Dear ladies and gentlemen, a warm welcome to the DEMIRE Deutsche Mittelstand Real Estate AG financial year results 2024 content call. At this time, all participants have been placed in a listen-only mode. The floor will be open for questions following. Let me now turn the floor over to your host, Frank Nickel.
Ladies and gentlemen, good morning and welcome to our results presentation for the fiscal year 2024. Thanks for dialing in. With me here is Tim Brückner, DEMIRE CFO, and Julius Stinauer, our Head of Investor Relations. Ralf Bongers, DEMIRE CIO, is dialed in as he's traveling today. I trust you have had the opportunity to review our results, which are operationally solid. We are pleased to report that our rental income and FFO for 2024 are aligned with our expectations. Before we dive into the specifics of our results, I'd like to highlight some of our key achievements in 2024. First, we reached a significant milestone for DEMIRE with the successful extension of our bond, which included a partial redemption below par. This initiative has effectively reduced our indebtedness and strengthened our overall financial profile.
Second, our focused approach on transactions resulted in 2024 in the highest property sales volume in the company's history. This achievement has bolstered our deleveraging efforts. Lastly, we enhanced our operational capabilities and strengthened our asset management team. These improvements position us to unlock further potential within our portfolio and reinforce our earnings base moving forward. Let me now jump into what has happened over the last year at DEMIRE and flip to page four of our presentation. I'd like to start on the right side. Transactions, as mentioned before, in 2024, we had the highest annual disposal volume the company ever had in history. This resulted mainly in the sale of LogPark in Q1 2024 and the disposal of six further assets in the total volume of EUR 28 million. Three of them have already been closed in 2024. Two have closed in Q1 2025 so far.
We will continue in our opportunistic disposals of smaller non-strategic assets and mature assets. In the process, the extension of our bond 2024 until the end of 2027 reduced our outstanding principal amount from EUR 499 million to EUR 253 million. We will assign a second rating. In 2024, again, we won the EPRA Gold Award for our sustainability reporting. As mentioned before, now switching over to the asset management side, as mentioned before, the sales, of course, reduced our rental income. The rental income as of December 2024 is at EUR 56.5 million, which is compared to the EUR 76.7 million in 2023, of course, lower because of the sale of LogPark and the deconsolidation of the Limes portfolio. Nevertheless, we had a solid letting performance of more than 68,000 sq m in 2024, despite the still challenging market in Germany.
Our EPRA vacancy is at the end of 2024 at 15.1%. Our WAULT is at 4.6 years. In the financials, our rental income with EUR 65.3 million is 70% lower compared to the previous period. Our FFO1 is at EUR 23.4 million, of course, again, as well lower than in 2023. The net LTV, because of the repayments of parts of the bond, has gone down from 57.7% to 40.9%. The rental income of EUR 65.3 million and the FFO of EUR 23.4 million are both in line with our expectations and the communicated guidance. Ralf, I would like to ask you to continue with the portfolio highlights.
Yes. It's mainly already mentioned by you, Frank. Portfolio highlights.
Sorry for that.
The key messages are the occupancy rate is the annualized contractual rent is lower, mainly driven by the smaller portfolio. The letting performance is stabilized. The letting performance comes close to the level of the previous years. This year, the team was able to finalize rental contracts within an amount of 68,000 sq m. In previous years, we talked about 74,000 sq m. It is very close and mainly driven by the smaller size of the portfolio. Yes, regarding the EPRA vacancy, you already mentioned the numbers here, Frank, which is quite positive that the WAULT is still stable. Despite the natural WAULT reduction, the WAULT for the entire portfolio still amounts and remains to 4.6 years, which we see as okay for a portfolio with a predominant office part. That is it from my side. Thank you.
Okay. Thank you, Ralf, for that. I would like to hand over to Tim to run us through the financial highlights.
Thank you, Frank. The main drivers in our financial highlights on page 10, the P&L, are obviously the disposals, the valuation effects, the deconsolidation of the Limes portfolio, some effects from the before-mentioned Cielo JV, and obviously the bond restructuring. When we go from top to bottom, we see declining rental income. We also see slightly declining margins where we hope that we are able to stabilize them and increase them again in the future, obviously. We saw, again, a negative effect from the revaluation of the portfolio, but given the overall market sentiment, we may have reached the bottom when we speak about further devaluations of the portfolio, which I think is positive and will also help us on our LTV ratios. We see stable administration expenses. In the previous year, we had some increase because of P&L effects from the bond restructuring.
