DEMIRE · potential due to extensions, refurbishments and selective developments within exist-ing...

DEMIRE

Buy (opening coverage) Target: Euro 5.10

DEMIRE successfully planted the seeds to harvest the fruits of DEMIRE 2.0 strategy in the coming years – SRC Research starts coverage with Buy and Euro 5.10 target

DEMIRE Deutsche Mittelstand Real Estate AG acquires and man-

ages commercial real estate properties in secondary locations in

Germany. Since its strategic realignment in 2013, the company

has built up a strong and diversified portfolio of office, retail and

logistics properties with a gross asset value of more than Euro

1bn. On 30 November, DEMIRE published its numbers for the first

nine months of 2017 and showed that the company has laid the

ground work for the coming years.

Rental income was at Euro almost 56m only slightly below last

year’s almost Euro 57m, despite the significant decline in the port-

folio due to the sale of non-core assets. That was because the

company managed a like-for-like rental growth of 2.6% in the first

nine months and reduced their vacancy rate from 11.6% at year-

end 2016 to 9.9% at 9M 2017. Furthermore, as a result of strong

fundamentals in the secondary locations as well as improvements

in the portfolio, DEMIRE reached a valuation result of more than

Euro 26m. The financing side showed an impressive development,

too. The firm has refinanced old expensive debt with new and sig-

nificantly cheaper issues such as the tap of the senior unsecured

notes in September. Thus, the average cost of debt significantly

fell from 4.4% at FY 2016 to now 3.0% after the refinancing activi-

ties. Even though the 9M financing result was impacted by a Euro

-12.4m one off effect and is at more than -42m higher than the

more than Euro-35m last year, the effects will be heavily seen in

2018. The positive impact is already reflected in the FFO I result,

however, which is at Euro 9.2m more than 30% higher than last

year’s Euro 7.0m. As a result, the management decided to lift the

FFO I guidance from originally Euro 8m - 10m to Euro 11m – 12m,

as well as the guidance for rental income from Euro 72m – 73m to

about Euro 74m.

As the first steps already become visible, we see DEMIRE on

a good path to reach their set goals of DEMIRE 2.0, such as a

portfolio size of Euro 2bn and an investment grade rating in

the mid-term future. We still see a lot of upside potential in

the firm’s operations, the current portfolio and in terms of

portfolio growth. All these measures should drive rental in-

come, the bottom line, as well as FFO I in the coming years

and thus shareholder value. We expect the firms FFO I result

to about triple over the next three years and the portfolio to

reach the Euro 2bn mark in three to four years. Our FFO ex-

cess return approach comes up with a fair value of Euro 5.12

per DEMIRE share and represents a 37% upside to the current

share price. We therefore expect the currently high discount

to NAV, which is currently at Euro 4.72 at 9M 2017 and ex-

pected to further grow in 2018, to be diminished. We start the

coverage with a Buy recommendation and a target price of

Euro 5.10 for the DEMIRE share.

Price (Euro) 3.7452 weeks range 4.17 / 3.35

Key Data

ISINBloombergReporting standardMarket Cap (Euro million)Number of shares (million)Free FloatFree Float Market Cap (Euro million) 98 CAGR EBT ('16 -'19e) 21.6%

Multiples 2016 2017e 2018e 2019e

Market Cap/ Total revenues 2.7 2.7 2.5 2.1PE-Ratio 9.6 8.8 7.2 8.3Dividend Yield 0.0% 0.0% 0.0% 0.0%Price-to-Book-Ratio 0.75 0.70 0.81 0.74P/ NAV-ratio 0.81 0.76 0.71 0.68

Key Data per share (Euro) 2016 2017e 2018e 2019e

Earnings per share (EPS) 0.39 0.42 0.52 0.45Dividend per share (DPS) 0.00 0.00 0.00 0.00Book Value per Share (BVPS) 5.01 5.31 4.60 5.04EPRA NAV per share 4.60 4.90 5.28 5.50

