Deutsche Konsum REIT’s portfolio exceeds balance sheet value of €1bn for the first time

Alexander Kroth (CIO of DKR), Rolf Elgeti (CEO of DKR) and Christian Hellmuth (CFO of DKR).
Alexander Kroth (CIO of DKR), Rolf Elgeti (CEO of DKR) and Christian Hellmuth (CFO of DKR).

Retail-focused Deutsche Konsum REIT-AG has reported a significant NAV increase in the first nine months of its 2020/2021 financial year with the value of its portfolio exceeding €1 billion for the first time.

Significant increases in rental income and FFO

Due to the continuous acquisition of properties, rental income during the nine months increased significantly by 26% from €40.3 million to €50.6 million compared to the same period during the previous year.

Funds from operations (FFO) also increased by 22% to €30.6 million (2019/2020: €25.2 million) and this corresponds to an FFO per share of €0.87 (2019/2020: €0.78).

FFO after deduction of capitalised revitalisation measures was €16.3 million or €0.46 per share (2019/2020: €12.9 million or €0.40 per share) due to ongoing revitalisation and expansion projects throughout its portfolio.

Real estate portfolio exceeds balance sheet value of one billion euros for the first time

DKR’s real estate portfolio recognised on the 30th of June 2021 comprises of 172 retail properties with a balance sheet of approximately €955.1 million (30th September 2020: €809.9 million) and a rental area of approximately 989 000m2.

Since the beginning of the current financial year, DKR has acquired 13 retail properties with an investment volume of around €120 million and an annual rent of €10.9 million which translates into an average acquisition yield of 9.1%. The transfer of benefits and encumbrances of 11 properties have already taken place during the first nine months of the current financial year and the two remaining properties have been transferred as of the 1st of July 2021 and the 1st of August 2021 respectively. A further increase in rental income is expected during the fourth quarter.

This is offset by the sale of a property in Berlin-Pankow. The property was acquired around three years ago with an initial yield of approx. 9.7% and it has now been sold at a yield of 4.5%, from which DKR will realise a capital gain of around €1.7 million. The transfer of benefits and encumbrances is expected to take place on the 1st of September 2021.

DKR’s total portfolio (pro forma) currently comprises 174 retail properties with an annual rent of more than €73 million and a balance sheet value of more than €1 billion. The acquisition yield of the total portfolio is currently around 10.4%. The company is in the process of acquiring further retail properties.

Significant appreciation of the property portfolio due to increased market demand for well-managed food-anchored properties

The company reported significant appreciation of its portfolio due to increased market demand for well-managed food-anchored properties. As of the 30th of June 2021, its portfolio was valued on a regular basis by the external and independent real estate appraiser CBRE. This resulted in a significant appreciation of 8% which corresponds to a valuation gain of €54.8 million (after offsetting capital expenditure (CAPEX) investments of €14.3 million). As a result, the properties recognised as at the 30th of June 2021 are now recognised with a multiplier of 13.9x the annual rent (previous year: 12.9x).

In addition to value-creating asset management and constant lease extensions, this result reflects the increased investors’ interest in food-anchored daily supply properties what has significantly increased the marketability of this asset class. These properties have become more important due to Covid-19, as the inflation-hedged and stable rental cash flows of food-anchored properties have become clearer due to their systemic relevance.

EPRA NAV rises by 17% to EUR 12.97 per share / Net LTV at 53.6%

The EPRA NAV per share increased by almost 17% to €12.97 (30 September 2020: €11.11 per share) due to the positive period result and the valuation gains from the property valuation. The net LTV gearing ratio is 53.6% as of the 30th of June 2021.

Pandemic-related decline in the pace of purchases – earnings forecast for the financial year slightly adjusted

Due to its defensive orientation, DKR has so far only recorded marginal rent losses in the current financial year, as DKR’s ‘classic’ tenants – suppliers of daily needs such as food retailers as well as hypermarkets, drugstores, pharmacies and also DIY stores – have not been affected by the lockdown regulations, or only temporarily. Since the gradual openings of the retail sector as well as the vaccination campaign progressing in Germany, the situation of the affected tenants has brightened, which has also allowed existing deferred rents to be gradually paid to DKR and tenancies to be extended.

Despite strong growth in the financial year to date, DKR has not been able to complete further planned acquisitions as quickly as expected due to the impact of the pandemic and, with purchases of €120 million to date, is about 20% behind the expected acquisition volume of €150 million, which is reflected in a lower increase in FFO. The reason for this is sometimes considerable delays in the acquisition processes. As further short-term acquisitions will no longer have a significant impact on rental income in the current financial year, the Management Board is adjusting the guidance for the 2020/2021 financial year slightly downwards.

DKR’s Board now expects FFO between €40 million and €41 million (instead of €42 million and €45 million previously announced) in the 2020/2021 financial year. The forecast for the FFO run rate as at the 30th of September 2021 is unchanged and ranges between €47 million and €51 million.