Looking into 2025, we will, of course, be able to lower that number again. I think what is one positive, obviously, is the number eight, the financial income. We see some positive effects from the purchase of bonds via the tender offer that we conducted last year. We have, maybe for the only year of the company, higher financial income than expenses. We will have a small look at the financial expenses going forward on the following slides. When we go further down the P&L, we see lower FFO 1 after taxes, before minorities, and after interest on the Apollo Shareholder loan of EUR 23.4 million, which were in line with what we expected.
On the next slide, the balance sheet, the main drivers are, again, the Limes deconsolidation, the revaluation of the portfolio, the disposals, and derived from the P&L, obviously, the negative profit, which had a negative impact on the equity position of the company. On the positive side, I think it's important to mention that we deleveraged the company by roughly EUR 300 million. This probably also then what we show on the next slide. We saw that the net LTV of the company declined from 57.7% - 40.9%. That is according to the bond terms. This excludes the Shareholder loan, including the Shareholder loan we currently stand at 51.7%, which is also a deleveraging against the past. I think for a portfolio like this, a mixed commercial portfolio, a 50% leverage ratio is quite stable.
When we look at the average cost of debt, obviously, we were not able to keep that at a very low level of the past. The effect of the higher interest rate on the bond increased it to 4.35%. When we look into the near future, we will obviously also find some new mortgage loans at a higher rate than the before 1.75% average, which means that we expect the average cost of financing to increase further, but only slightly further. With that, Frank, back to you.
Thank you, Tim. We are coming to page 18. The guidance for 2024, I already mentioned in the beginning. Rental income, we guided between EUR 64 million and EUR 66 million. We achieved EUR 65.3 million. The FFO, we said will be significantly lower than in 2023. We reached EUR 23.4 million, which is in line with what we expected. The guidance for 2024 is that the rental income will be reduced to an amount of EUR 51 million-EUR 53 million, and the FFO1 will be reduced to EUR 3.5 million-EUR 5.5 million. Before we move into the Q&A session, I'd like to take a moment to outline key plans for DEMIRE moving forward. Building on the successful extension of our bond, our objective still is to deleverage and optimize our financial profile. As part of this strategy, we are committed to pursuing opportunistic asset sales.
Additionally, we will maintain a strong emphasis on enhancing our operational performance, ensuring we fully leverage the potential of our asset base. Main topics are still to reduce vacancies. We are definitely not satisfied with the vacancy figure that we had to report and optimize the structural and economic conditions of our assets. This concludes my very brief outlook, and we are now happy to address any questions you may have.
Thank you very much. Dear ladies and gentlemen, we will now start with the Q&A session. If you are dialed into the conference call, please press nine and the star key now to state your question. Once your name has been announced, please state your question then. To cancel your question again, please press three and the star key. Please press nine, star now. One moment for the first question, please. All right. The first question is from Philipp Sennewald of Nu Ways AG. Over to you.
Yes, thank you very much, guys, for the presentation. I have a couple of questions. Do you like me to ask them one by one, or should I ask them all at once?
Depends a little bit on what a couple means, but.
Okay. I will ask them one by one, maybe.
Yeah, yeah.
You were just speaking of vacancy, which obviously increased compared to 2023. You want to improve it in 2025. Could you maybe specify on that? What is a possible target for the end of the year?
A little bit of that, Philipp, is out of our control, of course. The raising vacancy in 2024 had something to do with the insolvency of Mein Real, which is a big retail company. We hope this will not happen in 2025 with another name again, but this is out of our control. This has a big, big effect on our figures. As said, we were able to re-let 68,000 sq m last year. Nevertheless, the final effect was negative, and our vacancy was rising.
Okay. Understood. Maybe one question when you spoke of Limes. What is the current status of the insolvency process there?
Currently the assets are marketed by the insolvency administrator with the help of two advisors. We were supposed to get final bids in for last Wednesday, but this is a little bit delayed, maybe because the real estate guys here on the phone know that last week it was MIPIM. Maybe some of the companies just did not have the time to deliver. We hope we will get something by the beginning of next week.
Okay. That's great to hear. That helps me. Maybe a couple of questions for Tim. Tim, you were just speaking of new mortgage loans that the average rate will further increase. That implies that the rates you expect are above 4.35%, right?
No, that's only said that the rates are above the 1.7 rate before. We would think that new mortgage loans currently come in between 4% and 5% on a fixed-term five-year basis.
All right. Understood. Regarding your FFO target, this is now significantly lower than in the market update you provided in June where you gave a midterm outlook for EUR 18 million in 2025. Is this gap mainly explained by Limes or what are possible other drivers?