Financial Data (Euro '000) 2016 2017e 2018e 2019e

Rental income 76,371 74,941 81,752 96,527Net revaluation result 38,414 36,258 43,589 47,215Operating profit (EBIT) 83,169 77,125 89,589 102,206Net financial result -43,207 -45,395 -37,382 -42,245Pre-tax profit (EBT) 39,962 31,730 52,207 59,961Taxation -12,313 -4,982 -957 -1,018Net profit after minorities 24,670 22,935 48,273 56,526FFO I after tax 13,019 12,217 22,147 29,214Shareholders' equity (Euro million) 309 329 437 650Property portfolio (Euro million) 981 1,040 1,334 1,649RoE (after tax) 8.6% 7.2% 12.6% 10.4%Equity ratio (incl. equity minorities) 28.2% 27.2% 28.9% 34.9%

Main Shareholders

Wecken & Cie. 29.0%Obotritia Capital KGaA 11.9%M1 Beteiligungs GmbH 5.6%Sigrid Wecken 5.0%

Financial calendar

Annual report 2017 26 April 20181Q 2018 report 30 May 2018AGM 27 June 20182Q 2018 report 16 August 2018SRC Forum Financials & Real Estate 6 September 2018

Analysts Dipl.-Kfm. Stefan Scharff, CREAChristopher Mehl, MBA

E-Mail [email protected]@src-research.de

Internet www.src-research.dewww.aktienmarkt-international.atwww.aktienmarkt-international.de

54.348.5%

DE000A0XFSF0DMRE:GR

IFRS203

2

1 | February | 2018

DEMIRE Deutsche Mittelstand Real Estate AG

2 | SRC Equity Research

SWOT Analysis

The CEO Ralf Kind is highly senior, experienced and well-known in the German real estate sector.

The transformation of the company has well proceeded since the change in strategy in 2013 and now has a clear focus and targets for the coming years.

The current portfolio is well diversified between asset classes and regions and therefore has no cluster risks in that regard.

Future growth of the portfolio heavily relies on further capital increases. The balance sheet is currently at an equity ratio of 26.3% and a LTV of 62%. Those ratios still show room for improvement, but DEMIRE is aware of that and already on track to bring the equity ratio up and targets an LTV of 50%. We expect an equity capital hike in early-mid 2018

DEMIRE still lacks reputation in the market, which leads to a discount in their share price. As the firm gains more popularity and awareness with investors we see this current weakness turning into an opportunity to close the current gap to NAV.

DEMIRE currently follows the strategic plan “DEMIRE 2.0”. Thereby the company aims to double the size of the portfolio, reduce their financing costs and make use of economies of scales in the portfolio. The strategic plan sounds very promising and, if accomplished, could lead to lucrative earnings in the midterm future.

The company’s internal property-, asset- and facility management platform should create good economies of scale and reduce costs compared to outside management alternatives

DEMIRE could reach better financing conditions as they reach a better standing and they grow their portfolio and strengthen their balance sheet. The firm has already significantly lowered its cost of debt to currently 3%, but still has room to improve. A rating upgrade to investment grade, which is targeted by the firm, should significantly help that cause.

The firm still has a lot of upside potential in their current portfolio due to revaluation gains. There are many objects that are still significantly below the potential value. The company can help realize that potential by improving their portfolio e.g. by re-ducing vacancy rates and other measures.

DEMIRE currently has about 50m Euros of tax-loss carry forwards, which can be used over the next years to drastically lower their tax expenses.

The focus on secondary cities still offer lucrative yields compared to the Top7 locations and good opportunities to find lucrative deals with value add potential that will drive the company’s operations and thus the share.

The largest tenant in the portfolio, Deutsche Telekom, currently makes up for about

30% of gross rental income, which could lead to a significant reduction in rental in-come if problems were to arise. However, Deutsche Telekom is a large company with a long history and therefore a good tenant to have. Furthermore, the exposure is split over 28 different lease contracts and over 18 properties with lease maturities spreading until 2025 and a high WALT of more than 5 years.

