DMRE's Q3 results were largely in line with our expectations on rental income, while FFO was ahead of our estimates. More importantly, a large part of the disposal pipeline was executed, lifting cash to € 83m. In detail:
Q3 rental income declined 20.2% yoy to € 10.9m (eNuW: € 11.1m), mainly due to disposals. The closings of Flensburg, Kempten, Frankfurt and Chemnitz plus the partial sale in Bonn generated proceeds of around € 61m YTD, of which € 43.6m fell into Q3. Sequentially, rents declined 5.5% qoq as the sold assets dropped out and EPRA vacancy rose a further 1.1pp qoq to 22.6%, mainly driven by Schwerin and Leipzig, als visible in a 6.3% like-for-like rent decline. 9M rental income came in at € 33.9m (eNuW: € 34.1m).
FFO I came in at € 0.8m in Q3 (eNuW: € 0.4m), bringing 9M FFO I to € 2.8m, already above the upper end of the FY range. Supporting factors were lower current income taxes (Q3: € 0.2m vs € 0.7m Q3'25) and stable G&A of € 2.5m.
Guidance confirmed. Management confirmed FY26 rental income of € 42.5-44.5m and FFO I of € 0.5-2.5m. On the conference call, CFO guided for a neutral to slightly negative Q4 FFO, as investments of a few hundred k€ in the portfolio will be expensed rather than capitalised. The amount is small, so FY FFO should end up at the upper end of the range at least, in our view. On rents, we also expect the upper end of the range.
Leasing pipeline. Management is in advanced negotiations on the vacant assets in Bonn, Neumünster and Leipzig, comprising c. 20k sqm. A succesful reletting would be key to reverse the vacancy trend in 2027. However, those will as always come with upfront investments into the properties.
Cash up, but largely trapped. Disposal proceeds lifted cash to € 82.6m (H1: € 44.4m) and reduced net LTV to 40.1% (H1: 42.4%). However, roughly 40% of liquidity sits within Fair Value REIT, and only a small portion of the remainder is immediately available to address the € 251m nominal that is left on the 2019/2027 notes maturing at the end of 2027. Management is working on upstreaming more liquidity and intends to address the refinancing "very soon". In our view, this is the key near-term risk.
Shareholder process ongoing. The company did not comment on details of Apollo's and Wecken's process to sell their c. 91% stake, but expects to give further guidance by year-end. The equity story continues to hinge on this as a mandatory offer would set a floor for the free float, and a change of control could trigger the 101% put on the 2019/2027 notes.
Overall, despite EPRA NAV per share declining to € 1.28 (FY25: € 1.59), shares remain deeply discounted, currently trading 83% below NAV. With the shareholder process likely to bring clarity by year-end, we confirm our BUY rating with a new PT of € 0.70 based on our NAV model.
ISIN: DE000A0XFSF0
