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Rating action

Scope Ratings GmbH (Scope) has today placed the C issuer rating of Deutsche Konsum REIT-AG (hereafter referred to as 'DKR') under review for a possible downgrade. Scope has also placed the CC rated senior unsecured debt under review for a possible downgrade.

The rating action reflects Scope’s view that DKR's planned debt-to-equity swap constitutes a distressed debt exchange, intended to avoid defaulting on Namensschuldverschreibungen (‘NSV’s) due in September 2025. The restructuring would likely impose a loss of value on creditors compared to the original terms, and, if unsuccessful, would likely require emergency financing from them. Both scenarios indicate financial distress and could potentially qualify as a Selective Default under Scope’s Credit Rating Definitions.

The full list of rating actions and rated entities is at the end of this rating action release.

Key rating drivers

On 29 May 2025, DKR entered into a restructuring agreement centred on a capital increase combining cash and non-cash contributions, priced at EUR 2.00 per share. The latest price is EUR 2.27 per share (as of 17 June 2025)¹.

Aside from the possibility for existing shareholders to participate in the capital increase (cash contribution), the key elements include a debt-to-equity swap, with at least EUR 86m mainly to be contributed from NSVs in exchange for new shares. The final amount will depend on the level of subscription rights exercised by existing shareholders. The restructuring agreement involves the entities through which VBL (Versorgungsanstalt des Bundes und der Länder AöR) holds its stake in the company. The capital increase is subject to approval at an extraordinary general meeting expected to take place in mid-September 2025.

Conditions precedent to implementation include: (i) exemption from mandatory takeover offer requirements under the WpÜG from BaFin; (ii) antitrust clearance; (iii) completion of a restructuring opinion by FTI-Andersch AG; and (iv) successful negotiations with other key creditors. Although the extent and impact of the company's restructuring strategy are still uncertain, the proposed capital increase is expected to improve financial ratios.

The restructuring opinion by FTI-Andersch AG is expected to be finalised by the end of August 2025, with the aim of providing clarity on the comprehensive measures for restructuring and stabilising DKR’s capital structure.

The rating action is primarily driven by Scope's assessment of the planned debt-to-equity swap as a distressed debt exchange, which is intended to avoid a potential default on the NSVs maturing in September 2025. Scope views this restructuring as a forced measure, reflecting the issuer’s inability to meet its obligations under the original terms. Should the swap fail, Scope anticipates that VBL, the primary creditor and second-largest shareholder, will provide alternative financing to avert default and safeguard its investment. Nevertheless, both scenarios are rooted in financial distress. In both cases, the creditor is forced to provide support in order to minimise losses. The proposed debt-to-equity swap imposes materially less favourable terms on creditors by eliminating the contractual obligation to pay interest and repay principal. This results in a loss of value compared to the original fixed-income structure. Thus, Scope assesses the potential restructuring as a distressed exchange that may constitute a selective default as per the agency’s rating definitions (Scope’s Credit Rating Definitions).

Business risk profile: BB (unchanged). DKR’s business risk profile is shaped by its position as one of Germany’s largest commercial real estate companies focused specifically on retail parks, DIY stores and local retail centres. This gives it visibility and stability with tenants. Although tenant concentration is high, with the top three contributing 34% of net rental income as at the end of March 2025, this is offset to some extent by the strong credit quality of key tenants. While the portfolio's macro-locations may expose it to higher valuation volatility, strong micro-locations and limited local competition help sustain tenant demand and stabilise cash flows. The Scope-adjusted EBITDA margin* remains subdued, lingering between 50% and 55% (LTM to the end of March 2025: 50%), with limited short-term upside. Moderate geographic diversification across Germany and expected improvements in occupancy (85% based on GLA at the end of March 2025, down 3 percentage points year on year) and WAULT (4.3 years at the end of March 2025, down 0.7 years), driven by insourced asset management, should support operational resilience in the medium term.

Financial risk profile: CC (unchanged). Despite some recent improvements, DKR’s financial risk profile is characterised by high leverage, weakening interest coverage and inadequate liquidity. The loan/value ratio improved to 53% by March 2025, down from 62% in September 2023, primarily due to debt repayments. However, achieving further deleveraging depends on the successful execution of planned asset sales and on the proposed debt-to-equity swap. Debt/EBITDA remains high at around 12x, reflecting limited rental growth and reduced profitability from a shrinking portfolio.

Interest coverage has deteriorated, falling to 1.6x by March 2025. This is driven by rising debt costs, which are now at 4.1%, and declining earnings. Further increases in financing costs are expected due to step-ups in the NSVs and higher refinancing rates, which could cause coverage to drop to around 1.5x by September 2025. Nevertheless, a successful debt-to-equity swap and continued asset disposals could ease the situation by reducing debt and cutting annual interest expenses by EUR 10m, thereby supporting both interest cover and cash flow.

Although capital expenditure has been modest and largely self-funded, Scope believes that recent reductions to preserve liquidity are unsustainable given the underinvested state of the portfolio. Therefore, future investment needs will likely require moderate external funding as the cash-generating asset base shrinks.