The company follows a “manage-to-core” strategy in their Value-Add portfolio and further has some redevelopment objects in their portfolio. Problems regarding the improvements of the objects could lead to higher than expected costs.

A change in European monetary policy by the ECB regarding the termination of the currently all-time low-interest period could result in a relatively high increase of inter-est expenses and might also lead to higher expenses for DEMIRE. We currently do not see any drastic changes in the near future however and the company has also already locked in some long term financing at good rates.

Strengths Weaknesses

Opportunities

Threats

3

1 | February | 2018



4

1 | February | 2018



Strategic realignment opens the way to a strong and lu-crative future DEMIRE is a public real estate company with focus on office, retail and logistics

assets in mid-sized cities and bordering areas of metropolitan cities in Germany.

With that focus on secondary locations, which still provide more lucrative investment

opportunities, given proper knowledge of the respective locations, it aims to achieve

higher yields with lower volatility compared to the prime locations. Since its strategic

realignment in June 2013, the company follows a three-split strategy, according to

value generation potential of the assets. The portfolio is divided into a Core+ seg-

ment, a value-add segment, and a redevelopment segment. Within the Core+ seg-

ment, assets have secure income and long-term visibility, with some potential for

capital recycling by selling off some assets. The acquisition criteria for that segment

are a vacancy rate below 10% with a WALT of more than 5 years and a gross initial

yield in the range of 6-8%. The value-add segment includes assets with secure in-

come that still show upside potential by e.g. reducing the vacancy rates. In that

segment the company acts as active owner of real estate with a manage-to-core

approach with means of their own fully integrated asset, property and facility man-

agement platform. Therefore, DEMIRE looks to acquire assets with a vacancy rate of

10% - 40% and a WALT of at least 2 years. The required gross initial yield is more

than 7%. The redevelopment portion of the portfolio includes assets with upside

potential due to extensions, refurbishments and selective developments within exist-

ing assets. In terms of locations the company looks to acquire existing locations in

secondary cities exclusively in Germany with strong micro location demand and fun-

damentals, as well as metropolitan areas or commuter belts such as the Ruhr area

or Stuttgart. The company is looking for asset deals, share deals as well as portfolio

transactions with a minimum volume of Euro 10m.

Source: company presentation

DEMIRE focuses on office,

retail and logistics assets in

secondary locations

The portfolio is split in Core+,

Value-Add and redevelopment

segments

5

1 | February | 2018



Over the recent years, the company has shown some strong growth by the means of

acquisitions of individual properties and shares of other companies. It aims to stay

as lean as possible and wants to make use of economies of scale with the help of

their company own in-house asset, property and facility management. That platform

covers the full real estate value chain and can allow DEMIRE to realize economies

of scale with further growth. With a combination of centralized data systems and a

local presence, that system allows for minimum response times to new and current

tenants and is crucial for the success of the company’s manage-to-core strategy.

Since the strategic realignment in 2013, the company has achieved an impressive

development with strong hikes in numbers and very positive developments in the

balance sheet and financing structure. During 2016 and 2017, integration and opti-

mal management of real estate was the focus of the company after a very steep

growth in 2015 with the acquisition of many properties worth around Euro 550m.

Furthermore, very good process on the financing side was accomplished. One ex-

ample for that is the fully repaid high-yield SME-bond. We believe the focus on inte-

gration and optimal management of the newly acquired properties and the focus on

the balance sheet structure and financing expenses, rather than a further forced

growth was a very good decision by the management. Despite that step, DEMIRE

showed some good numbers in 2016 and 2017, which is prove of their successful

operations and good management capabilities. That way the company laid the

grounds for the coming years to further grow their portfolio and operations on a sus-

tainable level. As a medium term goal the company wants to double their portfolio to

Euro 2bn within the next years. We believe that target is feasible within three to four

years.

A significant portion of the portfolio has been newly classified as Assets held as held

for sale. Compared to year-end 2016, that position increased from Euro 153m to

Euro 628m. These assets are considered as non-core assets by Aroundtown and

were acquired along with other properties in the portfolio. The company expects to

be able to sell these assets within the next 12 months at a price higher than costs.

