Earnings call transcript: Deutsche Konsum REIT Q3 2025 reveals restructuring impact

Deutsche Konsum REIT reported a challenging third quarter in 2025, marked by a decline in rental income and a significant reduction in asset value due to portfolio revaluation. Despite these setbacks, the company has taken steps to strengthen its financial position through asset sales and securing bridge financing. With a market capitalization of $121.41 million, the stock saw a minor pre-market decline of 0.48%, reflecting investor caution amid ongoing restructuring efforts. According to InvestingPro analysis, the company appears undervalued based on its Fair Value metrics.

Key Takeaways

• Rental income decreased by 11%, impacting overall financial performance.
• The company secured €80 million in bridge financing, providing liquidity support.
• Portfolio revaluation led to a €47 million reduction, affecting asset valuation.
• A restructuring plan is in place, targeting completion by September 2027.
• No financial guidance provided for 2024-2025 due to restructuring.

Company Performance

Deutsche Konsum REIT faced a challenging quarter, with rental income declining by 11% compared to the previous year. The company’s focus on restructuring has led to a reduction in financial liabilities and a strategic shift in asset management services. Despite these efforts, the increased vacancy rate and portfolio revaluation have posed challenges to financial stability.

Financial Highlights

• Rental income: Decreased by 11% year-over-year.
• Funds From Operations (FFO): Declined by €14.2 million to €9.9 million.
• Net rental income: Down by €8 million.
• Interest result: Decreased by €5.3 million.
• Portfolio revaluation: Resulted in a €47 million reduction.

Market Reaction

The stock experienced a slight pre-market decline of 0.48%, with the price dropping to $2.28. This movement places the stock near its 52-week low of $2.25, indicating investor caution amidst the company’s restructuring and financial performance challenges. InvestingPro analysis reveals two key insights: the company is trading at a low Price/Book multiple and has seen a significant decline of nearly 43% over the past six months. Get access to 11 more exclusive ProTips and comprehensive analysis with an InvestingPro subscription.

Outlook & Guidance

Deutsche Konsum REIT has not provided financial guidance for the 2024-2025 period due to the ongoing restructuring. However, InvestingPro analysts forecast the company will return to profitability this year with an expected EPS of $0.71. The company plans to complete its restructuring by September 2027, including a debt-to-equity swap and reduced asset sales targets. Discover detailed valuation models and comprehensive financial analysis in the exclusive Pro Research Report, available to InvestingPro subscribers.

Executive Commentary

CFO Kirill Thorkaninov stated, "We will not be providing any guidance for the financial year twenty four-twenty five due to the preparation and ongoing preparation for the restructuring plan." He also emphasized that "no lender has categorically refused to support the restructuring plan," highlighting ongoing negotiations with lenders.

Risks and Challenges

• Declining rental income and net rental income could impact future profitability.
• Increased vacancy rates may further affect revenue generation.
• Portfolio revaluation reductions could impact asset valuation and investor confidence.
• The restructuring process introduces uncertainty and potential execution risks.
• Market conditions and economic factors could influence tenant stability and rental income.

Q&A

During the earnings call, analysts inquired about loan maturity extensions and the restructuring process. The company confirmed ongoing negotiations with lenders and provided insights into potential risks associated with the restructuring plan.

Full transcript - Deutsche Konsum REIT AG (DKG) Q3 2025:

Matilda, Chorus Call Operator, Chorus Call: Ladies and gentlemen, welcome to the Q3 twenty twenty four-twenty twenty five Financial Results Conference Call. I am Matilda, the Chorus Call operator. I would like to remind you that all participants will be in listen only mode and the conference is being recorded. The presentation will be followed by a Q and A session. The conference must not be recorded for publication or broadcast.