Liquidity: inadequate (-4 notches, unchanged). Liquidity remains insufficient as cash sources (EUR 6m cash at end-March 2025 and barely break-even free operating cash flow under Scope’s assumptions incl. EUR 19m in signed but not yet closed asset sales) are not sufficient to cover cash needs (c. EUR 290m of debt maturing between end-March 2025 and end-September 2026 including loans where the fixed-interest period ends – annuity loans).

Especially the refinancing of the EUR 85.9m NSVs due in September 2025 and the maturing EUR 10m Schuldscheindarlehen poses a significant short-term risk. As a result, DKR remains heavily dependent on either the successful execution of asset sales to free up the required capital or the extension and increase of secured financing with banks.

To support short-term liquidity as well as the ongoing restructuring process, DKR has secured bridge financing of up to EUR 14m (of which EUR 5m has been drawn to date) at an interest rate of 5.5%. This financing matures at the end of August 2025. In parallel, the company has entered into multiple standstill agreements with various lenders, which are also effective until the end of August 2025. These measures are intended to provide liquidity and stability for creditors while the formal restructuring opinion is prepared by FTI-Andersch. This opinion is intended to facilitate a comprehensive restructuring and stabilisation of DKR’s capital structure.

Supplementary rating drivers: -1 notch (unchanged). Scope upholds the negative governance assessment (ESG factor: credit-negative), which continues to result in a one-notch negative adjustment to DKR's standalone credit assessment. This is due to the perceived conflict of interest arising from the shareholder loan granted by DKR to Obotritia, as one of its major shareholders, former CEO and former chairman and member of the board Rolf Elgeti, is also a general partner of Obotritia.

One or more key drivers of the credit rating action are considered an ESG factor.

Under review for a possible downgrade

The under review for a possible downgrade reflects the high likelihood for an execution of the planned debt-to-equity swap of its NSVs due in September 2025, which Scope deems to constitute a distressed debt exchange.

Scope will closely monitor the developments relating to the debt restructuring. Scope's objective is to remove the under review status as soon as there is clarity on the restructuring plan, including the measures to be taken and the timeline for their implementation.

The upside scenario for the ratings and Outlook is:

• Execution of the proposed debt exchange, which would be considered as a Selective Default

The downside scenario for the ratings and Outlook is:

• Alternative debt restructuring that would not be regarded as a distressed debt exchange, i.e. not considered as a Selective Default

Debt rating

Scope’s recovery analysis for senior unsecured debt signals a "superior" recovery, which allows for a two-notch uplift of the debt class rating above the issuer rating. However, the up-notching is limited to one notch due to the significant amount of secured debt ranking ahead of senior unsecured debt, and the issuer’s intention to top-up up secured financing to refinance unsecured debt positions. The recovery expectations are based on a hypothetical default scenario in FY 2024/25 with an enterprise liquidation value of EUR 512m, including a haircut applied to assets reflecting the higher of B category stress or the discounted loss in value linked to portfolio quality, and liquidation costs of 10% for insolvency proceedings. This compares with an expected secured financing of EUR 368m and unsecured financing of EUR 82m (including EUR 30m in senior unsecured bonds and EUR 51.5m in Schuldscheindarlehen).

Environmental, social and governance (ESG) factors

DKR is disputing the loss of its REIT status with the Potsdam tax authorities but has paid all related tax liabilities as of the reporting date.

Scope highlights the perceived conflict of interest arising from the shareholder loan granted by DKR to Obotritia. This is because Rolf Elgeti, one of the major shareholders and former CEO and chairman of the board, is also a general partner of Obotritia. Although Elgeti has stepped down from the board and his ties to Obotritia have been reduced through loan repayments, asset management insourcing and a dilution of Obotritia’s stake – all of which are viewed as improvements to governance and decision-making independence – a full loan repayment is still necessary for the conflict of interest to be resolved.

All rating actions and rated entities

Deutsche Konsum REIT-AG

Issuer rating: C/under review for a possible downgrade, under review placement

Senior unsecured debt rating: CC/under review for a possible downgrade, under review placement

*All credit metrics refer to Scope-adjusted figures.

Rating driver references
1. Company News 29.05.2025

Stress testing & cash flow analysis
No stress testing was performed. Scope Ratings performed its standard cash flow forecasting for the company.

Methodology
The methodologies used for these Credit Ratings and/or Outlook, (General Corporate Rating Methodology, 14 February 2025; European Real Estate Rating Methodology, 2 June 2025), are available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Rated Entity and/or its Related Third Parties participated in the Credit Rating process.
The following substantially material sources of information were used to prepare the Credit Ratings: public domain, the Rated Entity and Scope Ratings' internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting these Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and/or Outlook and the principal grounds on which the Credit Ratings and/or Outlook are based. Following that review, the Credit Ratings and/or Outlook were not amended before being issued.

Regulatory disclosures
These Credit Ratings and/or Outlook are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and/or Outlook are UK-endorsed.
Lead analyst: Philipp Wass, Managing Director
Person responsible for approval of the Credit Ratings: Sebastian Zank, Managing Director
The Credit Ratings/Outlook were first released by Scope Ratings on 31 May 2018. The Credit Ratings/Outlook were last updated on 30 December 2024.

Potential conflicts
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.

Conditions of use/exclusion of liability
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