Source: 2016 annual report

DEMIRE’s own in-house as-

set, property and facility man-

agement platform helps to

create efficiencies

After two years of integration

and change we see the com-

pany’s focus shifting back to

portfolio growth

6

1 | February | 2018



Since the realignment of operations, total revenues grew from almost Euro 4m to

more than Euro 92m at year-end 2016, while the EPRA NAV more than quadrupled.

The average cost of debt fell from 6.4% to 4.4% at year-end 2016, and even further

to currently 3.0% and we see still room for a further decline. One of the key im-

provements is the equity the firm has on its balance sheet. With an equity ratio of

more than 26.3% at 3Q 2017 (2014: 14.6%), the firm now has more leeway for fur-

ther growth, even though that ratio is still low and should be improved over the next

quarters. Respectively, the firm’s LTV ratio declined from a very high 87 % to a more

manageable 62% at 3Q 2017. In the mid-term the company aims to reduce their LTV

ratio to about 50% which will also help to achieve the targeted investment grade

rating.

Well diversified portfolio with room to grow internally and externally

DEMIRE focuses on secondary cities with positive fundamentals and economic

growth opportunities. The portfolio locations are centered around densely populated

areas. Key portfolio locations are located in large cities outside the Top 7 such as

Bonn, Kassel and Leipzig. The company has clearly defined target regions such as

in the states of North-Rhine Westphalia, Bavaria, Saxony, Baden-Wurttemberg,

Hesse and others. In terms of gross rental income, the biggest portion of the portfolio

is currently located in North-Rhine Westphalia with 18%, followed by Saxony at 14%

and Baden-Wurttemberg at 12%.


Good developments since

strategic realignment

Key portfolio locations in

secondary cities around Top 7

7

1 | February | 2018



The portfolio is diversified between the three asset classes Office (68%), Retail

(24%) and Logistics (6%). Only 2% in terms of gross asset value come from other

properties, which are not classified as one of the three asset classes. Furthermore,

the core+ cluster currently makes up for 54%, leaving 42% in the value-add cluster

and 4% in the redevelopment cluster. With these numbers in mind, we can clearly

see that DEMIRE still has a lot of upside potential within their current portfolio which

they will make use of over the next quarters, thereby increasing their revenues and

profits from increases in rental income as well as revaluation gains in the portfolio.

The company wants to most likely remain dominant in the office asset class with

their planned growth in the coming quarters. That segment currently also generates

a high rental income yield within the portfolio at 7.1%. With yields at 7.3% for retail

properties and 6.8% for logistics assets, the average portfolio GRI yield is currently

at 7.1%.


The tenant structure of the portfolio is for most parts well balanced. There are about

800 tenants and the lease schedule is well spread over the next years with a

weighted average lease term of 4.8 years. Therefore, much of the rental income and

cash flows are secured for a longer time. The only concern arises from the fact that

about 30% of rental income comes from Deutsche Telekom. That exposure is, how-

ever, split over 28 different lease contracts over 18 properties with lease maturities

spreading until 2025 and a WALT of 5.0 years for Deutsche Telekom. Nevertheless,

DEMIRE should be careful in that regard and try to decrease the high exposure to

one tenant. As for the remaining nine of the top ten tenants, none has a share of

more than 3% and many of them are high quality tenants such as Sparkasse,

Deutsche Post, and Bundesanstalt für Immobilienaufgaben. Therefore we see no

major risks in terms of the tenant structure and loss of cash flow from rental income.

Portfolio divided in three as-

set classes and segments

shows further upside poten-

tial

Well-balance tenant structure

with about 800 tenants and

long term focus

8

1 | February | 2018



The following table gives an overview of the top 20 properties as of 3Q 2017 includ-

ing their yields, asset values and vacancy rates, followed by snapshots from the top

three Core+ and Value-add assets. As can be seen, about 50% of the portfolio in

terms of asset value is made up by the top 10 assets and about 65% by the top 20

properties. Many of the properties still reflect high vacancy rates, which, by proper

management, presents the above mentioned upside potential of the value-add as-

sets that DEMIRE can still set free within the current portfolio.

