have full confidence about the future performance of our private debt business. And please bear in mind, HFS is not only a very profitable business for us, it also opens the door for our asset sourcing to new projects in very early stages, such it will prove again being a well-running, cross-selling and sourcing engine.With this, please turn over to Page 8, and I will hand over to Kai.
Thank you, Lars. Let me please show you on this slide our revenue streams by the end of March, including the comparable figures to previous year's quarter. The slowdown of the investment market after a quite decent start in the first weeks is not yet fully reflected in the acquisition-related fees, as they went up from EUR 4.2 million in Q1 2019 to EUR 7.7 million in Q1 2020 due to a strong January and February.Our asset and property management fee showed also a very solid start into 2020 with an increase of around 25% year-on-year to EUR 25.2 million. This reflects the long-term solidity of our core business model.Coupon participation fee has gone down from EUR 13.3 million to roughly EUR 11 million, predominantly due to the accounting effects from risk provisioning. Our promote fees based mainly on a successful placement of value-add club deals, but as the market has slowed down, most of our projects here put on hold until market uncertainty is again on a lower level. As said before, we have derisked our company and as our operations with less active balance sheet exposure for clients and business purposes.This affects also the income from bridge to mezzanine loans, which went down from an extraordinary high level in Q1 2019 of EUR 5.7 million now to EUR 1.6 million in Q1 of this year. The crisis can partly also be seen in adjusted valuation approaches for our income from alignment capital. Subsequently, this stood at EUR 4.5 million, after being at EUR 11.4 million in last year's comparable quarter. We still believe that our ability to warehouse promising assets during a short period of time for clients is a competitive advantage. But of course, this had to be put on the test bench, and we have derisked our approach here as well. This is mirrored in our income from real estate operations being halved to EUR 1.9 million. This all leads to aggregated revenues of EUR 51.7 million. So you can see our company is and will stay clearly operationally profitable.Please flip to the next page to give you more color on our earnings. Initially, let me focus a bit on our expenses. In brief, our OpEx ratio went up from 45% in Q1 2019 to a bit more than 50%, reflecting the reduced revenues, especially in alignment capital and warehousing with typically higher margins as described above. Our expenses from real estate investment management stood at nearly EUR 22 million. Alignment capital expenses amounted to around EUR 2.6 million, and warehousing expenses came out at EUR 1.7 million, which shows our reduced risk appetite in this line item. Our G&A expenses came out at EUR 7.1 million. At the end of Q1, the EBITDA was EUR 20.9 million.We will speak a bit more about IFRS 16 on the next slide, but let me briefly mention that our D&A, apart from capitalized management, asset management contracts, and here, by the first-time consolidation of STAM, was also impacted by this reporting standard. At the end of Q1, we had a D&A of minus EUR 8.4 million.Our financial result in Q1 stood at EUR 2.5 million -- or minus EUR 2.5 million. Previous year's quarter was affected by much higher warehousing debts and is therefore not really comparable. Lastly, as always, our net profit adjustments below EBITDA line, the amortization of the capitalized asset management contracts, amounted to EUR 6.3 million in the reporting period. The DTA stood at minus EUR 0.8 million, which leads to an adjusted net profit of EUR 14.3 million.Please turn to Page 10. Let me give you some key balance sheet figures as of the end of March 2020. Above all, and as said many times now, our key priority is to preserve a robust liquidity position through 2020. Starting with our 2 major and long-term financing instruments, the senior unsecured bond was currently EUR 295 million, and the convertible bond was EUR 192 million. Adding bank debt of another EUR 111 million, we had a gross financial debt figure of EUR 598 million. To take this figure comparable to the past and to our loan documentation, we adjust the IFRS 16 effect and deduct EUR 25.4 million from lease obligation in our KPI reporting as many other companies. So our total financial debt stood adjusted at EUR 575.3 million. At the end of Q1, our cash position amounted to EUR 81.5 million. So net debt was at EUR 493.9 million.Our EBITDA of the last 12 months stood at EUR 157.2 million. So the financial leverage was at 3.1x. Including IFRS 16, it would have been at 3.3x. As always said, our midterm leverage goal is between 2x and 3x, and this remains in place.In April 2020, S&P kept its rating BB+ unchanged, only adjusted the outlook from positive to stable due to the potential future impacts and uncertainties from COVID-19 pandemic. One important statement when it comes to our balance sheet and our debt instruments is, we do not have any substantial refinancing needs or repayment needs until end of 2020.So now please turn to Page 11, and I'd like to hand over to Lars again.
