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Demire Deutsche Mittelstand Real Estate AG reported its second-quarter 2025 earnings, highlighting a challenging yet strategically pivotal period. The company has raised its full-year rental income guidance to €52-54 million, indicating optimism despite a 22% year-over-year decline in rental income. According to InvestingPro analysis, the company appears undervalued based on its Fair Value calculation, though it faces significant headwinds with a -72.5% revenue decline over the last twelve months. The stock remained stable, closing at €0.68, within its 52-week range of €0.67 to €1.35.
Key Takeaways
- Demire raised its full-year rental income guidance to €52-54 million.
- Rental income decreased by 22% year-over-year.
- Leased over 40,500 square meters, significantly improving leasing activity.
- Property value write-downs amounted to €28 million.
- Focus on operational excellence and debt reduction.
Company Performance
Demire’s performance in Q2 2025 reflects the ongoing challenges in the real estate market. Despite a 22% drop in rental income, the company increased its leasing activity, securing over 40,500 square meters, which is two-thirds more than the previous year. This leasing boost indicates a potential turnaround in occupancy rates, even as the EPRA vacancy rate increased to 17.3%.
Financial Highlights
- Rental income: €27.8 million (22% lower YoY)
- Funds from Operations (FFO1): €5 million
- Net Loan-to-Value (LTV): 42.4%
- NOI Margin: 67%
Outlook & Guidance
Demire has revised its full-year rental income guidance upwards, now expecting €52-54 million. The company anticipates stable property values by year-end and continues to focus on asset disposal strategies to enhance financial flexibility. Analyst consensus from InvestingPro suggests caution, with expectations of continued sales decline in the current year. For deeper insights into Demire’s valuation and growth prospects, investors can access comprehensive Pro Research Reports, available exclusively to InvestingPro subscribers.
Executive Commentary
Frank, an executive at Demire, expressed optimism: "We see potential to raise our guidance for 2025." Meanwhile, CFO Tim Volkner noted, "67% NOI margin is not good enough," emphasizing the company’s commitment to improving operational efficiencies.
Risks and Challenges
- Economic environment: The challenging economic conditions continue to pressure rental income and property valuations.
- Real estate market: Ongoing price pressure in the transaction market may affect asset disposals.
- Vacancy rates: The increased EPRA vacancy rate to 17.3% poses a risk to revenue stability.
Q&A
During the earnings call, analysts focused on the minimal FFO expected in H2 2025, the challenges in property valuation, and the company’s approach to potential bond penalty payments. These discussions underscore the market’s interest in Demire’s financial strategies and future outlook. With an Altman Z-Score of 3.43 and a Piotroski Score of 6, the company shows mixed financial health indicators. Discover more detailed financial metrics and expert analysis through InvestingPro’s comprehensive coverage of over 1,400 stocks, including Demire’s complete financial health assessment and Fair Value analysis.
Full transcript - Demire Deutsche Mittelstand RE (DMRE) Q2 2025:
Speaker 0: recorded.
Frank, Executive/Management, Demira: As solid. In fact, based on our performance to date and current outlook, we see potential to raise our guidance for 2025. Despite a still challenging economic environment and difficult real estate markets, we successfully completed several property disposals. The proceeds further reduced our debt and our loan to value ratio. At the same time, we are seeing clear operational progress with strong growth in our letting performance.
After covering some of the highlights, let’s turn to the executive summary slide Now if you walk you through our key metrics that developed in this first half year. All four of our strategic pillars contributed to a solid 2025. Among the key highlights are the continued strong letting performance and the meaningful progress we’ve made in our asset disposal program. The asset management contributed with an annualized contractual rent of €54,500,000, sorry. While this is lower compared to the end of last year 2025, the contractual rent grew compared to the end of the first quarter.
This is due to the successful let lettings, for instance, in Rostock shopping center. With more than 40,500 square meters, we leased two thirds more space compared to the previous year despite the challenging market environment. This was driven by our enhanced asset management setup. Deutsche Telekom partially left spaces in our asset in Bonn, which countered our letting achievements in Rostock and Langenfeld. The EPRA vacancy rate increased to 17.3%.
