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Introduction & Market Context
DEMIRE Deutsche Mittelstand Real Estate AG (DMRE) presented its Q1 2025 results on May 8, 2025, revealing a challenging quarter marked by declining rental income and funds from operations (FFO), though with some positive developments in letting performance and lease terms.
The German commercial real estate company, currently trading at €0.69 per share (up 4.58% on May 7), faces continued pressure in the commercial real estate market, as evidenced by the negative fair value adjustments to its property portfolio during the quarter.
Quarterly Performance Highlights
DEMIRE reported a significant 24.7% year-over-year decline in rental income to €14.0 million in Q1 2025, down from €18.6 million in Q1 2024. This substantial decrease was accompanied by a more severe 73.7% drop in FFO I (after taxes, before minorities and shareholder loan interest) to €2.1 million from €7.9 million in the prior-year period.
The company’s executive summary highlights the key performance metrics for the quarter, including the reduction in annualized contractual rent and the increase in vacancy rates.
The decline in rental income can be attributed to both property disposals and increased vacancy, with the EPRA vacancy rate rising to 18.1% in Q1 2025 from 15.1% at year-end 2024. This increase was primarily caused by Deutsche Telekom (OTC:DTEGY) vacating some rental space during the quarter.
Portfolio Performance
Despite the challenging rental environment, DEMIRE achieved a significant improvement in letting performance, with space leased increasing to 25,530 square meters in Q1 2025 compared to just 8,230 square meters in Q1 2024. This substantial improvement was driven by prolongations with Deutsche Telekom and a DIY market tenant.
The following chart illustrates the decline in annualized contractual rent alongside the impressive growth in letting performance:
The company also reported an improvement in its weighted average lease term (WALT), which increased to 4.8 years in Q1 2025 from 4.6 years at year-end 2024. This positive development was attributed to the lease prolongation with Deutsche Telekom, highlighting the importance of this key tenant to DEMIRE’s portfolio stability.
The following chart shows the increase in vacancy rates alongside the improved lease term:
Detailed Financial Analysis
DEMIRE’s financial performance in Q1 2025 reflects significant challenges, with profit from rental of real estate declining to €9.0 million from €12.2 million in Q1 2024. The company also recorded a loss of €8.9 million from fair value adjustments in properties, compared to no such adjustments in the same period last year.
The detailed profit and loss statement reveals the extent of the financial pressure:
Finance expenses more than tripled to €13.1 million from €4.2 million in Q1 2024, contributing significantly to the overall decline in profitability. This increase in financing costs, despite a slight reduction in the average cost of debt to 4.32% from 4.35%, suggests a substantial increase in the company’s debt burden or potential one-time financing charges.
DEMIRE’s balance sheet as of Q1 2025 shows a modest 1.9% decline in investment properties to €710.8 million from €724.7 million at year-end 2024, while total equity decreased by 6.5% to €226.2 million:
The company’s net loan-to-value ratio (Net-LTV) increased slightly to 41.5% from 40.9% at year-end 2024, reflecting the reduced property valuations and equity position:
Forward-Looking Statements
Despite the challenging Q1 results, DEMIRE has maintained its full-year 2025 guidance, projecting rental income of €51-53 million and FFO I of €3.5-5.5 million:
The maintained guidance suggests management expects improved performance in the remaining quarters of 2025, potentially through reduced vacancy rates, additional lease prolongations, or cost-cutting measures. However, achieving the projected rental income range would still represent a significant decline from previous years, reflecting the ongoing challenges in the commercial real estate sector.
DEMIRE noted that it closed two smaller asset sales in Q1 2025 and extended two mortgage loans, indicating continued focus on portfolio optimization and securing its financing structure in a challenging market environment.
Full presentation:
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