Thank you, Kai. Let me finally give you some intel on how we will weather the crisis and what you can expect in the short and midterm. Of course, I like the phrase, "In the crisis, cash is king," as it states a simple truth. In uncertain times, you need to focus on robust liquidity first, but of course, also remain operationally flexible and able to act on changing clients' demands. That's what we have already prepared for the company for. We have elaborated a catalog of cost-saving measures, and we are consistently working on this list of actions in order to further optimize the G&A and OpEx.So we can also say today, we will continue to be clearly profitable with our operations in 2020. As already emphasized, we were in Q1, and will be for the next quarters, very disciplined and cautious in our deployment of capital, for instance, in terms of warehousing or M&A. Of course, we always see the continuously risk and performance testing on our fund structures in all our operations, but these analyses have been intensified recently. So far, we have not identified any major risk to our operations or financial stability beyond the figures we showed you on the previous slides. But we will go on with this, obviously, on a regular observation.As we speak, half of Q2 is over, so we cannot give you full figures as of yet, but we already realized further negative impacts on several P&L line items, like alignment capital, warehousing and promote fees.As no one currently is able to predict how long and how deep COVID-19 will haunt us, we cannot give you a reliable financial outlook as of today. But we will definitely do so as soon as we certainly can, most likely during Q3.As Nils from a market perspective indicated, we expect some catch-up effects from those transactions that have been planned or envisaged for Q1 or Q2 and are now being postponed to a post-crisis area, and we will prepare the company for this. One main item in these preparations for the time after corona is to preserve financial flexibility. And that's why we will reduce our net financial debt in medium term, and that's also why we have decided to adjust the payout ratio from 50% of earnings per share to at least 30%. We are sure this is adequate for a company whose ambitions to grow has not changed, but who also wants to deliver a decent dividend yield for its shareholders.With this, I would like to hand back over to the operator for Q&A questions. We are looking forward to answering your questions.
[Operator Instructions] Our first question comes from Kai Klose with Berenberg.
I've got 5 quick questions, and I may say them one by one. The first one is on the Q1 report on Page 15. Could you give a split of the revenue from asset and property management fees in Q1?
Kai, it's Kai. Sure. We have on the asset management fee line, around EUR 17.7 million. The coupon participation fee was, as mentioned, around EUR 11 million. Property management fee amounts around EUR 7.5 million, which is also a good run rate for 2020.
Okay. And second question would be regarding the total expenses from real estate investment management. They went up by 41% compared to Q1 last year. Could you indicate what was the reason for that?
More or less, a couple of reasons. First of all, we have prepared ourselves, as Lars mentioned, in the beginning of the year for very booming organic growth year. And therefore, we have not only in 2020, but also in 2019, you see this in the development of our cost ratio for real estate investment management on a higher cost base. And so invested in teams who are carrying exactly about this revenue line. So there really is higher fixed cost and also in the beginning, higher variable costs, meaning in January and February.
Okay. And then, third question would be, could you give more details on the increase in the financial income, EUR 2.7 million in Q1 from EUR 800,000 in Q1 last year?
There we have predominantly have a hedging effect -- currency hedging effect from our alignment capital structures in the U.S. on U.S. dollar base.
Okay. And next question would be to indicate what is the amount of mezzanine warehousing debt? Or what was the amount as of Q1?