It's a mix of various drivers, really. I mean, the effect of the deconsolidation of Limes, some expected further disposals, the effect from the lower NOI margin, and also increasing financing costs. It is really a mix of all of that.
Okay. Understood.
All of that was unforeseeable in June last year.
Yeah, yeah. I just wanted to ask for the reason. That explains it perfect. Revaluation, I mean, that's also hard to assess for you, but you mentioned you might have saw the bottom and my estimates also have a neutral result for this year. Do you think that is reasonable?
We are in March currently, so we don't really know. From today's perspective, I think it's reasonable.
Philipp, three weeks ago, we would definitely have said yes. Yeah. Let's see.
All right. Thank you, guys. That was very helpful. That's it from my side. Thank you.
Thank you very much also from my side. Just a little reminder to state your question, please press nine and then the star key on your telephone keypad. We are moving on. The next question is from Andre Remke of Baader Bank AG.
Yeah, good morning, sir. Thanks for the presentation. A couple of questions from my side, please. First, a follow-up on the vacancy rate. What are the potential costs to attract potential new tenants for the open space at the moment? Do you have to get in something for this year?
This year, we've got quite a big target in front of us. We will talk about new lettings of more than 100,000 sq m. It's just an effect. New lettings have to happen when the old contracts just are running out. This year, we have had a great start. We already leased 20,000 sq m and a big parking garage so far in the first weeks of this year. We hope it goes on, but that's definitely an individual thing. We can't market our assets in some kind of letting plan or whatsoever. It's a lot of individual work.
Okay. Second question on your disposals, which are not closed until year-end. You mentioned six properties, three of them not closed until year-end. What is the volume for these remaining three, especially in comparison to the last disposal? The additional question on that, do you have any further pipeline for disposals?
Yeah, let me answer your question while phone speaking. There is only one remaining asset, which is not closed yet, representing a volume of EUR 8 million, roughly EUR 8 million, close to EUR 8 million. Of course, we have numerous promising negotiations. I would like to ask for your understanding that I will not comment on running deals here, but I am quite optimistic that the team will achieve a reasonable performance in the course of the current year.
Yeah. What was the volume of the two, which you mentioned?
They are already.
Which have already closed?
They are already closed. We are talking here about two assets, smaller assets. One is around EUR 1.8 million. The other one is EUR 3 million.
Are all the three properties at the last stated value, or?
Sorry?
The selling price or the current value, is it in line with book value?
Sorry, I don't have the numbers here available at the moment. I would say more or less, yes.
Okay. In the first quarter, you mentioned in the report that you successfully refinanced a pending EUR 35 million loan. What are the terms here? Could you give any indication?
We have extended the loans by more than one and a half years, but we are not talking about the terms given the contractual regulations.
Okay. Fine. A more general question, given the still high leverage, you made some progress last year, but if looking at not the bond LTV, but put into that account also the shareholder loan and looking especially on the EPRA LTV of 70%, and this compares to very low profitability already now, what is your strategy in general for this next year to again repair the balance sheet or to strengthen the balance sheet at least? Because the status quo seems not very satisfying at all, so to say. Are further disposals the key element, or do you already work on some refinancing measures ahead?
I think it's a mix of it, absolutely, it has to be a mix of both. I think we have to deleverage further. As Ralf mentioned and also Frank mentioned, we have, let's say, a wide-ranging disposals plan, and we are optimistic to be successful and not only to fulfill the hurdle ratios in the bond terms and conditions, but also deleverage the company further. At the same time, I mean, you have probably seen that the first sub-IG issue in Germany for real estate went out. I'm not saying that we are 100% comparable, but there seems to be capital market willingness to refinance German real estate sub-IG again. I think that is the other plan for the company, that we obviously have to refinance and repair the balance sheet long term.
Okay. Okay. The last question for the Limes portfolio is the deconsolidation. Could you remind me whether there are any further financial risks or even chances of the deconsolidation in the right terms?
The portfolio has been financed by intercompany loans. Given that it's now deconsolidated, those intercompany loans are now kind of external loans that have been value-adjusted partially, but not 100%. Whether there is a risk or a chance very much depends on the outcome of the disposal process. At the moment, we would think that the effect is more or less neutral.
Okay. Excellent. That's from my side. Thank you very much, sir.
Thank you very much. Dear ladies and gentlemen, please press nine at the start now to state your question. At the moment, there are no more questions on the queue, so let's wait just a little more. There seem no questions to be incoming.
Okay.
I'm handing the floor back over to the host.
Okay. Thank you once again for joining us today. If you have any further questions following up our call, do not hesitate to reach out to us. The team and I are more than happy to assist you on everything. Thank you very much.