On a positive note, the new letting improved to a ward of four point eight years. We continue to take an opportunistic approach to transactions with a focus on smaller non strategic assets and mature properties. The executed disposal will deliver proceeds of approximately €40,000,000. This is only partly shown in the H1 figures as some closings are pending. The financials show a rental income of €27,800,000 for the first half year 2025.
This is approximately 22% lower compared to the period and due to the disposals mainly LOGPAC Leipzig and the LIMA’s assets. The smaller portfolio also affects the funds from operations or the FFO one. They reached €5,000,000 for the 2025. The net LTV was 42.4%, which is only slightly higher compared to the year end 2024. With regard to our proceeds, we successfully extended two maturing mortgage loans on the 2025 and continue to work on refinancing the remaining upcoming maturities this year.
In June, we published our annual sustainability report highlighting the 40% reduction of our company owned carbon dioxide emissions. Additionally, we expanded our ESG data collection and made further progress on rolling out smart metering across the portfolio. Given the earnings performance for the first half year and our current outlook for the remainder of 2025, we see room to revise our full year guidance upwards. We see a rental income of 52 to €54,000,000 for the full year of 2025 and an FFO one of five to seven million euros. Ralf, I would like to ask you now to give us some in lie insights on the portfolio.
Ralf, Portfolio Management, Demira: Yes. Thank you, and good morning, everybody. And, yeah, I would like to explain a bit the portfolio highlights and comment a bit on this. The annualized contractual rent decreased, slightly from, 56.4 down to, 54,500,000.0. This reduction is mainly due to the disposal of two smaller assets and an increased vacancy in one of our larger assets.
And as already mentioned by by Frank, the letting performance increased significantly, from 25,000 square meters in the first half of the year 2024 up to more than 50,000 square meters in this year. And the largest drivers are, prolongations with our tenants Deutsche Telekom and our asset in Camden. And here, are talking about more than 9,000 square meters and the another significant, prolongation is prolongation of more than 10,000 square meters with the DIY market. Yes. Coming to the EPRA vacancy, the EPRA vacancy, increased, a bit.
This is mainly driven by the leaving by by our tenant Deutsche Telekom. They are leaving part of their rental space in our asset in Bonn, and, this, effect was mitigated by significant letting achievements in our assets in Rostock and Langenfeld. The vault, increased, slightly from four point six to four point eight years, and this is mainly due to the prolongation with Deutsche Telekom in our asset in Bonn and, lasting achievements in our largest asset largest asset in Bostock. Yes. Now I would like to hand over to Tim Volkner,
Philip Zenerwalt, Analyst, NewRace AG: our CFO.
Tim Volkner, CFO, Demira: Good morning, everyone. Some quick insights on the p and l and the balance sheet. As Frank and Ralph already mentioned, rental income is down driven by disposals mainly versus the comparison period, lock pocket, Leipzig, and the deconsolidation of the Lima’s portfolio mid last year. So we are talking about €28,000,000 in rental income and NOI of 18,600,000.0, which is an NOI margin of roughly 67%, which is a little bit higher than last year, and we hope to stabilize and increase that going forward. We have some losses from fair value adjustments in properties.
Obviously, it’s not the same properties than last year. We were looking here at ongoing disposal processes and some special situations and have taken write offs of roughly €28,000,000. We have also impaired some financial assets. Those are, at number five, connection with depreciations of, intercompany loans granted to the Lemus portfolio. Given to, given the expected outcome of the property disposals from the Lemus portfolio, we had to take some write offs for our intercompanies into intercompany loans into the structure here.
We show slightly decreasing G and A expenses, and we will obviously try hard to decrease our G and A going forward, which has to be in line with the lower rental income. But as you can imagine, with our corporate structure, it’s not that easy, but we will try hard. Finance expenses, you see a big shift versus h 01/2024. Right? Easy to explain.
You all know that, we have taken on roughly 100,000,000 shareholder loan from our main shareholder, Apollo, last year, and that interest on this 100,000,000 increases our financial expenses significantly. When we run further down through the p and l, you see that our FFO one, as previously defined, is negative. And after the adjustment on the shareholder loan interest, it is the before mentioned plus €5,000,000, and Frank already commented on an increased guidance. On page 11, you see our shortened balance sheet. What you see in investment properties and noncurrent assets held for sale is that we make some further progress on property disposals.