It was around EUR 40 million, EUR 50 million, but it was already -- or it went already down in April to a very low double-digit million amount. I think we are talking there about EUR 10 million or EUR 20 million. So it was predominantly end of the quarter, something for this due date. And that's with our measures, which we've implemented and the higher sensitivity in terms of balance sheet used -- reduced in April.
And the last question would be on Page 7 and 8 of the presentation. If I understood you correctly, you mentioned, regarding HFS, that all projects are running more or less well. Could you just explain, on Page 8, what was the reason for higher risk positioning in HFS leading to a lower income from the coupon participation fee?
As general, in times of uncertainties, risk accounting and risk provisioning is an appropriate measure for the fund accounting. And this, in our terms, is externally served by HansaInvest. And therefore, we have a temporary higher risk provisioning in the first quarter and some shift of repayment of funds. I think Lars mentioned this already within the course of the year. So we are still feeling very comfortable in terms of the performance of the fund that we will be again in the same levels like in the last year. We've had a similar effect in Q2 of 2019.
Our next question comes from Thomas Neuhold with Kepler Cheuvreux.
I have 3 questions. First on your mid- to long-term strategy. You had to skip the dividend for 2019 and experienced now an almost 50% drop in earnings in Q1. I was just wondering, are you reviewing your strategy in order to make the business model less cyclical and/or more resilient? And what could or should change in the long run from your point of view?
Thomas, it's Lars. So first of all, I think now it's about to derisk the company and therefore, use, obviously, also cash to delever the company. When you're talking midterm, I expect that will run throughout the midterm. And as always said, we were on the -- we were actually on the way maybe even to achieve an investment grade rating. For this, we would have been needed to be around level 2 leverage. So I guess, it's good for all of us, if we take this rather as a target further to delever the company. Once having delevered the company, of course, distribution strategy can be adjusted, but I think this will definitely take some time.However, the 30%, I think, when you compare it or when you take it, including the organic growth we have shown the last 3 years, so assuming in the normal market that will continue between 5% and 10%, and then assuming a 30% payout ratio, and this calculating on a total shareholder return basis, is still attractive for each and every investor and the 30%, then also for dividend funds, and that's why we came to the 30%.
Okay. Mr. Huebener mentioned that core and core+ will be the first segments to recover. You are more geared to the value-add and opportunistic segments at the moment. Any plans to move the business model more to the more boring, so to speak, core, core+ kind of product offerings?
Well, to start with, I would say, I mean, obviously, we're already doing quite a lot of core work in our residential market, and that's also where we see continued interest. And also, the pipeline that was mentioned is largely happening in that area. In the medium term, I feel that also the -- our co-investors are actually expecting us to infuse the agility and proactive approach that we can offer from our value-add and -- core+ and value-add approaches into our core approaches. So a lot of the discussions that we're having with mainly our institutional investors are actively requiring us to be active, agile asset and property managers. And that's more what we see us infusing into core.
And allow me to add, Thomas, the whole adjustments also in the Management Board with Nils, who has more than 20 years track record, obviously, in core and core+, but also in opportunistic, including the adjustment in the Supervisory Board, there I'm very confident that also in the short term, once the crisis is over, this will give us additional access to clients, which are more orientated towards core and core+ and therefore, further to derisk the company.
Okay. Understood. The second question is on the alignment capital. You recorded quite a severe drop in earnings there. Can you please provide us with more details on your sector and country exposure in your investments? And you mentioned that you expect more pressure in Q2. Is it possible that you might see a loss also in this segment because you have to write down some of your participations, each in retail or hotels?
Maybe 2 or 3 things to that. So first of all, obviously, we have no valuation gains. So currently, we're not showing there any losses. And I think we would be fools, including our auditor, if we would do otherwise. So going forward, I think the situation is currently in its markets like Spain, for instance, where the market is closed currently, so I think we all share the view that the crisis may come to an end somewhere end of Q4. So therefore, asking now if we will see there also devaluations, I can't, I would say, see the future as this is happening. But assuming the crisis continues as we expected, I don't expect that. But I wouldn't exclude that, of course, but I personally don't expect it. Yes.
