Q3 rental income declined 20% yoy to € 15.2m (eNuW: € 16.0m), caused by the lower asset base following larger disposals as well as the deconsolidation of the Limes portfolio in July (eNuW: € 8.4m annual rental income). Despite a strong letting performance in the first nine months (+121% yoy) we also saw a decreasing like-for-like contractual rental income (-3.2%), which was mainly case by the increased vacancy rate of 14.7% (vs 13.1% at YE '23) following the insolvency of Mein Real in Querfurt. This was only partly offset by indexation effects concerning existing rental agreements. Yet, we also already saw a sequential improvement in the vacancy rate of 0.8pp in Q3. We regard the strong letting performance as a sign of operational strength as we observe a continuous weakness of the letting markets.
On this basis, we also saw a 12% yoyFFO decrease to € 7.5m (eNuW: € 7.3m), driven by negative operating leverage which was only slightly offset by an improved rental margin. Yet, an improved FFO margin of 50% shows that DMRE is able to display strong operating performances despite the significantly lowered asset base.
Against this backdrop, management confirmed the FY guidance targeting sales of € 64-66m (eNuWnew: € 66.1m) as well as a yoy decline in FFO (eNuWnew: € 28.4m vs € 36.7m in FY '23).
Limes update. Following the insolvency of the Limes subsidiaries, management reiterated during the CC that it expects the assets to remain stable in value (eNuW: € 140m with 57% LTV). Hence, there could be upside to our estimates as we conservatively included a total loss for the company in our model.
Disposal engine running. Following two larger disposals in Ulm and Leipzig, management confirmed in the CC that it expects 3 additional smaller deals to be closed until YE '24e as well as several assets do be disposed in FY '25e. Although it is hard to get a grip on the exact volume, management was confident to dispose assets with a volume of up to € 50m until YE '25e, which is however below our current estimate of € 99m (GAV).
The stock remains undervalued given the significant and, in our view, unjustified NAV discount of 73%. Hence, we reiterate BUY with an unchanged PT of € 1.50 based on NAV.
ISIN: DE000A0XFSF0
