DEMIRE: business results for 2016 – successful expansion of the real estate platform with further growth potential
Successful portfolio optimisation:
Finance and balance sheet structure improved:
- Increase of portfolio value to more than EUR 1 billion
- Rental income more than doubled to EUR 76.4 million (2015: EUR 33.3 million)
- Successful sale of non-core properties and reduction of EPRA vacancy rate by 1.2 percentage points to 11.6%
Focus in 2017
- Equity increased significantly by 16% to EUR 308.6 million (2015: EUR 264.9 million)
- LTV lowered by 470 basis points to 62.8% (2015: 67.5%)
- Reduction of average financing costs by 105 basis points to 4.1% p.a. as of 1 January 2017
- EPRA NAV per share increased by 6.5% to EUR 5.54 (undiluted) and by 8.3% to EUR 4.6 (diluted)
- Further portfolio growth
- Reduction of LTV and optimization of cost base
Langen, 28. April 2017 – DEMIRE Deutsche Mittelstand Real Estate AG (DEMIRE) (ISIN: DE000A0XFSF0) is today announcing its results for the 2016 financial year. The focus in the past financial year was on the full integration and optimised management of the real estate assets worth around EUR 550 million acquired as part of a major growth step in 2015 and 2016. In addition, DEMIRE already successfully implemented the first improvements to its financial and balance sheet structure in the past 2016 financial year. With a current portfolio volume of more than EUR 1 billion, DEMIRE is planning further earnings growth in the current 2017 financial year, in particular by expanding its commercial real estate portfolio in secondary locations in Germany.
Successful portfolio optimisation
In the past 2016 financial year, rental income more than doubled from EUR 33.3 million to EUR 76.4 million, primarily due to the portfolio growth and the acquisition of a 77.7 % stake in Fair Value REIT-AG in the 2015 financial year. The DEMIRE Group’s general administrative and other operating expenses totalled EUR 21.9 million in the 2016 financial year (31 December 2015: EUR 16.6 million). The increase resulted firstly from the growth-driven rise in personnel expenses and secondly from the double burden following the insourcing of administrative functions in the Group. Funds from operations (FFO) reached EUR 8.1 million and EUR 13.0 million when taking into account real estate sales before minority interests. After minorities, the FFO amounted to EUR 2.7 million and EUR 7.5 million taking into account real estate sales. Including further earnings and expenses, earnings before interest and taxes (EBIT) increased significantly by around 42% year on year to EUR 83.2 million (31 December 2015: EUR 58.7 million). Net profit for the period declined by around 4 % to EUR 27.6 million in 2016 (31 December 2015: EUR 28.9 million), primarily due to the financing expenses incurred for the first time inclusion of an entire 12-month period relating to financial liabilities reported at the end of 2015 and to higher expenses from deferred taxes.
As of 31 December 2016, the carrying amount of the existing portfolio was EUR 1,005.6 million (31 December 2015: EUR 928.1 million). The weighted average lease term of 5.3 years remains on a high level (31 December 2015: 5.4 years). Thanks to the high efficiency of the integrated platform, the EPRA-vacancy rate in the portfolio was significantly reduced by 1.2 percentage points to 11.6% and the annualised contract rents of the portfolio were increased to EUR 74.1 million (31 December 2015: EUR 72.2 million). This results in a positive valuation result of EUR 38.4 million with an attractive gross rental yield of 7.4% at the accounting date.
In the past financial year, properties and real estate companies with an asset value of EUR 24.5 million were sold at a price of EUR 29.4 million. Earnings from the sale of properties and property companies in the past financial year amounted to EUR 4.9 million (31 December 2015: EUR 0.7 million).
Non-strategic (“non-core”) properties were sold at the turn of the year with a fragmented portfolio of a total of 84 properties and parts of a property in Darmstadt. The sale contributed significantly to an increase of quality the whole portfolio. The proceeds on the sale were around 16% greater than the current market values. The sale significantly reduced the number of properties in the DEMIRE Group from 181 to 90 and therefore underscores the focus of the future portfolio on selected locations in secondary locations in Germany.
Improvement of financial and balance sheet structure
As of 31 December 2016, DEMIRE’s equity increased by a substantial EUR 43.7 million to EUR 308.6 million (31 December 2015: EUR 264.9 million). The basic net asset value according to EPRA increased by 17.2% to EUR 300.5 million (31 December 2015: EUR 256.3 million). The EPRA NAV per share was increased again by around 6.5 % to EUR 5.54 (basic) and 8.3% to EUR 4.60 (diluted).
The loan-to-value ratio improved by substantial 470 basis points to 62.8% as of the reporting date (31 December 2015: 67.5%). The year-on-year improvement resulted on the one hand from the successful repayment of loans from the increased operating cash flow and on the other hand from the value appreciation achieved in the existing portfolio, which was generated by the Group’s in-house asset, property and facility management.
As of the reporting date, the average interest rate on the financial debt of the DEMIRE Group also fell by 80 basis points from 5.15% to 4.4% p.a. and thus reached the forecast range of 4.0% to 4.5% p.a. targeted for 2016. The early renewal of a promissory note loan originally due in 2019 in February 2017 with retroactive effect from 1 January 2017 has already further reduced the average cost of debt to 4.1% p.a.
Focus in 2017
DEMIRE has set itself the strategic target of expanding the portfolio to a carrying amount of EUR 2 billion over the medium term beyond 2017. At the same time, it is aiming for a ratio of net financial liabilities to the total value of the portfolio properties (loan-to-value) of approximately 50%. The further optimisation of the cost ratio and improvement of the financing base are also priority corporate targets.
On the basis of the property holdings as of 31 December 2016, not accounting for acquisitions, DEMIRE expects rising income from property letting and falling costs at portfolio and administration level in the 2017 financial year, which are to be generated in particular by the Company’s active in-house asset, property and facility management and the further reduction of the vacancy rate in the existing portfolio. With the implementation of additional re- and follow-up financing, the weighted average interest rates on financial liabilities are to continue falling. The Executive Board expects the key performance indictors to improve in 2017 and will provide a forecast of the development of significant KPIs for the 2017 financial year over the next weeks.
The Management Board
Selected consolidated key financials of DEMIRE Deutsche Mittelstand Real Estate AG
|P&L In millions of euros||01/01/2016-31/12/2016||01/01/2016-31/12/2015|
|Income from the rental of real estate||92.1||43.3|
|Profit/loss from the rental of real estate||58.6||23.7|
|Other operating income||46.5||51.6|
|General administrative and other operating expenses||21.9||16.6|
|Net profit/loss for the period (after taxes)||27.6||28.9|
|Of which attributable to parent company shareholders||24.7||28.1|
|FFO including disposal effects (before minorities)||13.0|
|FFO excluding disposal effects (before minorities)||8.1|
|Undiluted/diluted earnings per share (EUR)||0.48/0.39||1.09/0.71|
|Property held for sale||24.3||13.0|
|Total shareholder’s equity||308.6||264.9|
|Equity ratio (%)||28.2||25.6|
|EPRA Equity (NAV) of DEMIRE shareholders||300.5||256.3|
|EPRA NAV per share (EUR, undiluted/diluted)||5.54/4.60||5.20/4.25|
|Net financial debt||631.3||626.8|
|LTV (net financial debt in % of total property holdings)||62.8||67.5|