The listed DEMIRE Deutsche Mittelstand Real Estate AG, which specialises in commercial property in Germany's smaller and medium-sized towns and cities, recently teamed up with RFR Group in a 50-50 joint venture to buy a landmark office property in Frankfurt's business district. The price was put at €270m.
The 37,000 sqm property, CIELO, is located on Theodor-Heuss-Allee 104 near the Frankfurt Trade Fair on one of the city's main throughfares, and is leased long-term to Commerzbank. The property was built in 2003 and extensively refurbished between 2018-20.
The deal gives DEMIRE the right to buy the whole building for its own book later. DEMIRE CEO Ingo Hartlief said, "This transactions sees us continuing our planned realignment of DEMIRE in a consequent manner. We expect this transaction to generate an average FFO I contribution of around €5 million per annum in the coming years. In addition, we have the option to fully acquire the building complex from our partner RFR in five years on terms already agreed."
RFR is the New York-headquartered business of Aby Rosen and Michael Fuchs, Germans who have also been active investors in prestige projects in Germany over the years. With an office in Frankfurt, RFR Management GmbH handles the property and asset management of the group's over 1 million sqm of office property in Germany, valued at about €5bn.
DEMIRE had a real estate portfolio of 75 properties with a lettable area of about €1m sqm and a market value of €1.4bn as of 31st December, following a spate of disposals in line with its new strategy stretching back to June.
The company sold a total of 13 properties in seven separate transactions. Specifically, a commercial real estate portfolio comprising eight properties was sold to the Ramfort Group as part of an asset deal, while the other five buildings were sold in individual transactions. At €85.2 million, the sales proceeds were above the assets’ most recent book values. DEMIRE said at the time it would re-invest the funds in further strategic acquisitions and developing its existing holdings
The assets being sold were smaller, management-intensive units or units that offered DEMIRE limited further value-added possibilities, it said. Collectively they had a vacancy rate of 26% and a Weighted Average Lease Term (WALT) of 3.6 years as of June 30, 2020.
After the sales DEMIRE’s WALT remains constant at 4.8 years compared with December 31, 2019, while the vacancy rate has fallen from 9.4% to 7.4%.
For 2021 the company is expecting lower rental income overall after last year's record figures, which saw FFO I jump 13.5% to €39.2m, while rental income rose 7% to €87.5m, while the vacancy rate fell as a result of better property management, plus the disposals, from 9.4% to 6.9% overall. About 68% of DEMIRE’s rental income comes from offices, 23% from retail and 6% from logistics properties. This year's rental income is expected to fall in the €80m-€82m range, partly due to the exposure to retail and hotels, which have also been revalued downwards by €22.1m in the company's books.
As was the case last year, the company's majority shareholders Apollo (58.6%) and the Wecken Group (32.1%), with collectively more than 90% of the company's shares are making heavy demands on the profits, and pretty much sucking up all the profit of €65m as dividends. With liquidity of €117m following the disposals campaign, the company is being 'urged' to make the hefty dividend payment, "in the light of the uncertain investment climate", as the majority shareholders put it. DEMIRE says it is still on target to grow assets from its current €1.4bn to €2bn "in the medium term."