At this time, it’s my pleasure to hand over to Kirill Thorkaninov, CFO and to Lars Witten, CIO. Please go ahead,

Kirill Thorkaninov, CFO, Deutsche Consumer Read: Hello, everybody, and welcome to the Deutsche Consumer Read Q3 financial results presentation in which we will cover the nine months of the current financial year, but we will also touch upon the events which happened in July this year since they were important, and we will cover those as well. The highlights, which we have here on our page four, cover the main, the main events of the nine months. Well, the substantial impact on the portfolio had our, sales of assets. Rental income, decreased by 6,500,000.0, which is 11% compared to the same period of the prior financial year, and, it is the same 11% which we had when we reported our six months half year results in last quarter. FFO went down by 14,200,000.0 to 9.9, and the main impact comes, as I already mentioned, from asset sales as well as the higher interest rates.

Net rental income, is down by 8,000,000, and the entire interest result is, 5,300,000.0 lower. There were two parts in our result of the financial result on the interest side. The interest expense went down went up unfortunately by about 2,900,000. However, interest income decreased by 2,440,000.00 as well to a total of 5.3. This year, we did the revaluation of the portfolio, which is traditionally done by CBRE as of June 30, and not as we usually did it to the end of the financial year, September 30.

The reason for that was the transition of, as we mentioned last time, a transition of asset management and property management services, to a new service provider. So we are switching from Algetti Brothers to GPAP. And, also, is better to have the results now in light of the restructuring. The result is a reduction of about €47,000,000 due to the revaluation of the portfolio. We have notarized sales and purchase agreements for 17 properties in the ninth in the nine months of the financial year.

Those were spread out. Some took place early in the year, some took place late in the year. The annualized rent, is 2,800,000.0, and the purchase price combined is, 55,400,000.0. Some of the assets which were signed, will close or have actually closed, at the very end of the quarter. As we already mentioned on prior occasions, in at the end of last year, we received 38,000,000 from Obotritsa as a repayment on the loan, which was outstanding to Obotice.

Therefore, the principal of the loan was repaid in full, and the only outstanding receivable is fully provided for is a is a bad debt accrual, and that is going to be or expected to be repaid until the ’25. Most of the proceeds from that repayment were used to pay down the financial liabilities. Our loan to value is 55.8%. It went up compared to the last quarter, which ended at the March. However, versus September 24, it has somewhat decreased from the 57.2%.

Matilda, Chorus Call Operator, Chorus Call: The net reduction of financial liabilities, was 74,000,000. It included a few items which sort of increased,

Kirill Thorkaninov, CFO, Deutsche Consumer Read: the financial liabilities, and one of the main items was that drawdown of 5,000,000 on the bridge financing, which we the bridge financing we reported already in the past. We have, in these nine months, reduced the liabilities by convertible convertible bonds. They were converted in the amount of 57,000,000. We repaid, 20,000,000 of unsecured notes and obviously did additional debt amortization through asset sales and normal regular amortization. At this time, we will not be providing any guidance for the financial year twenty four-twenty five due to the preparation and ongoing preparation for the restructuring plan.

So if we move to the next page, page five, we put together some highlights on restructuring plan. As we already reported in the past, we have engaged FTI Andersch to prepare a formal restructuring opinion in accordance to the standard of IDW six. That restructuring opinion was completed in a draft form and expected to be finalized by the August. We also reported that we have entered into standstill agreements with a number of lenders with the maturities of their liabilities, of their loans that were in, February, March. Those were extended first until the May, and then during the course of summer, those were extended also until the August.

With some of those lenders, we have already reached agreements that we will be extending loans until the end of this restructuring period. The restructuring period is tentatively or actually according to our plan is going to be in September 27. We have secured bridge financing. It is now €80,000,000 with a 5.5% interest. We are expecting it to be prolonged and we are in discussions.

So it will be prolonged after the August 25. One of the main or one of the major events since we presented results for the half year is a restructuring agreement with Faber L. That restructuring agreement mainly includes the debt to equity swap in relation to the obligations to the financial liabilities to the notes or unregistered bonds that we have in the amount of 86,000,000. So debt to equity is what will be at least about €86,000,000. Once implemented, it will have a major impact on our KPIs.

Obviously, loan to value ratio and current capital ratio. Debt debt to equity swap is a substantial support for the restructuring of the company. It has a positive message. It had a positive impact to other lenders in their decision to support the plan. Before debt to equity was agreed, however, is obviously not yet implemented, The restructuring plan envisaged a substantial asset sales.

