Earnings call transcript: Demire Deutsche Mittelstand RE sees 25% drop in rental income in Q1 2025

Demire Deutsche Mittelstand Real Estate AG reported a 25% year-over-year decline in rental income for the first quarter of 2025, amounting to €14 million. The company also noted a significant increase in letting volume, which more than tripled compared to the previous year. Despite these mixed results, the company’s stock saw a slight increase of 1.45%, closing at €0.69. According to InvestingPro data, the stock has experienced a challenging period, with a -34.03% total return over the past year, though current analysis suggests the stock may be undervalued.

Key Takeaways

• Rental income fell by 25% year-over-year, totaling €14 million.
• Letting volume increased over threefold, with significant lease extensions.
• The company’s stock rose by 1.45% following the earnings report.
• EPRA vacancy rate increased to 18.1%.
• 2025 guidance projects rental income of €51-53 million and FFO I of €3.5-5.5 million.

Company Performance

Demire Deutsche Mittelstand Real Estate AG faced challenges in the first quarter of 2025, with a notable decrease in rental income. However, the company achieved a substantial increase in letting volume, indicating potential future revenue growth. The real estate market showed signs of stabilization, which could benefit the company’s strategic focus on the office sector. InvestingPro analysis reveals the company trades at a modest Price/Book ratio of 0.33, with additional insights available through InvestingPro’s comprehensive financial health assessment, currently rated as FAIR.

Financial Highlights

• Rental income: €14 million, 25% lower year-over-year
• FFO I: €2.1 million
• Total balance sheet volume: €953 million
• Investment properties valued at €711 million
• Net Loan-to-Value (LTV): 41.5%
• Average cost of debt: 4.3%

Outlook & Guidance

Demire provided guidance for 2025, projecting rental income between €51 million and €53 million, and FFO I ranging from €3.5 million to €5.5 million. The company emphasized its focus on deleveraging and optimizing its financial profile to improve operational performance.

Executive Commentary

CEO Frank highlighted the company’s success in increasing letting volume, noting, "We have achieved a remarkable letting volume more than three times higher than in the first quarter of the previous year." He reiterated the company’s primary objective of further deleveraging and financial optimization. CFO Tim Bruckner commented on market conditions, stating, "We see a stabilization of the overall valuation in the market."

Risks and Challenges

• Rising EPRA vacancy rate, now at 18.1%, could impact future rental income.
• The company’s average cost of debt is relatively high at 4.3%, which may affect profitability.
• The broader economic environment and real estate market stability remain uncertain.
• Continued focus on asset disposals may lead to short-term revenue fluctuations.
• Potential challenges in achieving the projected 2025 rental income and FFO I targets.

Demire’s strategic initiatives and market conditions will be crucial in determining its financial performance in the coming quarters. The company’s focus on portfolio optimization and operational improvements is expected to play a significant role in navigating the current real estate landscape.

Full transcript - Demire Deutsche Mittelstand RE (DMRE) Q1 2025:

Frank, CEO, MIRA: Ladies and gentlemen, good morning, everybody, and welcome to our results presentation for the first three months of twenty twenty five. Thanks for dialing in. With me here is Demir’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 two months ago, I presented our annual report, and now we are pleased to report the Q1 twenty twenty five results to you.

We have achieved a remarkable letting volume more than three times higher than in the first quarter of the previous year. In addition, we have extended two maturing mortgage loans, further strengthening our financial profile. And on the transaction side, we continued to make progress by handing over two properties to their new owners. So after covering some of the highlights, let’s turn to Slide number five, the executive summary, and I will briefly walk you through our key metrics that we developed in the first quarter twenty twenty five. Our annualized contractual rent as of March 2025 is at €53,700,000 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 of the tenants, GMG and Bond giving big giving back a big bunch of their of their of their space increased to 18.1%. On the transaction side, we sold two more assets in q one twenty twenty five, and the 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 €14,000,000 for Q1, which is 25% lower compared to the previous period because you might remember we sold our assets, Lochpark in Leipzig, and the Lemus assets are no longer part of our portfolio.

FFO I is at EUR 2,100,000.0, which is, of course, reduced due to the declining rental income from the smaller portfolio. Net LTV, 41.5%, which is which is pretty much in line with with year end 2024. ’2 maturing mortgage loans have been extended in Q1 twenty twenty five, which is a further strengthening of our financials. Coming to the guidance, we confirm our guidance. Rental income 2025 will be in the range of EUR 51,000,000 to 53,000,000, and FFO one will be in the range of EUR 3,500,000.0 to EUR 5,500,000.0.

Ralf, I would now like to ask you to continue with the portfolio highlights. Yes. Thank you. Yes.

Ralf Bongers, CIO, MIRA: As already mentioned by Frank, the annualized contractual rent has decreased from 56.4 down to 53.7. This is this reduction is mainly driven by, the disposals of two smaller assets and the increased vacancy in one larger asset. And nevertheless, we see a 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 q one 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 is primarily a consequence of Deutsche Telekom leaving parts of their rental space in one larger asset, but we expect, on the other hand, significant countering effects over the course of, of this year through the disposal of assets with low occupancy. Yes. And and, the vault has increased, from four point six years in the Q4, last year up to four point eight, which we see as absolutely sufficient for a portfolio with a predominant office share. And, the vault improvements reflect mainly a prolongation with Deutsche Telekom in our large asset in Bonn and further letting achievements in our largest asset in Rothrock. That’s it from my side.

Tim Bruckner, CFO, MIRA: Yes. Good morning. It’s Tim. Let us run through the financial highlights. Let’s start with the P and L.

As Frank already said, our rental income is down to €14,000,000 largely driven by the sale of LOG Park in Leipzig and the deconsolidation of the Lemus portfolio in the previous year. That effectively results in a NOI margin of 64%, representing a profit from the rental of real estate of €9,000,000 That is largely in line with the NOI profitability last year on a percentage scale. I think we can be optimistic that a 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, we have reclassified some assets back to investment properties from assets held for sale and otherwise and reverse, resulting in a devaluation of €9,000,000 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 and A expenses. You see a slight increase versus the previous year’s Q1. For total 2025, we expect overall lower G and 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 €13,000,000 for the first quarter of twenty twenty five. If we go down further to the FFO, as Frank already said, the €2,100,000 is significantly lower than in the previous year’s period, driven by all the effects that we just mentioned.

On the other hand, the 2,100,000.0 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 devaluation of the property slightly reduced the investment properties to €711,000,000 The negative profit for the period is also having an impact on the reserves, resulting in total balance sheet volume of slightly lower than the latest published numbers from full year 2025 at €953,000,000 As a positive sign, I guess, we have prolongated some mortgage loans, two mortgage loans for more than one year. So there’s 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%. 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 ’19 2019 or 2020, to current interest level, which is obviously higher than before. And with that, I hand back to you, Frank.

Frank, CEO, MIRA: Thank you, Tim. All in all, we delivered solid results in the first quarter of twenty twenty five and feel well prepared for the developments ahead of the remain in the remainder of the year. With this sound start, we are confident to achieve our rental income guidance of EUR 51,000,000 to 53,000,000 and to generate FFO I of EUR 3,500,000.0 to EUR 5,500,000.0, as shown on Page 13. Before we move to the Q and A session, I’d like to make some remarks on the key priorities of the MIRA 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.

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

Frank, CEO, MIRA: Well, the closing remarks I have done already. So thanks for everybody, and talk to you on the presentation of our Q2 results, which are on the August 14. Thank you very much.

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