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Rating action

Scope Ratings GmbH (Scope) has today downgraded Deutsche Konsum REIT-AG’s (hereafter referred to as 'DKR') issuer rating to SD (selective default) from C/under review for a possible downgrade. Subsequently, Scope reinstated DKR's issuer rating at C and placed both the issuer rating and the CC senior unsecured debt rating under review for a developing outcome.

The SD rating assigned today reflects Scope’s determination that an event of default has occurred on positions other than senior unsecured debt under Scope’s Credit Rating Definitions.

Scope has reinstated DKR’s issuer rating at C, reflecting the improved situation at DKR following the finalisation of the restructuring concept, which has reduced the likelihood of further default. This is because all relevant creditors have either extended the maturity of their claims until the end of the restructuring period (end-September 2027) or provided comparable undertakings. The under-review status reflects ongoing, albeit limited, default risk, despite the extension of maturities. There is potential for an upgrade, depending on the successful execution of the debt-to-equity swap or continued lender support.

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

Key rating drivers

On 1 September 2025, DKR finalised its restructuring plan, which had been prepared by FTI-Andersch AG, and published the conditions for a capital increase to fund the financial restructuring¹.

The restructuring plan complies with IDW S6 standards and German Federal Court rulings. It includes the following key elements: (i) a capital increase involving a debt-to-equity swap for liabilities of up to EUR 120m; and (ii) property sales worth around EUR 300m to reduce debt. The restructuring period runs until end-September 2027. In order to facilitate the execution of the restructuring plan, creditors with outstanding facilities maturing before September 2027 have agreed to extend the maturity date to the end of September 2027 or have made similar commitments.

The envisioned capital increase will be a mixed cash^a and non-cash offering with subscription rights. The non-cash element includes a debt-to-equity swap of convertibles and Namensschuldverschreibungen (NSVs) worth up to EUR 120m, of which EUR 108m is from entities linked to VBL (Versorgungsanstalt des Bundes und der Länder AöR). VBL's contribution will be adjusted if other shareholders exercise their subscription rights more extensively. An extraordinary general meeting to approve the capital increase is planned for fall 2025. Implementation depends on BaFin granting an exemption from the requirement to make a mandatory takeover offer, should VBL or its affiliates gain control through the capital increase.

The downgrade of the issuer rating to SD reflects Scope's assessment of the executed debt restructuring as a distressed debt exchange, which intended to avoid a potential default on the NSVs and other debt maturing in or before September 2025. Scope views this restructuring as a forced measure, reflecting the issuer’s inability to meet its obligations under the original terms. Based on Scope's readings and conversations with management, the debt restructuring agreement with certain creditors imposes less favourable terms by extending the debt maturity with limited compensation. This resulted in a loss of value compared to the original terms. Thus, Scope assesses the executed debt restructuring as a distressed exchange that constitutes a selective default as per the agency’s rating definitions.

The issuer rating has been reinstated at C reflecting the improved situation at DKR following the finalisation of the restructuring concept, which has reduced the likelihood of further default.

Business risk profile: BB- (revised from BB). The assessment has been revised as Scope expects DKR's competitive positioning to suffer during the restructuring period due to muted profitability in relative and absolute terms driven by declining portfolio size. This will limit the company’s ability to invest in its portfolio, which will probably lead to pressure on asset quality and negatively impact its competitive positioning.

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 35% of net rental income as at the end of June 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, expected to linger between 45% and 50% (LTM to the end of June 2025: 42%), with limited short-term upside as ongoing costs associated with balance sheet stabilisation, such as asset disposals and debt restructuring, will continue to put pressure on achievable profitability levels.

Moderate geographic diversification across Germany and expected improvements in occupancy (85% based on GLA at the end of June 2025, down 1pp YoY) and WAULT (4.3 years at the end of March 2025, down 0.5 years) should support operational resilience in the medium term.

Financial risk profile: CC (unchanged). DKR’s financial risk profile is characterised by high leverage, weakening interest coverage and inadequate liquidity. The loan/value ratio stood at 56% in June 2025, down from 62% in September 2023, primarily due to debt repayments partially offset by fair value decline of the standing portfolio (YTD: EUR 47m). 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 15x, reflecting limited rental growth and reduced profitability from a shrinking portfolio.

