DEMIRE: Positive outlook halfway through 2017 – first DEMIRE 2.0 milestone reached
- Rental income at EUR 37.2 million in H1 2017 (H1 2016: EUR 37.5 million) after disposal of non-strategic properties and vacancy reduction
- EPRA vacancy rate falls by further 140 basis points to 10.2 %
- Loan-to-value ratio (LTV) down 30 basis points to 62.5 %
- EPRA NAV per share slightly increased to EUR 5.55 (basic) and EUR 4.61 (diluted)
- DEMIRE 2.0: The placement of rated, unsecured senior notes in July 2017 reduces the average annual financing costs to 3.2 % p.a. on a pro forma basis
- Executive Board confirms FFO I forecast of EUR 8-10 million for full year 2017
Langen, 31. August 2017 – Langen, 31 August 2017 – DEMIRE Deutsche Mittelstand Real Estate AG (ISIN: DE000A0XFSF0) has put in another solid performance in the second quarter after the successful start to the year. The DEMIRE Group’s current portfolio as of the reporting date on 30 June 2017 comprised a total of 91 commercial properties (31 December 2016: 174 properties) with lettable floor space totalling around 1 million square metres, the market value of which amounted to approximately EUR 999.5 million (31 December 2016: EUR 1,005.6 million). The decline in the number of properties and the slight drop in the overall value of the portfolio reflect the further optimisation of the portfolio structure and the disposal of additional non-strategic properties. Following strategy-compliant portfolio adjustments, the annualised rental income decreased from EUR 74.1 million as of 31 December 2016 to EUR 72.0 million in the reporting period. The EPRA vacancy rate in the current portfolio was reduced by another 140 basis points to 10.2 % in the second quarter (31 December 2016: 11.6 %) through new letting and accounting for properties already sold. In total, the rental income of the whole portfolio grew by approximately 2.1 % on a like-for-like basis in the first half of the year.
The DEMIRE Group’s rental income totalled EUR 37.2 million in the first half of 2017 (H1 2016: EUR 37.5 million). The slight decline of 0.8 % is explained by the sale of non-strategic properties in the intervening period shown on the balance sheet, whereby the resulting drop in rental income was largely offset by the successful reduction of vacancy. Profit and loss from the rental of real estate amounted to EUR 27.3 million in the reporting period, 8.1 % lower than the same period of the previous year (H1 2016: EUR 29.8 million). The decline resulted primarily from the maintenance measures carried out in the first half of 2017, which will lead to an improvement in the vacancy rate and rental income in the future.
Earnings before interest and taxes (EBIT) amounted to EUR 24.1 million in the first half of 2017 (H1 2016: EUR 32.8 million); this was the result of a slight drop in rental income and lower fair value adjustments compared to the same period of the previous year. Taking into account higher tax expenses compared to the same period of the previous year, the net profit for the period of the first half of 2017 was EUR 5.6 million after EUR 5.6 million in the first half of 2016.
The total assets of DEMIRE AG’s Group remained at approximately EUR 1.1 billion as of 30 June 2017. The equity ratio increased slightly from approximately 28.2 % at the end of the previous financial year to approximately 28.4 %. The basic EPRA NAV per share increased slightly in the first half of 2017 to EUR 5.55 (31 December 2016: EUR 5.54), the diluted EPRA NAV to EUR 4.61 (31 December 2016: EUR 4.60). The net-loan-to-value ratio improved by around 30 basis points compared to the end of 2016 to 62.5 % (31 December 2016: 62.8 %).
The financial result of the first half of the year was EUR -13.3 million (H1 2016: EUR -22.8 million). The significant improvement compared to the first half of 2016 is primarily attributable to the considerably lower interest expenses as a result of unscheduled repayments and refinancing. The average annual interest rate on financial debt fell by around 30 basis points compared to the reporting date of the previous year to 4.1 % as of 30 June 2017 (31 December 2016: 4.4 %).
The first step in the implementation of DEMIRE 2.0 was taken in July 2017. By successfully placing a BB+/Ba2-rated, unsecured EUR 270 million corporate bond with institutional investors and asset managers on the international capital market, DEMIRE significantly improved its annual financing costs and further diversified its sources of financing. As a result of the refinancing, DEMIRE will increase its annual cash flow by approximately EUR 9.0 million p.a. due to reduced interest expenses and lower principal repayments, while the average annual financing costs will decrease from 4.1 % to 3.2 % p.a. on a pro forma basis. From 2018, the interest expense savings will result in a substantial annual increase in funds from operations by approximately EUR 5.6 million before taxes and minority interests.
FFO I (after taxes and before minority interests) amounted to EUR 4.9 million as of 30 June 2017 (30 June 2016: EUR 5.5 million); FFO I after minority interests and taxes amounted to EUR 0.9 million (30 June 2016: EUR 2.5 million). Including the results of property sales, funds from operations (FFO II) amounted to EUR 4.5 million (30 June 2016: EUR 5.6 million) after taxes and before minority interests, EUR 0.5 million (30 June 2016: EUR 3.5 million) after taxes and after minority interests.
In light of the solid performance during the first half of the year, the Executive Board is reaffirming its forecast for the FFO I (after taxes and before minority interests) for 2017 as a whole in the order of EUR 8-10 million. In particular, this forecast does not reflect the positive effect of the refinancing certain liabilities via the corporate bond issued in July 2017. Due to double interest expenses, non-amortised transaction costs and refinancing costs in the second half of 2017, the annual interest expense savings of approximately EUR 5.6 million will not have their full impact until the 2018 financial year. Based on its current real estate holdings, the company is forecasting rental income of between EUR 72 million and EUR 73 million in the 2017 financial year.
Commenting on the business performance in the first six months of 2017, CEO Markus Drews said: “In the first half of the year, we achieved significant improvements in operating performance and our key financials. We already reached a first significant milestone in the implementation of DEMIRE 2.0 in July, when we successfully issued a rated, unsecured corporate bond. This transaction and the further implementation of our planned measures will strengthen our funds from operations (FFO I) and cash flows in the long term, starting in 2018.”
The DEMIRE 2.0 programme stands for the next phase in the company’s growth. With the implementation of a comprehensive package of measures – including to reduce financing costs, optimise costs and streamline the group structure – a cornerstone of the programme is the further expansion of the current portfolio to a volume of around EUR 2 billion. The business model will continue to focus on commercial real estate acquisitions in German secondary locations. The cost base is also to be optimised further thanks to permanent efficiency improvements and economies of scale in real estate management as a result of the planned growth. Through further optimisation of the financing mix, and in particular through a concrete review of financing options, average interest expense should be reduced and, in the medium term, a net loan-to-value ratio of approximately 50 % should be achieved. As well as increasing its market capitalisation, DEMIRE is aiming to position its risk profile as investment grade in order to sustainably secure the financing of its future growth at favourable conditions in the long term.
The interim report on the first half of 2017 can be downloaded from the company’s website at www.demire.ag. It can be found on the Investor Relations pages at the following address: www.demire.ag/en/investor-relations/reports-results/2017