Those asset sales were envisaged to be necessary to reduce our financial liability substantially Due to the proposed debt to equity swap, those sales volume can be reduced to about 300 to €350,000,000. The draft restructuring opinion was already presented and discussed with relevant lenders. As I mentioned, several lenders with maturities, earlier this year have extended, but also the restructuring plan calls for extension of maturities and some other changes to the loan agreements, to the debt agreements we have maturing in ’26 and the ’27. So those loan agreements are to be and already, to large extent, are extended until the September ’27 as well as some other covenants were changed as well. As of now, there’s been no lender who categorically refused to support the restructuring plan.

However, with a number of lenders, the discussions are still ongoing. We have

Matilda, Chorus Call Operator, Chorus Call: been

Kirill Thorkaninov, CFO, Deutsche Consumer Read: exchanging contracts, and so far, we are on track. Until the August, we expect to conclude the remaining agreements. And then, of course, an important event is an extraordinary general meeting, which should approve the debt equity swap. It is in preparation. The date is still to be determined.

And obviously, there are some prerequisites for that as well. We can now move to the page eight where we have some details on our property portfolio. We now have a 152 properties with approximately 160,000 square meters. The reduction of 15 assets compared to the 30 09/24 is obviously due to sales. The total purchase price of these assets was about €30,000,000.

Significant impact on our total fair value comes from the revaluation done by CBRE of, 47,000,000. Obviously, asset sales contributed to the, well, contributed to the reduction of fair value since since both assets were sold. The annualized portfolio rent is at 66,900,000.0. Last quarter, it was 70.4 and the reduction is driven as I mentioned before by asset sales. The growth would have a slight increase in vacancy rate to 14.9 from the prior 14% is again driven by sales of assets that were mostly fully leased up.

We can now move on and take a look at page 10 where we have some details in our tenant structure. It is important to note that the noncyclical tenants contribute to a substantial part of our rents, and the cyclical tenants amount only about 21%. 44,000,000 of noncyclical tenants is our rent is our annualized rent, which is somewhat down from last time we reported from six from six months result, which it where it was $4,646,000,000. The total annualized rent is at €66,900,000. We can now move forward and take a look at the page 13 where we have put some details on our financing structure.

First important point to note here is that graphical representation of loan maturities is is a snapshot at the end of the reporting period on 06/30/2025, and that graph arranges pictures the maturities, which is actually maturity of the fixed interest rate. So it is not the average loan. It is not the end maturity of the loan. Now, obviously, ’25 shows a significant significant amount. If I break it down a little bit, the two main items here of 40,000,000 and 45,900,000.0 are the registered bonds.

Those are exactly the bonds that which are held by Fabio and the part of the debt to equity swap. Therefore, once the debt to equity swap is implemented, those those loans, those bonds will not be there anymore. And an additional positive development here is that as these instruments are secured by real estate assets, those will be released and a substantial number of assets will be available for the normal business operations. That ’25 also includes unsecured notes which are already in part extended until the September 20 September ’27. And in other case, we are very close to finalizing that.

The real estate secured loans, which are shown here to be either fixing fixing of interest rate at ’25 or matures in ’25, were also some of them were also extended until the September ’27, so we are making good progress. The maturities in 27 of the liabilities of the loans which are maturing in ’27 are also part of the restructuring process where we have already discussed and already in some cases signed with the lenders the extension of the loan agreements until the end of the restructuring period, which is September 27. In the financial KPIs table below, there are some changes which we have done versus the last time. And one of the notable changes is the average loan maturity in years because we feel that this is really important that we show not only the end of the fixed interest rate, but also the actual maturity of the loans as there are quite a number of loans maturing after September 27, which do not need to be extended. So participation in the restructuring process for those lenders is, well, quite quite limited.

Overall, debt restructuring process has significantly affected, obviously, our financial landscape. Also, transition to a new asset and property manager is a significant effect, and the asset and property management services will be fully transferred to GPAP as of the October 1, though, of course, the year end closing will be done together with Umgee Brothers. That pretty much concludes our presentation, and we will be opening for questions now. Operator?