As Frank said, we have signed some deals already, and Ralph’s obviously working hard with his team to conduct further sales such that we can pay down the envisaged 50,000,000 to avoid any further penalty interest on our bond. Given the negative results in the period, number two, you see that our reserves are declining. We hope to stabilize that, obviously. Let’s see where we end up at the end of the year. And what has already mentioned as well is that our short term financial and lease liabilities are partially already refinanced and on the remainder of one loan.
We are working hard, and we are quite confident that we sign a new loan agreement here in q three this year. Does this, Frank, get back to you or no? Let’s have another look at end. Apologies. Net LTV net LTV, given the revaluations, is slightly up to 42.4%.
We expect that given the upcoming disposals in q three and q four to decrease to about 40% by year end. The average cost of debt is about stable. That obviously excludes the shareholder loan. You can imagine when we refinance existing loans that are from the free increased period time that our average cost of debt will increase slightly further in the upcoming month.
Frank, Executive/Management, Demira: But now, Frank, back to the guidance. Good. Thanks, Tim. All in all, as said, we delivered solid results for the 2025 and feel well prepared for the developments ahead in the remainder of the year. In the view of the earnings performance in the first half year and the current outlook for the remainder of the year, we see room to raise our guidance for the full year 2025.
We are confident to achieve now a rental income guidance of €52,000,000 to €54,000,000 and generate FFO one of 5,000,000 to €7,000,000 Before we move on to the Q and A session, I’d like to reiterate our priorities in the mirror going forward. We remain firmly focused on strengthening our financial position with debt reduction and financial optimization as clear priorities. As part of this strategy, we will continue to pursue asset sales where they are economically justified. At the same time, we are placing strong emphasis on our operational excellence to unlock the full value of our portfolio. Thanks for listening, and we are now happy to answer your questions.
Conference Moderator: Thank you very much. Dear ladies and gentlemen, if you are dialed into the conference call and have a question for the host, please press 9 and the star key your telephone keypad now to enter the queue. The first question is from Philip Zenerwalt of NewRace AG. Philip, over to you.
Philip Zenerwalt, Analyst, NewRace AG: Thank you very much. Thank you guys for the presentation. I have a couple of questions, and I would say, let’s do them one by one. So first, on the new guidance. This still implies little to no FFO in the second half of the year.
Can you explain this a bit?
Tim Volkner, CFO, Demira: Yeah, Philip. Given that we are selling further properties, we face increasing costs on the portfolio management, and we have a bit of a backlog in maintenance expenses in H one where we think that those will come through in H two. We would expect that, as you say, that there’s little to none FFO contribution in the last six months of the year.
Philip Zenerwalt, Analyst, NewRace AG: All right. Thank you. And on the lapping performance, can you tell me which percentage of those 40 ks square meters is new business and what percentage is extensions of existing contracts?
Frank, Executive/Management, Demira: The new business is roughly 15% of it. So that’s that’s roughly 6,000 square meters, and the rest is, letting performance for the prolongation of existing lease contracts.
Philip Zenerwalt, Analyst, NewRace AG: Alright. Thank you. On the disposal of the two smaller assets you mentioned, where the net proceeds there?
Ralf, Portfolio Management, Demira: Sorry. I don’t have the exact numbers available here.
Philip Zenerwalt, Analyst, NewRace AG: Okay. Okay. May may may maybe maybe we can get back into this later. Sure.
Frank, Executive/Management, Demira: So we we sent something around. Yeah.
Philip Zenerwalt, Analyst, NewRace AG: Cool. Tim, you you mentioned, NOI margin improvement, but you also talked about stabilizing and also improving this. What is your target there?
Tim Volkner, CFO, Demira: Well, we were at least able to stabilize the NOI margin, which I think in current times is a bit of a success, albeit at a very low level. 67% for, well, let’s say commercial real estate operator in Germany is is not good enough. I think we we came from values around the 80% mark. I don’t see that going back to the 80% mark soon, but, obviously, we we are trying hard to get that, to the low seventies again in the nearer future.
Philip Zenerwalt, Analyst, NewRace AG: K. Low seventies. Understood. And two follow-up questions.
Tim Volkner, CFO, Demira: On on the two assets, we sold Bad Kreuznach for €3 and the asset 1,800,000.0.