Top 20 properties make up for

about 65% of the portfolio

Top three core+ Assets as of

1H 2017

9

1 | February | 2018




We see a lot of value to be unlocked which should drive future shareholder value Other than the above mentioned upside potential due to asset and facility manage-

ment, the portfolio valuation at currently slightly above Euro 1k per sqm seems very

conservative. Therefore we still see a lot of upside potential in that regard as well

and expect positive revaluations in the range of Euro 40m – 50m in the next years.

Furthermore, the company should after its integration and transformation years 2016

and 2017 continue to further grow due to acquisitions starting from 2018. We believe

the firm has the necessary tools to do so. On the one side, DEMIRE has shown

since its strategy change in 2013, that it can find the right properties and integrate

them properly in their portfolio.


Top three Value-add assets as

of 1H 2017

The portfolio valuation is at

very conservative levels and

offers future upside

10

1 | February | 2018



The portfolio has grown from Euro 24m in assets in 2013 to more than Euro 1bn at

year-end 2016. Over the same time, rental income grew by 57 times from Euro 1.3m

to Euro 74m. On the previous page there is a list of all the acquisitions since 2013,

including their asset values as well as a graph to further highlight the growth through

acquisitions.

Since the start of the 2016 fiscal year, the portfolio has further developed as many

sales of non-core assets were closed and the number of assets was decreased from

171 at year-end to now only 90 after 3Q 2017. The EPRA vacancy rate was also

further decreased and is currently already below 10%, at 9.9%, and expected to

further decline. In the mid-term, the company has set the target to increase their

portfolio size to Euro 2bn or to at least come close to this level. We believe that goal

is feasible within the next three to four years. The company should most likely be

able to increase their portfolios each year by about Euro 300m, on average. Howev-

er, a larger transaction or an increase by means of taking over another company can

also not be ruled out in our opinion, which could then possibly lead to a more rapid

accomplishment of that goal.


DEMIRE currently has a tax-loss carry forward of about Euro 50m. That will enable

the company to significantly decrease their tax expenses in the coming years, there-

by lifting its bottom line results, respectively. We believe that the tax expenses for

the current fiscal year will be brought below Euro 1m and should not be much higher

in the years thereafter.

In 2015 DEMIRE acquired 77.8% of Fair Value REIT-AG and currently still holds that

same share. For the coming quarters we expect DEMIRE to aim to acquire the re-

maining shares of Fair Value REIT and to fully implement it in the DEMIRE corporate

structure. As of 5 December 2017, Ralf Kind (CEO) has been appointed a member

of the management board of Fair Value REIT and takes the role as CEO. This is in

our opinion another signal for a timely fully integration. By owning 100% of Fair Val-

ue REIT shares, DEMIRE will significantly reduce their minorities and hence lift the

profits of DEMIRE shareholders.

Improved and leaner portfolio

due to sale of non-core assets

with mid-term target of Euro

2bn size

Euro 50m tax-loss carry for-

ward should bring tax ex-

penses below Euro 1m in 2018

and lead to a low taxation in

all coming years.

We see a full implementation

of Fair Value REIT in the com-

ing quarters.

11

1 | February | 2018



In 2017, DEMIRE has made very good progress in terms of financing and refinanc-

ing. As an example, in the second half of 2017, the company refinanced old high

cost debt with the issue of an unsecured fixed rate notes with a significantly lower

coupon of 2.875%. Overall, in 2017 the average cost of debt was reduced from 4.4%

to about 3% on a pro forma level as of 30 September, following the repayments in

4Q 2017. This reduction will significantly impact the financial result, as well as

DEMIRE’s FFO in the current and next years.