Matilda, Chorus Call Operator, Chorus Call: We will now begin the question and answer session. Begin question

Analyst: and

Matilda, Chorus Call Operator, Chorus Call: The first question comes from the line of Joseph Schoen from XIA. Please go ahead.

Analyst: Yes, good morning. Thanks for taking my question. Just for understanding this right, does this mean that you will push out all the maturities from 2025 until 2027 until September 2027. And is the pushing out of all the maturities, so including bank debts, but also other forms of financing necessary to conclude the restructuring?

Kirill Thorkaninov, CFO, Deutsche Consumer Read: That is mostly correct. There are some loans which are by their nature, by amortization plan run out in ’25 and, in ’26. So during the normal amortization of these loans, they will just be completely paid off because of the remaining balances relative to the loan. Those which do have balances and maturities in the period which you just described, correct. Those will be pushed to the September ’27.

Analyst: Okay. So then you will will have a balloon of all the the payments of ’25, ’26, and ’27 at the September ’27?

Kirill Thorkaninov, CFO, Deutsche Consumer Read: Not exactly. The plan, the restructuring plan envisaged that in that period until the September ’27, we will be executing, certain sales. And once those sales are executed, obviously, they are secured with, real estate loans. So we will be amortizing those loans as we receive the sales proceeds, which will take care of the real estate secured loans. The unsecured notes with maturities in that period of time are indeed pushed until the September ’27, at which point, we will accumulate as planned in the current plan or in the current draft of the restructuring opinion, we will amortize those unsecured loans.

Analyst: Okay. Understood. That’s very helpful. What if some of your lenders don’t agree? Do you need an agreement of 100% of your lenders or it’s also, like, also, like, I don’t know, like, 95% necessary or do all all of the lenders on 2027 need to agree to the restructuring plan or to the prolongation of the liabilities.

Kirill Thorkaninov, CFO, Deutsche Consumer Read: Understood. Well, I can all for, you know, for more detail, I can refer you to the risk section of our quarterly report, we put online this this year. In short, as we obviously have to disclose all possible potential risks, yes, it is possible that a lender might not agree. It is not completely out of the realm of possibility. So that will be rather unpleasant.

However, we are carefully confident that we always do know how things are progressing that, and they mentioned previously, no lender lender has flat out refused to support the plan. So we are confident that we will, get all lenders on board. In such cases, as you know, there is a principle of the equal treatment of the lenders of the same ranking. So no lender can receive a preferential treatment and that obviously where a very reputable restructuring expert, FTI Andersch, comes aboard who supports us in discussions with the lenders and explaining how the restructuring opinion works.

Analyst: Understood. So every every lender needs to essentially agree. Otherwise, the the restructuring plan falls through. Yes. That is correct.

Okay. Perfect. That’s very helpful. Thank you. You’re welcome.

Matilda, Chorus Call Operator, Chorus Call: The next question comes from the line of Caelin Nundlavu from Independent Property Analyst. Please go ahead.

Analyst: Hello, good morning. Last year in March, you mentioned that you intend to delist from the JSE, your secondary listing. How is that happening or is that put on hold?

Kirill Thorkaninov, CFO, Deutsche Consumer Read: That is correct. We still intend to end our secondary listing on Johannesburg Stock Exchange. That process is progressing slower than we expected. There is one remaining shareholder who holds the shares in South Africa. And while there are certain legal constraints as to what we can do and what we cannot do, so the idea is that we will be discussing that indirectly with the shareholder and we’ll end the listing on the stock Johannesburg Stock Exchange.

Analyst: Okay. Good. Thank you.

Matilda, Chorus Call Operator, Chorus Call: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Karel Tokhaninov, CFO and to Lars Fittan, CIO for any closing remarks.

Kirill Thorkaninov, CFO, Deutsche Consumer Read: Well, thank you everyone for your attention and interest during this call and for your questions. I hope we were able to answer those correctly. Well, we did answer those correctly. But I hope that we made clear and transparent the current situation and the progress of the company. Once again, thank you everybody, and that ends our call.

Goodbye.

Matilda, Chorus Call Operator, Chorus Call: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call and thank you for participating in the conference. You may now disconnect your lines. Goodbye.

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