Deutsche Konsum REIT-AG (DKR), a German real estate company specializing in retail properties, has reported impressive business performance for the first nine months of the 2022/2023 financial year. The company’s resilient approach to challenges like inflation and shifting valuation cycles has led to notable growth in key financial metrics.
Steady Rise in Rental Income
DKR’s rental income surged by 6.0% during the reporting period, reaching EUR 58.7 million. This increase was largely driven by a growing property portfolio and strategic rent hikes. The company also implemented Consumer Price Index (CPI)-linked rent increases, which amounted to EUR 2.1 million. These measures helped mitigate the impact of high inflation and contributed to an annualized rent of EUR 78.9 million.
FFO and aFFO Challenges
Despite the positive rental income growth, the company’s Funds from Operations (FFO) experienced a decline of 15%, totaling EUR 27.0 million (EUR 0.77 per share). The reduction was primarily due to increased borrowing costs, which amounted to EUR 3.4 million, and higher operating expenses related to the portfolio. Adjusted FFO (aFFO), which considers capitalised modernisation measures, also saw a significant decrease of 38.5%, totaling EUR 12.7 million, driven by higher investments in modernisation projects.
Shifting Valuation Cycle
To address the volatile interest rate and inflation environment, DKR made a significant change by adjusting its real estate portfolio valuation cycle from 30 June to 30 September each year. This change aims to enhance the accuracy of property valuations, providing a more realistic reflection of the market conditions.
Expansion of Real Estate Portfolio
DKR’s real estate portfolio continues to grow, now comprising 184 retail properties with a balance sheet value of approximately EUR 1.1 billion as of 30 June 2023. The annualized rent for this portfolio reached EUR 78.9 million, showcasing the company’s commitment to expansion. The acquisition of a food discounter in Suhl (Thuringia) marked a notable addition to the portfolio.
Financial Metrics and Outlook
The company’s EPRA Net Tangible Assets (NTA) per share demonstrated a positive trend, increasing to EUR 11.37 compared to EUR 10.98 per share as of 30 September 2022. The Net Loan-to-Value (LTV) ratio stood at 51.2%, slightly above the targeted level of around 50%.
Despite the Brandenburg Fiscal Court’s decision to deny DKR’s appeals against tax payments, the company’s management board confirmed a forecasted FFO of EUR 36 million to EUR 39 million for the current financial year.
To discuss these results, Deutsche Konsum REIT-AG conducted an analyst conference, including a webcast and conference call, on August 14, 2023. Stakeholders were provided with valuable insights into the company’s performance and its strategies for future growth.