Yesterday, DEMIRE published an ad-hoc following a draft valuation from Savills. The external surveyor is currently performing the annual valuation of DEMIRE’s investment properties as of 31 December ’23. Based on the draft, the company currently expects that the fair value of the investment properties will decline by 12-14% on a like-for-like basis, translating into an absolute devaluation in the range of € 127-154m. This compares to our estimate of a € 135m like-for-like devaluation.

In light of the ongoing general market headwinds, especially in the office market (59% of DEMIRE's portfolio), this does not come as a surprise and should have been expected by the market. Notably, this does not include any transaction-related devaluations, e.g. properties sold below book value. As of 9M ’23 those stood at € -12.9m (eNuW FY '24: € -30m).

Despite the significant yoy decline in value, we do not expect that the valuation-trough has been reached yet, as we conservatively estimate another slight devaluation of 5% in FY ‘24e. Although the office investment market has shown a sequential improvement in Q4 (+12% volume qoq), this happened on very low levels (c. 25% below the 10y average). In combination with a struggling general economy, we hence expect headwinds to remain, especially in B-locations, throughout 2024, although the pressure should be easing.

Importantly, the company’s operations and hence the FY guidance are not effected, as management continues to expect rental income of € 78-80m (eNuW: € 79.4m) and FFO of € 35-37m (eNuW: 35.7m).

That said, managements main focus remains on the refinancing of the company’s € 499 corporate bond, which is going to mature in October. As outlined in our previous

update

, a solution looks set to be announced in the course of Q1 as talks with bondholders are progressing.

Although uncertainty remains high, the cash inflow from the disposal as well as an easing interest rate environment following declining swap rates, the tide has turned a bit towards DEMIRE’s favor again, in our view.

Still, as visibility continues to be low regarding the outcome of the refinancing process, we reiterate our HOLD recommendation with an unchanged PT of € 1.20 based on NAV and DDM.