Yes. And your sector exposure in the alignment capital, what is office? What is residential? What is retail, hotels, logistics, if you can provide this?
The biggest part are micro living and micro living developments. What Lars already mentioned in Spain, where we see a fully construction stop on the construction places, but we have also some mixed-use buildings with office, retail and residential in there. We don't have the exact breakdown, but I can provide this later on. So I have to double-check what is the split up due to a single asset class or risk, and this is what you are asking for risk proposition.
And my last question is on the mezzanine business. You have 16% exposure to retail. Can you please elaborate a little bit on your retail exposure? How many projects? What kind of products? And which cities or countries are these located?
Actually, the most of them are mixed-use buildings. So where you have over 3, 4, 5 floors. In the first floor, you have a supermarket. Then you have maybe a dentist or some spaces for doctors or lawyers and other things. And then in the upper floors, we have residential in because there we are talking mostly inner city locations. They have bigger land plots and looks not really beautiful, but this is -- a lot of these developments are working today. There's -- so there's a minor part that don't have any project in mind where we have a pure retail play in there, is allocated within retail anchor focused on the building.
Our next question comes from Georg Kanders with Bankhaus Lampe.
One question regarding the student home property management. So far, it was virtually unaffected when I look at the property fee income. What is the potential risk for this? And how far could it go down? Because you do it for third parties, but how is the fee -- how are the fees structured there? That's my first question. And the second question, you had also small negative revenues from promote fees in Q1. And you said in Q2, it would be probably worse. Do you really expect then a payback of future paid fees? Or how is this meant?
Maybe I will cover this question. On the -- on our -- is there any recurrent on our property management contracts in student homes, of course, if we could achieve, whatever, 99%, 100% letting, then, of course, we get a small extra variable compensation or a bonus in our contracts. But this is quite minor in terms of our fixed cost-driven property management contracts. So yes, you can see maybe compared to last year a very minor dip there, but this is not something which would change any games. And clearly, now on the promote component, this was only to underpin that it's very unlikely that we will see some revenue streams from promote fees in the second quarter and maybe also not in the third quarter of this year, because the underlying transactions are more or less on a standby mode. I can't exclude anything for the fourth quarter. But for the near-term perspective, it's very unlikely that we can revitalize this transaction again.
Our next question comes from Manuel Martin with ODDO BHF.
Three questions from my side, if I may. First question, to come back on core and core+ and value-add segments in your portfolio. Do you have, by chance, a list? So can you provide information of the split of the assets under management? And how much is core? How much is core+? How much is value-add? Might that be possible?
Well, first of all, I think we can provide additional information later on in terms of splits and breakdowns. If we sort of talk about our main asset classes, clearly, we are very strong on the residential side. That's as core as it can get in the moment, and I think that's also very much the flavor of the month.On the micro living side, this is more -- it's also what I mentioned already before, this is obviously more diverse because you have to really differentiate between the serviced apartments side, which I see at the more plus end of core+, and the student housing side, which is driven by longer-term contracts, which is the bigger part of the pipeline at the moment. And then, clearly, the rest of the portfolio for office and retail, most of the retail part is very much city center core business. Clearly, there are underlying trends happening within retail that we all see and perceive. And on the office side, again, most of the investments that we've done in the recent years are the core and core+ end of the spectrum.
Okay. Okay. Second and third question are concerning the financial result. The second question is a follow-up question on your financial income. You said there was a currency hedging effect on U.S. dollars. Just a little question, but I was a bit surprised, what has the U.S. dollar -- why is there U.S. dollar exposure in your financials?
It's our noncore portfolio and actually where we have [indiscernible] funds in there, which are most of them -- actually, it's not a Bollywood blockbuster exactly or Hollywood. And the second thing is we have also there fund-to-fund structures based from the legacy portfolio of Hannover Leasing, where we have private equity investments in their assets.
