DEMIRE's 2024 Financials: A Strategic Pivot or a Temporary Setback?

Ladies and gentlemen, buckle up! We're diving into the world of real estate investment trusts, and today, we're focusing on DEMIRE Deutsche Mittelstand Real Estate AG. This company has just released its 2024 financial results, and let me tell you, it's a rollercoaster ride of strategic pivots and temporary setbacks. So, grab your popcorn and let's get started!



First things first, DEMIRE achieved its 2024 guidance for rental income and FFO. Rental income came in at EUR 65.3 million, down from EUR 78.5 million the previous year. FFO I (after taxes, before minorities) was EUR 23.8 million, a significant drop from EUR 36.7 million in 2023. But here's the kicker: these results were in line with expectations. CEO Frank Nickel called 2024 an important milestone with the successful refinancing of their bond. He also mentioned that strategic adjustments to their portfolio will have a temporary negative impact on the earnings base. So, what does this mean for you, the investor?

Let's break it down:

1. Portfolio Adjustments and Property Sales:
- DEMIRE sold four properties for a total of EUR 111.0 million in 2024. Two more properties were transferred to new owners in 2025, with another transfer planned for 2025. This strategic move reduced their portfolio value to EUR 779.0 million as of 31 December 2024, down from EUR 950.0 million at the end of 2023.
- The net loan-to-value (Net LTV) fell from 57.7% to 40.9% at the end of 2024. This significant reduction in debt provides DEMIRE with more financial stability and flexibility in a challenging market environment.

2. EBIT Improvement:
- Earnings before interest and taxes (EBIT) increased from EUR -187.9 million to EUR -93.0 million in the 2024 financial year. The main driver of the negative EBIT is the result from the fair value adjustment of the property portfolio of EUR -58.7 million (previous year: EUR -176.8 million). This corresponds to a like-for-like devaluation of 4.0% on the portfolio value at the end of 2023 (previous year: -13.2%). This means that the market-related valuation decline is only around a third as high as in the previous year.

3. Future Outlook:
- The property sales that have taken place will contribute to a decline in rental income in 2025, which is forecast to be between EUR 51.0 million and EUR 53.0 million. FFO I (after taxes, before minority interests and interest on the shareholder loan) is expected to be between EUR 3.5 million and EUR 5.5 million. The decline in FFO I is mainly due to falling rental income and higher interest expenses.

Now, let's talk about the risks and benefits of DEMIRE's decision to focus on transactions and portfolio streamlining in the current economic climate.

Benefits:

1. Successful Bond Financing and Portfolio Optimization:
- DEMIRE's Chief Investment Officer (CIO) Ralf Bongers highlighted that the company achieved the highest sales volume in its history in 2024. This focus on transactions and portfolio streamlining contributed to successful bond financing and portfolio optimization. For instance, four properties were sold for a total of EUR 111.0 million and transferred to buyers in 2024, and two further properties were transferred to new owners in 2025 with a total sales price of EUR 12.7 million. This strategic move helped in reducing the bond volume by EUR 50 million in both 2025 and 2026.

2. Reduction in Net Loan-to-Value (Net LTV):
- The buybacks below par as part of the extension of the corporate bond and property sales caused the net loan-to-value (Net LTV) to fall from 57.7% to 40.9% at the end of 2024. This significant reduction in Net LTV strengthens DEMIRE's financial stability and provides more flexibility in a challenging market environment. CFO Tim Brückner noted, "The successful bond extension not only contributed to the targeted debt reduction and strengthening of DEMIRE's financial stability, but also led to proceeds from bond buybacks below par."

3. Improved EBIT:
- Earnings before interest and taxes (EBIT) increased from EUR -187.9 million to EUR -93.0 million in the 2024 financial year. The main driver of the negative EBIT is the result from the fair value adjustment of the property portfolio of EUR -58.7 million (previous year: EUR -176.8 million). This corresponds to a like-for-like devaluation of 4.0% on the portfolio value at the end of 2023 (previous year: -13.2%). This means that the market-related valuation decline is only around a third as high as in the previous year.

Risks:

1. Temporary Negative Impact on Earnings Base:
- CEO Frank Nickel acknowledged that the adjustments to the portfolio structure will have a temporary negative impact on the earnings base. For example, the rental income for 2025 is forecast to be between EUR 51.0 million and EUR 53.0 million, which is a decline from EUR 65.3 million in 2024. This reduction is due to the opportunistic sale of properties and the exit of the four properties of the Limes portfolio.

2. Higher Interest Expenses:
- The average interest rate on DEMIRE's debt capital rose to 4.35% p.a. (previous year: 1.74% p.a.) following the extension of the bond at an adjusted interest rate of 5.00% p.a. This increase in interest expenses will contribute to the decline in FFO I, which is expected to be between EUR 3.5 million and EUR 5.5 million in 2025.

3. Reduced Portfolio Base:
- The market value of the DEMIRE portfolio fell to EUR 779.0 million as of 31 December 2024, compared to around EUR 950.0 million at the end of 2023. This decline is due to the opportunistic sale of properties, the exit of the four properties of the Limes portfolio, and market-related devaluations of the portfolio. The reduced portfolio base will likely impact the company's ability to generate rental income in the short term.

In summary, while DEMIRE's focus on transactions and portfolio streamlining has led to successful bond financing, reduced Net LTV, and improved EBIT, it also comes with risks such as a temporary negative impact on the earnings base, higher interest expenses, and a reduced portfolio base. These factors need to be carefully managed to ensure long-term financial stability and growth.

So, what's the bottom line? DEMIRE's 2024 financials show a company in transition, making strategic moves to position itself for future growth. The temporary setbacks are a small price to pay for the long-term benefits of a more streamlined and optimized portfolio. But remember, this is a rollercoaster ride, and you need to be prepared for the ups and downs. Stay tuned for more updates, and as always, do your own research before making any investment decisions. BOO-YAH!