Interest coverage has deteriorated, falling to 1.5x by June 2025 (LTM). This is due to rising debt costs, which are currently at 5.3%, and falling earnings. However, the cost of debt is set to stabilise due to the debt restructuring that was carried out, which included an extension of credit facilities; hence, Scope expects it to have an overall neutral impact on the interest burden. Consequently, Scope anticipates that EBITDA interest coverage will stabilise at its current level for the current business year. Nevertheless, a successful debt-to-equity swap and continued asset disposals could ease the situation by reducing debt and cutting annual interest payments, 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 inadequate. If the debt-to-equity swap is not executed, DKR might face further, significant financial pressure, as Scope does not expect the company to have the financial means to facilitate any potential repayment obligations (EUR 10m cash at end-June 2025 barely break-even free operating cash flow under Scope’s assumptions incl. EUR 16m in signed, but not yet closed, asset sales).

Consequently, DKR remains dependent on the successful execution of asset sales to free up the necessary capital, the execution of the debt-to-equity swap or on securing an extension and increase to its bank financing.

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 of CC. This is due to the perceived conflict of interest arising from the shareholder loan granted by DKR to Obotritia Capital KGaA, 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 developing outcome

The under review for a developing outcome reflects DKR's dependence on BaFin granting VBL an exemption from the requirement to make a mandatory takeover offer should VBL or its affiliates gain control through the capital increase, as well as on EGM approval of the planned capital increase. The under review for a developing outcome further reflects both, i) the potential for an upgrade, depending on the successful execution of the debt-to-equity swap or, if not successful, continued lender support, both of which could lead to improved liquidity^b as well as ii) the – albeit limited - risk of another default.

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 execution of the planned debt-to-equity swap.

The downside scenario for the ratings is:

• Payment default if the planned debt-to-equity swap is not executed, as the company may face potential repayment obligations.

The upside scenario for the ratings is:

• Successful execution of the debt-to-equity swap, which could lead to a substantial reduction in leverage or if not successful, continued lender support, both of which could lead to improved liquidity, with no debt falling due before September 2027. This should give DKR the opportunity to implement its restructuring plan, including selling assets to reduce debt and mitigate refinancing risk ahead of the September 2027 deadline.

A rating affirmation is seen remote at present.

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, Scope limits the up-notching to one notch due to the significant amount of secured debt ranking ahead of senior unsecured debt, and the issuer’s ability to top-up up secured financing to refinance unsecured debt positions. This results in the senior unsecured debt rating of CC.

The recovery expectations are based on a hypothetical default scenario in FY 2025/26 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 381m and unsecured financing of EUR 82m (including EUR 30m in senior unsecured bonds and EUR 51.5m in Schuldscheindarlehen).

The senior unsecured debt rating has been placed under review for a developing outcome, in line with the underlying issuer rating.

Environmental, social and governance (ESG) factors

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

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

All rating actions and rated entities

Deutsche Konsum REIT-AG

Issuer rating: SD, Default

Issuer rating: C/under review for a developing outcome, upgrade and under review placement

Senior unsecured debt rating: CC/under review for a developing outcome, under review placement

*All credit metrics refer to Scope-adjusted figures.

a. Subscription price: EUR 2.00 per new share (as of 9 September 2025, the latest price is EUR 2.03 per share); Subscription right: 1 existing share entitles to 1.5 new shares.

b. According to the company, all debt with an initial maturity before 30 September 2027 has been extended to 30 September 2027, or similar arrangement were reached with lenders in line with the company’s restructuring plan. This should facilitate the comprehensive restructuring and stabilisation of DKR’s capital structure.

Rating driver references
1. Company News 01.09.2025

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, (General Corporate Rating Methodology, 14 February 2025; European Real Estate Rating Methodology, 2 June 2025), are available on 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 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 scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA):registers.esma.europa.eu/cerep-publication/. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at 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 scoperatings.com/governance-and-policies/rating-governance/methodologies.

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 the principal grounds on which the Credit Ratings are based. Following that review, the Credit Ratings were amended before being issued.

Regulatory disclosures
These Credit Ratings are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings 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 were last updated on 18 June 2025.

Potential conflicts
See 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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