Topic: Yesterday, DMRE released Q1'25 figures, showing the expected decline in rental income and FFO following the decreased asset base. In detail:
Q1 rental income decreased 25% yoy to € 14.0m (eNuW: € 13.5m), which was mainly driven by the sale of the "LogPark" in Leipzig and the deconsolidation of the "LIMES" portfolio. Both have a combined effect of € 17.5m on DMRE's annualized rent. On this basis, also the NOI significantly decreased implying a slightly weaker NOI margin of 64.5% (-0.8pp yoy), which should be mainly attributable to the increased vacancy rate of 18.1% (FY24: 15.1%). This was mainly caused by Deutsche Telekom leaving parts of their rental space, which was only partly offset by the strong letting performance in Q1 (25k sqm). Going forward, we expect the vacancy rate to go down again, driven by an ongoing strong letting performance as well as the targeted disposal of higher vacancy assets.
Q1 FFO came in at € 2.1m, much stronger than our estimated € 1.2m but still 74% down yoy. Mind you, this figure displays the FFO before shareholder loan interest (€ 93.5m volume & 22% interest), which the company capitalizes, thus not being cash but P&L relevant. The disproportionately strong decline was mainly caused by the increased interest payments for DMRE's corporate bond as well as the weaker NOI margin.
Guidance confirmed. On the basis of the results, management confirmed the FY25 guidance of € 51-53m rental income and € 3.5-5.5m FFO. In our view, which is already reflecting a certain amount of disposals, both are to conservative. For the top-line, we now expect DMRE to achieve € 54.6m, which is based on the Q1 rental income, an annualized contractual rent of € 53.7m as well as an improved vacancy. Our FFO estimate of € 5.6m is also ahead of the guidance following the stronger than expected result in Q1 and a conservative estimate going forward.
Despite the muted operating performance, the stock remains highly undervalued in our view and should provide a good opportunity, particularly for special situation investors. Reiterate BUY with an unchanged € 1.30 PT based on our NAV model.
ISIN: DE000A0XFSF0