We believe, however, that the already improved number can further be decreased in

the coming years. We expect the targeted investment grade rating to be realistic

within the next 2 to 3 years. The company has already made the first steps by im-

proving its balance sheet and significantly increasing the unencumbered assets. In

order to get there, in our estimate, the company will have to increase their portfolio

value to more than Euro 1.7bn, and reach a 50% unencumbered assets ratio. This

seems very realistic to us in the mentioned time span. A rating upgrade from current-

ly BB+ to an investment grade rating could in our opinion reduce the cost of debt by

up to 100 basis points, which would reduce the financing costs by about Euro 5m per

year at current debt levels.

In the last fiscal year 2017 DEMIRE sold the non-core-portfolio for the largest part.

For example on 25 January 2017, 84 objects which were mostly rented to Deutsche

Post DHL Group were sold for Euro 21.6m, which at the time was more than Euro

3m on top of the respective book values. At the moment we expect no further signifi-

cant sales, as most of the objects in the portfolio are part of the core business and

the portfolio recycling is close to being completed.

Significant improvements in

the financing structure brings

down cost of debt to 3.0% -

we still see room for decline

in the next years as DEMIRE

is on a good path to be up-

graded to investment grade in

the mid-term.

Portfolio sales should be

mostly completed

12

1 | February | 2018



Experienced management with a very profound network

in the industry

Since November 2017, Ralf Kind is acting as both CEO and CFO of the company.

Prior, since March 2017, he has been the CFO of DEMIRE. He has more than 19

years of experience in international real estate, including Head of Barclays Real

Estate Investment Banking Team for the DACH region and some time at PwC. He

furthermore was Co-Founder and CEO of Arbireo Capital AG.

In our opinion, Ralf Kind will be able to lead the company successfully over the next

years, helping it to complete finish its transformation. We believe he has a clear vi-

sion of where the company is and where it needs to go. With his experience and

network in the industry he should be able to find lucrative deals for the company at

the right time and price in order to further grow the portfolio.

We expect a second experienced person for the management board to be appointed

within the first half of the year.

Our FFO excess return valuation offers a 37% upside for

the DEMIRE share

For the valuation of the DEMIRE share we use a FFO excess return valuation mod-

el. We project the FFO cash earnings for the next five years and set these returns in

relation to the future Cost of Equity to determine an excess return which adds to the

EPRA NAV. For the years 2018 to 2020 we have our detailed projection stemming

from our P & L forecast. We project the FFO to about triple until 2020 as we expect a

step increase in portfolio size, like-for-like improvements and further economies of

scale. As we have no detailed projection for 2021 and 2022 yet, we expect a similar

hike for 2021 as in the years before and a smaller increase in 2022 as the portfolio

should have more than reached the medium-term target of Euro 2bn by then and a

slower growth phase could be possible from strategic terms as well as market condi-

tions.

We set the Cost of Equity at 4.58% for 2018 and have a slowly falling CoE forecast

for the coming years, as we see the general interest environment slowly return from

an almost Zero interest environment equity risk premiums slightly declining and the

company’s Beta to fall as the company’s risk profile should improve with a better

reputation, a larger portfolio size and overall improved balance sheet ratios. Thus,

the Cost of Equity in our valuation model gradually declines from 4.58% in 2018 to

4.10% in 2022.

Source: SRC Research

We forecast the FFO cash earnings for the next five years and set these returns in relation to the Cost of Equity to determine an excess re-turn adding to NAV.

2018e 2019e 2020e 2021e 2022e

Cost of Equity 4.58% 4.52% 4.46% 4.48% 4.10%risk free 0.90% 1.00% 1.10% 1.20% 1.30%risk premium 5.50% 5.40% 5.30% 5.30% 5.30%Beta factor 0.8 0.8 0.8 0.8 0.7

13

1 | February | 2018



In our valuation, for the years 2018 to 2022 DEMIRE adds almost Euro 15m excess

return to its NAV and ends up with a Fair Value of Euro 5.12 per share. This trans-

lates into an upside potential for the share price of almost 37% at the current share

price level. The DEMIRE share gained about 7% in 2017 and has been more or less

unchanged since the beginning of the year. After two years of change and integra-

tion, we expect the stock to climb to higher levels resulting from a strong increase in

FFO and some lucrative deals to come in early and mid 2018.

