Q1 in line with est. but vacancy increases further

Q1 rental income declined 17.3% yoy to € 11.6m (eNuW: € 11.4m), reflecting the smaller asset base following multiple disposals throughout FY25, as well as the impact of higher vacancy, which was only partly offset by rent indexation. Annualised contractual rents fell to € 45.7m (FY25: € 51.3m), driven by two asset disposals in Q1 as well as two assets becoming fully vacant.

As a result, the EPRA vacancy rate rose sharply to 21.0% (FY25: 16.4%). Re-letting in the current soft German office market remains challenging, and the letting volume of only ~2,700 sqm in Q1 (vs. 25,500 sqm a year ago) underlines the difficult demand environment, although the Q1’25 figure was inflated by two large one-off prolongations. Management expects larger lettings to materialise over the remainder of the year and appeared confidentappeared confident that it could quickly recover at least part of the rental income of the two fully vacant properties. Here, execution remains the most decisive factor. Positively, WALT improved 0.5 years to 5.2 years, mainly reflecting the conversion of a single-tenant master lease into individual rental contracts at one of DEMIRE's larger assets.

FFO I came in at € 0.3m (eNuW: € 0.7m; Q1’25: € 2.1m), which was almost entirely driven by the decline in rental income, only partly offset by a slightly improved NOI margin (+2pp yoy). Mind you, this figure reflects the FFO before shareholder loan interest (€ 93.5m volume & 22% interest), which the company capitalises, and is therefore P&L-relevant, despite not being cash-effective.

The FY26 guidance was confirmed with rental income of € 41.5-43.5m and FFO I of € -1.0-1.0m. In our view, this is, as in previous years, too conservative. Even reflecting a certain amount of disposals, we expect rental income of € 44.2m, based on (i) the Q1 top-line, (ii) the contractual rent of € 45.7m as well as (iii) improving vacancy levels during the remainder of FY26e. On FFO, we expect € 2.9m, supported by stable G&A and the aforementioned effects. Despite the muted near-term operational backdrop, the stock continues to trade at a significant discount to NAV and remains an attractive opportunity, particularly for special situation investors.

Reiterate BUY, PT € 0.80.