Philip Zenerwalt, Analyst, NewRace AG: Alright. Thank you. And maybe two further questions, if I may. You had some property devaluations now in the first half. What is your view on that for the second half?
I mean, at least when I look at the result on property disposal, you made a slight gain there. Yeah. May what what what what what can be expected in the second half for property valuation?
Tim Volkner, CFO, Demira: Well, the current valuations effect are mainly driven by the disposal processes. So when we talk to investors, and Ralph, please jump in, we see that processes still take quite long, and the financing processes with banks are very difficult. So we still see price pressure in the current transaction market. But on the other hand, when you look at market statistics, the bridge the big brokerage firms, you can always read that there’s a stabilizing effect. So when we talk about our year end valuation, at least from the current perspective, I personally think that we should see more or less stable portfolio values.
Philip Zenerwalt, Analyst, NewRace AG: Okay. Perfect. Thank you. That’s helpful. And the last question is on the potential penalty payment that is included in the prolongation agreement for the for your corporate bond.
When I look at your cash flow statement, you haven’t paid back too much of the bond so far. Will you be able, from today’s perspective, to avoid this penalty payment?
Tim Volkner, CFO, Demira: It is our clear plan that we do that. We have several property disposal processes in an advanced stage. And, yes, from today’s perspective, that’s the plan.
Frank, Executive/Management, Demira: Unfortunately, these days, a deal is only signed when it’s signed. I mean
Philip Zenerwalt, Analyst, NewRace AG: Yeah. Sure.
Frank, Executive/Management, Demira: It it looks promising, but, nevertheless, buyers might step away in the last minute. So
Philip Zenerwalt, Analyst, NewRace AG: Yeah. Sure. That that can always
Frank, Executive/Management, Demira: to to achieve it.
Philip Zenerwalt, Analyst, NewRace AG: Yeah. I mean, that can always happen, but it’s good to hear that you’re you’re Yeah. Positive here. Alright. Thanks, guys, for your answers.
That were my questions.
Conference Moderator: Thank you very much. There are no more questions in the queue, so everything seems to be quite clear. So, dear ladies and gentlemen, if you still have a question or a follow-up, please press 9. Now last call, please press 9. There’s a question from Christian Aus from BlackRock.
Please over to you.
Christian Aus, Analyst, BlackRock: Yes. Good morning. I I just had two quick follow ups, please. The first one would be on the remaining refinancings you have to do or maturities you have to address in 2025. Can you just give us the size of the one loan that’s remaining?
Tim Volkner, CFO, Demira: It’s close to €30,000,000
Christian Aus, Analyst, BlackRock: And that’s one loan for one portfolio?
Tim Volkner, CFO, Demira: One loan for a sub portfolio of fair value REIT.
Christian Aus, Analyst, BlackRock: Okay. Okay. And then the small bond redemption or bonds yes, the bond redemption you did around EUR 5,000,000 in July. That was related to the original transaction, and it happened at par, right? So you didn’t buy that in the market.
Well,
Tim Volkner, CFO, Demira: it was a redemption using the pull factor methodology. And, I mean, as I know that you are very in-depth into the transaction, it covers the so called earmarked amount, that we had to repay before the restructuring date has its first birthday. And there was the legal requirement or the contractual requirement to do it at that point of time in the year because the money was raised by a financing or a mortgage financing of another property. And there, as you know, in the terms and conditions, there’s a rule that 85% of the proceeds of mortgage loans have to go into repayment of the bond.
Christian Aus, Analyst, BlackRock: Okay. At par or at pull factor. Well,
Tim Volkner, CFO, Demira: at least the earmarked amount. Yeah. Yeah. And so we did it at the pull factor. Yeah.
Christian Aus, Analyst, BlackRock: Okay. That means the notional is now below two fifty. Correct. Okay. Alright.
Thank you.
Conference Moderator: Thank you very much. At the moment, there are no more questions in the queue. So with that, I’m closing the q and a session and handing the floor back over to the host.
Frank, Executive/Management, Demira: So thanks again for dialing in and your continued interest in Demira. We’ll be back with our Q3 results on November 6 and look forward to speaking to you then again. Thank you very much.
Speaker 0: The recording has been stopped.
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