Corpus Sireo
Ingo Hartlief
Ingo Hartlief - CEO of DEMIRE
In March this year, REFIRE published an article about the latest study by DEMIRE Deutsche Mittelstand Real Estate AG, the listed commercial property investor focused on secondary German cities, carried out by market researcher BulwienGesa. The study, DEMIRE’s third annual edition, made interesting claims about the returns on office investments in Germany’s secondary locations, and how they compare favourably with properties in the Big-7 cities.
The key takeaway from the study is that the Secondary Office Index (SOX) illustrates that office markets are basically subject to economic fluctuations - but that the bigger markets are more vulnerable to economic downturns than smaller locations. In both the downturn in 2000, when the New Economy bubble burst, and in the aftermath of the financial crisis in 2007/8, the Class A markets (Big 7) suffered bigger declines than the SOX, with secondary locations being less volatile and more stable during the downturns.
According to Ingo Hartlief, DEMIRE’s CEO, “The high demand for office real estate is undiminished while supply remains limited and this has pushed net initial yields to new lows. That can be seen in both the secondary locations and the Class A cities. As investors are increasingly focusing on cities away from the metropolises, the net initial yields here are falling more sharply in comparison with the previous year, although they are still significantly higher in most cases, which makes them attractive for domestic and foreign investors.”
“The newly developed SOX confirms the robustness of office real estate markets in secondary locations. Nearly all leading economic research institutes and the panel of government economic advisers have almost halved their growth forecasts for Germany in the current year. The results of the SOX reinforce our belief that we can generate stable earnings with our investments in secondary locations, even in turbulent times,” he added.
Since then the company has published strong results, leading Hartlief to improve his forecast for the full-year profits by about €3m to between €80.5m and €82.5m.
In the first six months of 2019 DEMIRE expanded its holdings by an office portfolio and a department store portfolio, bringing its nuber of assets up to 92, with a total lettable area of 1.086 million sqm, With some property appreciation, the market value of the holdings rose to €1.4bn.
Rental income rose 4.4% to €38.2m, up from €36.6m year-on-year. However, the key metric FFO I rose to €15.9m, fully 40% up compared to last year’s equivalent figures, which Hartlief put down to the successful implementation of the company’s “REALize Potential” added-value strategy.
Earlier this year the company swooped to buy five Karstadt department stores in B-locations, in a move different to its usual focus on office properties. The stores, located in good downtown locations in Celle, Goslar, Memmingen, Offenburg and Trier, were bought in a share deal for €71m from German-American group RFR. The attraction for the company’s first acquisition of department stores was the price, reflected in a multiple of 12 to 13 times annual gross rent. The average WALT in the portfolio is 14.4 years, although the property in Goslar just recently commited to a lease extension until 2036.
About 68% of DEMIRE’s rental income comes from offices, 23% from retail and 6% from logistics properties. The company’s two biggest shareholders are Apollo Global Management (64.07%) and the Wecken group (24.5%), so at the moment there is only a relatively small free float (11.43%).
