DEMIRE released solid Q2 results, showing increased rental income and NOI but also a lower FFO. Here are the key takeaways:

Q2 rental income came in flat yoy at € 20.1m, ahead of or estimate of € 19.5m. The main reason for the flat development was the high share of indexed rental contracts (c. 70%) that made up for the smaller portfolio resulting in a like-for-like increase of contractual rents by 5.6% yoy. The NOI came in at € 15.8m (eNuW: € 15.2m), implying a stable margin of 79%.

Contrary to rental income, FFO decreased by 3.1% yoy to € 10.0m (eNuW: € 9.4m), although showing sequential improvement (Q1: € 9.2m). The decline is mainly attributable to increased current income tax expenses due to partially used up losses carried forward in some SPVs.

With the release, management also confirmed the FY guidance of € 74.5-76.5m rental income and € 33-35m FFO. However, as mentioned in previous notes, we do expect the company to “outperform” its guidance (eNuW: € 77.8m rental income & € 35.4m FFO), as we appear to be more bearish regarding possible disposals in H2 compared to management.

Speaking of disposals, management made a confident impression regarding the sale of the LogPark in Leipzig in H2 during the conference call. Moreover, several smaller properties (€ 20-40) are currently up for sale, with assets held for sale (LOIs signed) amounting to € 282m as of Q2. However, as the transaction market remains at a standstill due to a persistent buyer constraint, we keep our disposal estimate of € 100m in H2 unchanged.

Moreover, the company was not able to provide an update regarding the refinancing of the 2024 maturities (€ 669m of which € 499m is a corporate bond) as lender’s cautiousness remains high. However, as time is increasingly becoming a factor, newsflow in this regard should be expected as DEMIRE is set to become more flexible and possibly accept below market conditions to shore up liquidity.

In light of the continued high uncertainty in connection with the increasing refinancing pressure, we remain on the sidelines for DEMIRE and reiterate our HOLD recommendation with an unchanged PT of € 1.80 based on NAV and DDM.