Okay. Okay. Okay. Third and last question, I think your financial expenses were less in Q1 compared to Q4 last year. Could you elaborate a bit on that? Why did that improve?
Only that I got you right, you said we've had in Q1 last year, 2019, we paid on the financial expenses side of EUR 8.2 million. In the fourth quarter of 2019, it was EUR 7.7 million. And now, we are at EUR 5.1 million. And the main reason for that is that we have underlying warehousing exposure on our balance sheet, which has had, first of all, a higher interest underlying grid, plus sometimes we have also breakage fees, if we did consolidate assets or our things. And this is, of course, with onetime costs. We don't talk about a big amount, but those [ have run ].
Okay. Okay. So that means that in Q1 2020, you had a more favorable environment, i.e., less warehousing, less breakage fees, et cetera? Is that correct?
Exactly. Yes. Including the -- in the first quarter and second quarter, you prepare or you seed your potential fruits to harvest for the second half of the year. And this is actually -- this doesn't happen this year because we keep our wallet close to our chest.
[Operator Instructions] Our next question comes from Anhel Timkin (sic) [ Andre Remke ] with the Baader Bank.
It's Andre Remke from Baader Bank. So a couple of questions also from my side. First, starting with the deal pipeline you mentioned, down by EUR 2 billion. Could you elaborate to what extent the potential sellers or you as CORESTATE has taken a review on that, and is not any more interested? And also with regard to that, what kind of investments are mostly withdrawn or mentioned value-add investments? Or what kind of asset types you are not any more interested in that? Any color on that would be helpful.
Yes. I'll take that. Nils Huebener speaking. Well, effectively, this is happening across the board because clearly, we are in an environment where there is very little added to the pipeline. So a large part of the pipeline that we are seeing currently has obviously been building up. And we've also already made progress on many of the deals, as I mentioned, are already in negotiation or partly in exclusivity. And that's -- a lot of it is coming from the beginning of this year. So now there is little added to that pipeline, and that doesn't really make a huge difference, whether we talk about value-add or core or core+. It is happening all across the board. There's very little coming to market. Clearly, if something is coming to market, it's more happening at -- currently at the core end. But it's really limited in terms of pipeline addition. We see this going forward. Obviously, the interest is there. So if you ask, is that driven by the vendor or by the purchaser, in the end, I mean, they both effectively amplify each other. So people know that there will be limited direct demand. Therefore, they withhold sales. And people that would want to sell just don't have products new coming to the table. So it's a mutual process. And the same applies to our own position. Yes, we obviously have life requirements. And there's a lot of things that we would want to buy tomorrow, where we have committed investors, but there is maybe not the product coming to table. At the same time, also for the more value-add end, we are withholding, and that's one of the reasons why we've also stopped working on the warehousing projects and putting them to market, as Kai just said before.
And did you experience any kind of withdrawn equity commitments by your clients already?
Yes. And not in a wide scale, but we see, obviously, that people are reluctant and that some are withdrawn. A majority, and I think that's the good news, in terms of the institutional investors and for our residential, that is not the case. We have a lot of demand there. We're working on a life deal, a large life deal as we speak. And clearly, looking ahead, the message we're getting from the investors is that this is very much a temporary reaction and people being cautious. The drivers and the appetite is still very much there.
And maybe let me add, we are not talking about cancellation. We are talking about that investors are hardly in a position to take decisions now. And therefore, committed equity is only shifted, but not canceled.
Yes. This would be my follow-up question, whether cancellations or commitments are still in place, at least postponed. Yes. Okay. Thanks for the addition. Okay. Then a short question on the STAM acquisition. You mentioned a net impact of EUR 1.4 billion. And Lars, I think you mentioned in the presentation, EUR 0.5 million is already secured. Was it always the case? Because, if I remember correctly, last year, you already mentioned on a pro forma basis, EUR 2 billion? Or is it also related to the COVID situation at the moment, not to catch up the full EUR 2 billion?