DEMIRE adds almost Eu-ro 15m excess return to its NAV within the next five years.

FFO excess return valuation

Euro '000 2018e 2019e 2020e 2021e 2022eCAGR

2018e - 2022e

FFO 22,147 29,214 36,258 44,170 46,987 28.5%

EPRA NAV 488,563 688,635 887,634 977,569 1,087,896 30.6%

FFO return on NAV 5.51% 4.96% 4.60% 4.74% 4.55% -6.2%

Cost of Equity 4.58% 4.52% 4.46% 4.48% 4.10%risk free 0.90% 1.00% 1.10% 1.20% 1.30%risk premium 5.50% 5.40% 5.30% 5.30% 5.30%Beta factor 0.8 0.8 0.8 0.8 0.7

Excess return 0.93% 0.44% 0.14% 0.26% 0.45%

Value creation 4,521 3,053 1,247 2,505 4,893

NPV of value creation 4,402 2,886 1,145 2,232 4,233

EPRA NAV 2017e 332,946

Value creation by excess return (2018e - 2022e) 14,898

EPRA NAV including future value creation (2018e - 2022e) 347,844

Number of shares ('000) (diluted) 67,945

Fair Value per share (FFO excess return valuation) 5.12 €

Current share price 3.74 €

Upside potential 36.9%

Source: SRC Research

14

1 | February | 2018



DEMIRE Deutsche Mittelstand Real Estate AG31/12 IFRS ('000) 2015 2016 2017e 2018e 2019e 2020e

CAGR '16 - '20e

Rental income 33,320 76,371 74,941 81,752 96,527 121,532 16.7%Income from utility and service charges 10,024 15,746 16,483 17,158 21,305 25,906Operating and ancillary costs -19,664 -33,547 -34,158 -35,971 -41,507 -51,043

Profit/loss from the rental of real estate 23,680 58,570 57,266 62,939 76,325 96,395 18.1%Revenue from the sale of real estate companies 1,792 7,471 0 0 0 0Net asssets from real estate copmanies sold -1,507 -3,510 0 0 0 0

Profit/loss from the sale of real estate companies 285 3,961 0 0 0 0Revenues from the sale of real estate 2,300 21,966 23,584 13,587 5,479 3,264

Expenses relating to the real estate sales -1,842 -21,003 -24,180 -13,183 -4,946 -3,147

Profit/loss from the sale of real estate 458 963 -596 404 533 117

Profits from investments accounted for using the equity method 1,861 0 97 0 0 0

Losses from investments accounted for using the equity method -3,830 -359 0 0 0 0

Unrealised fair value adjustemtns in equity investments 1,469 0 0 0 0 0

Profit/loss from investments accounted for using the equity method -500 -359 97 0 0 0

Profit/loss from fair value adjustments in investment properties 18,471 38,414 36,258 43,589 47,215 46,823Impairment of receivables -2,846 -2,058 -1,863 -2,214 -2,531 -2,147Profits originating from a purchase below market value 33,217 0 0 0 0 0Other operating income 2,572 5,550 6,249 6,147 6,301 6,428Other operating income and other effects 51,414 41,906 40,644 47,522 50,985 51,104 6.8%General and administrative expenses -11,332 -14,505 -14,158 -14,962 -18,796 -21,476Other operating expenses -5,265 -7,367 -6,128 -6,314 -6,841 -8,593

Earnings before interest and taxes (EBIT) 58,740 83,169 77,125 89,589 102,206 117,547 12.2%Financial income 2,145 1,153 968 1,130 1,269 1,341Finance expenses -27,873 -39,134 -40,258 -32,258 -37,543 -41,727Interest of minority shareholders 0 -5,226 -6,105 -6,254 -5,971 -5,327Financial result -25,728 -43,207 -45,395 -37,382 -42,245 -45,713

