DEMIRE records positive third quarter performance – Executive Board raises 2017 forecast
- Rental income of EUR 55.9 million and FFO I (before minorities, after taxes) of EUR 9.2 million
- EPRA vacancy rate falls by 170 basis points to 9.9 %
- Loan-to-value (net LTV) reduced by 80 basis points to 62.0 %
- EPRA NAV per share increased to EUR 5.69 (basic) and EUR 4.72 (diluted)
- Executive Board raises its forecast for FFO I from EUR 8 – 10 million to EUR 11 – 12 million and for rental income from EUR 72 – 73 million to c. EUR 74 million for the 2017 financial year
Frankfurt/Main, 30. November 2017 – DEMIRE Deutsche Mittelstand Real Estate AG (ISIN: DE000A0XFSF0) continued its solid performance in the third quarter. As of the 30 September 2017 reporting date, the core portfolio of the DEMIRE Group consisted of a total of 90 commercial properties (31 December 2016: 174 properties) with rentable space totalling roughly 980,000 square metres with a market value of around EUR 1,018.5 million (31 December 2016: EUR 1,005.6 million).
Rental income of the DEMIRE Group totalled EUR 55.9 million at the end of the third quarter of 2017 (9M 2016: EUR 56.7 million). The decrease of 1.4 % is due to the sale of non-strategic real estate, whereby the resulting decline in rental income was largely offset by the successful reduction of vacancies. The profit/loss from the rental of real estate amounted to EUR 42.0 million in the reporting period, which was 3.0 % below the level in the same period of the previous year (9M 2016: EUR 43.3 million).
Funds from operations I (FFO I, before minorities, after taxes) amounted to EUR 9.2 million as of the 30 September 2017 reporting date (9M 2016: EUR 7.0 million). After minorities and taxes, FFO I amounted to EUR 4.6 million (9M 2016: EUR 1.7 million). Taking into account the profit/loss from the sale of real estate, funds from operations (FFO II) before minorities and after taxes amounted to EUR 8.7 million (9M 2016: EUR 6.8 million) and EUR 4.1 million after minorities and after taxes (9M 2016 EUR 1.6 million). The year-over-year increase in FFO I resulted mainly from an improvement in the current financial result and lower current income taxes.
CEO/CFO Ralf Kind in his comments on the business development in the first nine months of 2017 said: “In the first nine months, we achieved improvements in both our operating performance and in our key financial ratios. With the successful placement of a rated, unsecured corporate bond in July and September, we have reached an important milestone in our implementation of “DEMIRE 2.0”. Another positive step is the recent approval from our shareholders to enter into various control and profit transfer agreements between DEMIRE and several subsidiaries. As a result, we are already implementing the next milestone to improve DEMIRE’s overall profitability and increase the funds from operations (FFO).”
Portfolio development – continued improvement in key figures
As part of the portfolio’s streamlining in line with the Group’s strategy, annualised contractual rent fell from EUR 74.1 million as of 31 December 2016 to EUR 72.3 million as of the end of the reporting period. Annualised contractual rents increased 2.6 % on a like-for-like basis compared to the 31 December 2016 reporting date.
The EPRA vacancy rate of the core portfolio declined by 170 basis points to 9.9 % as of the end of the third quarter (31 December 2016: 11.6 %) as a result of new lettings and taking into account properties already sold during the financial year. In the first nine months, around 52,000 square metres of space was rented. Of this amount, around 49 % was attributable to new rentals. The new and extended rental contracts were concluded on average for a period of 5.3 years.
Loan-to-value (net LTV) continues to decline
The total assets of the DEMIRE AG Group increased to around EUR 1.2 billion as of 30 September 2017. The equity ratio fell from around 28.2 % at the end of the previous financial year to around 26.3 % due to the corporate bond that was still outstanding as of the balance sheet date. Basic EPRA NAV per share increased to EUR 5.69 in the third quarter of 2017 (31 December 2016: EUR 5.54), and diluted EPRA NAV increased to EUR 4.72 (31 December 2016: EUR 4.60). The net loan-to-value ratio (net LTV) has improved by around 80 basis points since the end of 2016 to 62.0 % (31 December 2016: 62.8 %).
The financial result at the end of the third quarter was EUR -42.1 million (9M 2016: EUR -35.4 million). This includes one-off expenses of around EUR -13.0 million, in particular prepayment costs related to refinancing activities and profit/loss from valuation of derivative financial instruments. The average interest on financial debt p. a. as of 30 September 2017 decreased by around 60 basis points to 3.8 % compared to the previous year’s reporting date (31 December 2016: 4.4 %). Taking into account the successful tapping of the 2017/2022 corporate bond for a further EUR 130 million in September 2017 and the related refinancing of further expensive liabilities after the balance sheet date, the average interest on financial debt on a pro forma basis was 3.0 % p.a.
Earnings before interest and taxes increased versus the prior year to EUR 53.7 million (9M 2016: EUR 41.3 million) primarily as a result of higher operating income and valuation profits. The net profit/loss for the period in the first nine months was EUR 8.6 million compared to EUR – 4.5 million in the same period of the previous year. The main reason for this increase was the profit before tax and lower tax burden as of 30 September 2017.
Executive Board raises 2017 forecast
In light of the solid development in the first nine months, the Executive Board is raising its forecast for FFO I, (before minorities, after taxes) for full-year 2017 from the previous forecast of EUR 8 – 10 million to EUR 11 – 12 million. Based on the current real estate portfolio and the positive operating development, the Company now expects to generate rental income of around EUR 74 million in financial year 2017 (previous forecast: EUR 72 million to EUR 73 million).
The strategy “DEMIRE 2.0” signifies the Company’s next growth phase. With the implementation of an integrated action plan – which, among others, targets a reduction in financing costs, cost optimisation and streamlining the Group’s structure – is a key cornerstone of the plan to further expand the current portfolio to a volume of EUR 2 billion. The business model’s focus remains on acquiring commercial property in German secondary locations. The cost base will continue to be optimised under this programme through permanent improvements in efficiency and economies of scale in real estate management resulting from the Company’s growth. By further optimising the financing mix and, specifically, through continuously examining potential refinancing options in the debt and equity markets, average interest costs should fall over the medium term, and the loan-to-value ratio is expected to drop to around 50 % over the medium term. In addition to increasing its market capitalisation, DEMIRE also aims to position its risk profile in the area of “investment grade” in order to secure long-term and sustainable financing on favourable terms for future growth.
The nine-month 2017 interim statement is available on the Company’s website under Investor Relations at: http://www.demire.ag/investor-relations/reports-and-results/2017.