Topic: DEMIRE announced that it has decided to carry out an additional intra-year valuation of its property portfolio as of June 30. The decision is reflecting the current challenging situation on the real estate sector and should increase transparency. Usually, DEMIRE reevaluates its portfolio at the end of the year.

However, as especially the office market is struggling (59% share of DMRE’s portfolio), visible in low floor-space turnover (c. 25% below 10y avg.) and increasing vacancy rates (+9% yoy), it is a sensible move to disclose the fair value of the portfolio to shareholders, in our view.

Based on a valuation draft by Savills, the company expects a like-for-like devaluation of the portfolio of 5.5-6.0% or € 52-57m compared to FY’22. This comes on top of the € 25.5m devaluation in Q1, implying a total devaluation of € 80m in H1. Considering the continuous weakness of the market and the de facto transaction standstill, we take a more conservative stance going forward and expect a further 5% devaluation in the annual portfolio reevaluation in Q4.

Importantly, the expected portfolio depreciation has no effect on the company’s FY guidance of € 74.5-76.5m rental income and € 33-35m FFO.

Apart from that, refinancing remains a major topic for DEMIRE, as € 669m in debt will fall due in 2024e (€ 499m corporate bond & € 170m bank debt). In order to shore up liquidity, the company aims for significant property disposals until YE. So far, an unencumbered property in Ulm was disposed for c. € 80m (eNuW), while the disposal of the LogPark in Leipzig to Commerz Real failed (eNuW: € 80m ex financing cash inflow). Although DEMIRE is currently in talks with potential new buyers, we do not expect a closing this year.

Given our disposal estimates (€ 180m in 23e & € 100m in 24e) we estimate that € 500m additional debt will be required to maintain a sufficient cash cushion. Here, the company is already in advanced negotiations with banks. Positive newsflow here might serve as a catalyst for the stock, which is currently down 33% YTD. However, due to the lack of visibility, we remain on the sidelines and reiterate HOLD with a reduced PT of € 1.80 (old: € 2.00) based on NTA and DDM, due to the higher than expected portfolio devaluation.