Profit/loss before taxes (EBT) 33,012 39,962 31,730 52,207 59,961 71,834 21.6%Income taxes -4,139 -12,313 -4,982 -957 -1,018 -1,254Tax rate 13% 31% 16% 2% 2% 2%

Net profit/loss 28,873 27,649 26,748 51,250 58,943 70,580Minorities -756 -2,979 -3,813 -2,977 -2,417 -2,175Net profit/loss after minorities 28,117 24,670 22,935 48,273 56,526 68,405

FFO I after tax 13,019 12,217 22,147 29,214 36,258FFO per share 0.24 0.23 0.24 0.23 0.24

Number of shares ('000) 49,292 54,247 54,271 92,469 125,318 152,478

Earnings per share (EPS) 0.71 0.39 0.42 0.52 0.45 0.45

Dividend per share (DPS) 0.00 0.00 0.00 0.00 0.00 0.00

in % of FFO result 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Shareholders' Equity (without minorities) 230,697 271,945 288,194 424,953 631,489 821,476 44.6%Shareholders' Equity (including minorities) 264,902 308,637 329,217 437,277 649,802 844,477EPRA NAV 256,267 300,459 332,946 488,563 688,635 887,634 43.5%Balance Sheet sum 1,032,945 1,094,006 1,211,369 1,512,657 1,860,568 2,205,318Equity Ratio 25.6% 28.2% 27.2% 28.9% 34.9% 38.3%RoE (after tax) 17.6% 8.6% 7.2% 12.6% 10.4% 9.2% 2.1%

Property portfolio 915,089 981,274 1,040,150 1,334,234 1,649,215 1,964,120Book Value per share (Euro) 4.68 5.01 5.31 4.60 5.04 5.39 2.4%EPRA NAV per share (Euro) 4.25 4.60 4.90 5.28 5.50 5.82 8.2%

15

1 | February | 2018



SRC Research - Der Spezialist für Finanz- und Immobilienaktien -

SRC - Scharff Research und Consulting GmbH

Klingerstr. 23

D-60313 Frankfurt am Main

Germany

Fon: +49 (0)69/ 400 313-80

Mail: [email protected]

Internet: www.src-research.de

Rating chronicle: As this research report is an initiating coverage there is no rating chronicle available.

Please note: The share price mentioned in this report is from 31 January 2018. DEMIRE Deutsche Mittelstand Real Estate AG mandated SRC Research for covering the share.

Disclaimer © 2018: This equity research report is published by: SRC-Scharff Research und Consulting GmbH, Klingerstr. 23, D-60313 Frankfurt, Germany (short name: SRC Research). All rights reserved. Although we feel sure that all information in this SRC report originates from carefully selected sources withhigh credibility, we cannot give any guarantee for accuracy, trueness and completeness. All opinions quotedin this report give the current judgement of the author which is not necessarily the same opinion as SRC-Scharff Research und Consulting GmbH or another staff member. All the opinions and assessment made inthis report may be changed without prior notice. Within the scope of German regulative framework the author and SRC-Scharff Research und Consulting GmbH do not assume any liability for this document or itscontent being used. This report is solely for information purposes and does not constitute a request or aninvitation or a recommendation to buy or sell any stock that is mentioned here. Private clients should obtainpersonal advice at their bank or investment house and should keep in mind that prices and dividends ofequities can rise and fall and that nobody can give a guarantee of the future development of equities. The author of this report and the SRC-Scharff Research und Consulting GmbH commit themselves on a unsolic-ited basis to having no long or short-positions in equities or derivatives related to equities mentioned in this report. Reproduction, distribution or publishing this report and its content as a whole or in parts is only allowedwith approval of SRC management written form. With acceptance of this document you agree with all regu-lations mentioned here and all general terms and conditions you will find at any time at our website www.src-research.de.

DEMIRE · potential due to extensions, refurbishments and selective developments within exist-ing...

Documents

Transcript of DEMIRE · potential due to extensions, refurbishments and selective developments within exist-ing...