DEMIRE Deutsche Mittelstand Real Estate AG (DMRE) Earnings Call Transcript & Summary

Ladies and gentlemen, good morning, everybody, and welcome to our results presentation for the first 3 months of 2025. Thanks for dialing in. With me here is DEMIRE's CFO, Tim Bruckner and CIO, Ralf Bongers, who will talk to you later and Julius Stinauer, our Head of Investor Relations. I'm sure you have had a chance to look at our results already, which I would summarize as solid and in line with our expectations. Just about 2 months ago, I presented our annual report, and now we are pleased to report the Q1 2025 results to you. We have achieved a remarkable letting volume more than 3x higher than in the first quarter of the previous year. In addition, we have extended 2 maturing mortgage loans further strengthening our financial profile. And on the transaction side, we continued to make progress by handing over 2 properties to their new owners. So after covering some of the highlights, let's turn to Slide #5, the executive summary, and I will briefly walk you through our key metrics is that we developed in the first quarter 2025. Our annualized contractual rent as of March 2025 is at EUR 53.7 million, lower than year-end '24, because one of our big tenants left in February in 2025. The letting performance has increased significantly to over 25,000 square meters in the first quarter. The EPRA vacancy because of the tenant, the GMG and bond giving back a big bunch of their space, increased to 18.1%. On the transaction side, we sold to more assets in Q1 2025, and the further disposal process is ongoing. We continue with our focus of opportunistic disposals of nonstrategic assets and mature assets. On the financial side, our rental income is EUR 14 million for Q1, which is 25% lower compared to the previous period. Because you might remember, we sold our assets in LogPark in Leipzig and LIMES assets are no longer part of our portfolio. FFO I is at EUR 2.1 million, which is, of course, reduced due to the declining rental income from the smaller portfolio. Net LTV, 41.5%, which is pretty much in line with year-end 2024. 2 maturing mortgage loans have been extended in Q1 2025, which is a further strengthening of our financial of our financials. Coming to the guidance, we confirm our guidance. Rental income 2025 will be in the range of EUR 51 million to EUR 53 million, and FFO I will be in the range of EUR 3.5 million to EUR 5.5 million. Right, I would now like to ask you to continue with the portfolio highlights.

Yes, as already mentioned by Frank, the annualized contractual rent has decreased from EUR 56.4 million, down to EUR 53.7 million. This reduction is mainly driven by the disposals of 2 smaller assets and the increased vacancy in 1 larger asset. And nevertheless, we see a very strong letting performance. And this will, of course, help us to stabilize the rental level going forward. The letting performance in the -- in Q1 this year, has more than tripled with over 25,000 square meters, as already mentioned by Frank, and the largest drivers of these increase -- significant increase are the prolongation of rental contracts of more than 9,000 square meters with Deutsche Telekom and more than 10,000 square meters with the DIY market. The -- coming to the vacancy, the EPRA vacancy increased, which was primarily a consequence of Deutsche Telekom leading parts of their rental space in 1 larger assets, but we expect, on the other hand, significant countering effects over the course of this year through the disposal of assets with low occupancy. Yes. And the world has increased from 4.6 years in the Q4 last year, up to 4.8, which we see as absolutely sufficient for a portfolio with a predominant office share. And the word improvements reflect mainly a prolongation with Deutsche Telekom in our large asset in bond and further letting achievements in our largest assets in Rossau. That's it from my side.

Yes. Good morning. It's Tim. Let us run through the financial highlights. Let's start with the P&L. As Frank already said, our rental income is down to EUR 14 million, largely driven by the sale of LogPark and Leipzig and the deconsolidation of the LIMES portfolio in the previous year. that effectively results in an NOI margin of 64%, representing profit from the rental of real estate of EUR 9 million. That is largely in line with the NOI profitability last on a percentage scale. I think we can be optimistic that the reduced vacancy in the future will have a positive impact on the NOI margin. We see a loss from fair value adjustments in properties. We have not revalued the entire portfolio, but we have reclassified some assets back to investment properties from assets held for sale and otherwise, and reverse resulting in a devaluation of EUR 9 million. On a total portfolio scale, we see a stabilization of the overall valuation in the market. Let us have a brief look on the G&A expenses. You see a slight increase versus the previous year's Q1. For total 2025, we expect overall lower G&A than in the previous year. In the financial expenses line, you see the effect of predominantly the shareholder loan that we have taken from our largest shareholder as part of the bond restructuring which effectively results to finance expenses now of in excess of EUR 13 million for the first quarter of 2025. If we go down further to the FFO, as Frank already said, the EUR 2.1 million is significantly lower than in the previous year's period, driven by all the effects that we just mentioned. On the other hand, the EUR 2.1 million is slightly above our expectations, and Frank will finish the presentation with a comment about our guidance. On the next slide, we have a brief look at our shortened balance sheet. As you can expect that the evaluation of the property slightly reduced the investment properties to EUR 711 million. The negative profit for the period is also have an impact on the reserve resulting in total balance sheet volume of slightly lower than the latest published numbers from full year 2025 at EUR 953 million. As a positive sign, I guess, we have elongated some mortgage loans, 2 mortgage loans for more than 1 year. So there is a shift between the long-term and the short-term financial liabilities. On the next slide, the financial highlights. We show the net LTV and the average cost of debt. The net LTV is about stable now at 41.5%. And we expect the net LTV without the shareholder loan to go down when we sell further properties in the course of the next quarters this year. The average cost of debt is also stable at roughly 4.3%. The outlook for that is that we expect increasing average cost of debt because when we further prolongate mortgage loans, we usually shift finances that we raised -- 2019 or 2020 to current interest level, which is obviously higher than before. And with that, I hand back to you, Frank.

Thank you, Tim. All in all, we delivered solid results in the first quarter of 2025. and feel well prepared for the developments ahead of the -- in the remainder of the year. With this sound start, we are confident to achieve our rental income guidance of EUR 51 million to EUR 53 million and to generate FFO I of EUR 3.5 million to EUR 5.5 million, as shown on Page 13. Before we move to the Q&A session, I'd like to make some remind some remarks on the key priorities of the mirror going forward. Building on the successful extension of our bond last year, our primary objective remains further deleveraging and optimizing our financial profile. As part of this strategy, we are committed to pursuing asset sales on an opportunistic basis and further deleverage the company. At the same time, we will continue to place strong emphasis on our improving of the operational performance. And I think the high letting performance in Q1 has shown that we are able to do that, and we will ensure to unlock the full potential of our portfolio. Thanks for listening. We are now happy to answer your questions.

Ladies and gentlemen, there are no registered questions. I would now like to turn the conference back over to Mr. Nickel for any closing remarks.

Well, the closing remarks I've done already. So thanks for everybody and talk to you on the presentation of our Q2 results, which are on the 14th of August. Thank you very much.