Andre, it was actually planned because it was, if you were to say, a swap. They have sold a very huge portfolio, and they have already committed this money again for logistics actually in France, which is still a very booming asset class there, maybe much more than -- or even more than here in Germany.
So this was rather successful. They have faced quite a very good to a decent client, plus, as Kai said, this was swapped. But yes.
And does the EUR 500 million or EUR 0.5 billion in rough cases, we should expect with the next reporting in terms of additional assets under management. Is it right to assume?
At the end of the year. So again, currently, I'm not very sure if you -- how close you are with the French market, but there is really a lockdown. Maybe -- as you know, Munich are quite rude with their local government, but the French are even ruder. So it can also be that it will be in the third or in the fourth quarter.
So to be clear, we are in the process of signing, but I can't, of course, guarantee you when that will be closed. In normal markets, I would say yes to the next reporting day. But in these days, I can't confirm. But everybody wants to get it closed as quick as possible.
Okay. Okay. Also, the increase in goodwill in the first quarter. Is this purely based on the STAM acquisition? And as you presumably run through all your risk parameters over the last weeks, what is your view on the EUR 600 million goodwill at the moment on the book? Do you see any risks for adjustments later in the year?
So it was purely STAM, and view hasn't changed. As indicated in several quarters before, we do have voluntary impairment tests in the half year. And of course, we have to, in the year-end. And we have definitely quite a considerable buffer in our goodwill positions.
Okay. That's good to hear. And the last question, regarding assets under management in micro living. If I calculate correctly, assets under management declined by EUR 0.5 billion quarter-on-quarter. Was -- what is the reason here? Are these disposals or value adjustments?
There are actually several things. Yes, we have a very minor disposal in there. It was an asset which is a double-digit billion amount. And the other thing I have to double-check, actually. It could either be a shift, but definitely not a decline in value. So I will come back to -- with this to you later by phone.
Our last question comes from Kai Klose with Berenberg.
Yes. It's me again, sorry. I've got 2 quick follow-ups. First one is on Page 8. We had EUR 7.7 million acquisition-related fees. Could you indicate what was the underlying acquisition volume, which generated the EUR 7.7 million?
I should know -- actually, I don't know it exactly. Maybe I will answer this later on, but it has to be around EUR 500 million to EUR 600 million of AUMs.
Okay. If you can give me the answer later on. The second question would be...
Because the remainder is with HFS, yes? Just to be clear for the others.
Second question would be on Page 10, regarding the debt structure. Could you just elaborate a bit on the covenants of the bond? And when it will be tested? And how you feel, if you feel comfortable regarding the government testing, if we have a leverage ratio going up even a bit further in the second quarter?
Yes. These are incurrence covenants. So that means that there's one rate, if you want, so that's a 3.5, but this is not an event of default. This, simply, if you would, so to say, be more than 3.5, then we are not allowed to issue new debt, which we won't anyway and no event to do. So therefore, this is not an event of default. And then there is an IFC covenant, obviously, where we have much headroom. And therefore, if you ask me, can I sleep well on these covenants? The answer is yes because, as I said, it's not an event of default.
And the testing will be in -- based on the first half results? Or later in the year?
So there is no regular testing in our documentation. It's only -- it starts if we want to issue more debt, then we have to do a covenant test. And if we are then higher than 3.5, we are not allowed to do so.
And this is only by issuing unsecured debt? Or does it also take into account bank loans?
Other bank loans.
At this time, we have no further questions. So I'll turn it back to our speakers for closing comments.
So thank you very, very much for your interest and your questions. We will now be on the road intensively, but of course, only virtually. Please don't hesitate to contact us if you have further queries. Please note that we will be publishing our Q2 report on the 11th of August. Many thanks, and all the best from our side.
Thank you, ladies and gentlemen. That concludes the CORESTATE Quarter 1 Results 2020 Conference Call. You may now disconnect your phones. And thank you for joining us today.