REG - Phoenix SpreeDeutsch - Financial results for the year ended 31 Dec 2024
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RNS Number : 7141G Phoenix Spree Deutschland Limited 30 April 2025
30 April 2025
Phoenix Spree Deutschland Limited
(the "Company" or "PSD")
Financial results for the year ended 31 December 2024
Phoenix Spree Deutschland Limited (LSE: PSDL.LN), the UK listed investment
company specialising in Berlin residential real estate, announces its full
year audited results for the financial year ended 31 December 2024. The Board
also provides a further update on the Company's strategy to significantly
accelerate condominium sales and reduce debt.
HIGHLIGHTS OF THE YEAR
Financial and operational Summary
€ million (unless otherwise stated) 12 months to 12 months to 2024 v 2023
December 2024 December 2023 % change
Income Statement
Gross rental income 28.1 27.5 2.4%
(Loss) before tax 39.5 (111.8) (64.7)%
Dividend per share in respect of the period - - -
(€ cents (£ pence))
Balance Sheet
Like-for-like Portfolio valuation (€m) 552.8 548.3 0.8%(4)
EPRA NTA per share (€)(1) 3.55 3.96 (10.4)%
EPRA NTA per share (£)(1,2) 2.93 3.43 (14.6)%
EPRA NTA per share total return (€ %) (10.4) (22.4) -
Net LTV (%)(3) 40.3 46.3 -
Operational
Like for like Portfolio valuation per sqm (€) 3,633 3,609 0.7%
Condominium sales notarised (€m) 9.4 7.2 30.6%
Condominium sales notarised per sqm (€) 4,295 3,976 8.0%
Vacant condominiums notarised per sqm (€) 5,027 4,702 6.5%
Occupied Condominiums notarised per sqm (€) 3,430 3,409 0.6%
Annual like-for-like rent per sqm growth (%)(4) 1.6 4.1 -
EPRA vacancy (%) 1.5 2.0 -
1 - EPRA metrics defined and calculated in note 27.
2 - Calculated at FX rate GBP/EUR 1.2097 as 31
December 2024 (2023: GBP/EUR 1:1.153)
3 - Net LTV uses nominal loan balances (note 22)
rather than the loan balances on the Consolidated Statement of Financial
Position which include Capitalised Finance Arrangement Fees.
4 - Like-for-like excludes the impact of disposals in
the period.
Strategic repositioning
· Completion of €75.9m sale of a 385-unit portfolio comprising 16
properties to funds managed by Partners Group in December 2024.
· Debt terms amended, increasing permitted condominium sales assets
from 6 to 40 properties.
· Reduction in net debt during the financial year by €89.9 million,
lowering net LTV from 46.3% to 40.3%, with a further reduction expected,
driven by condominium sales.
· Resolutions to continue the Company and amend its Investment
Objective and Policy passed at EGM on 12 March 2025.
· Accelerated condominium sales programme underway, with stock
available for sale expected to rise from 108 units in December 2024 to 942
units by Q3 2025.
Portfolio valuation increase
· Condominium values have remained resilient, and Private Rented Sector
("PRS") valuations have stabilised, though at significantly lower levels than
the 2022 peak.
· On a like-for-like basis (adjusted for disposals), the Portfolio
value rose 0.8% in 2024 and 3.2% in H2 2024.
· Condominium Portfolio value grew 9.0%, driven by PRS properties
redesignated under the accelerated condominium sales strategy.
· PRS Portfolio value fell 6.3% on a like-for-like basis, but the 2.8%
decline in the second half of the year was the smallest since the real estate
downturn began in 2022.
Condominium sales accelerating
· 2024 condominium notarisations increased by 31% versus 2023, reaching
€9.4 million, with vacant units sold at an average of €5,027, a 39.3%
premium to the 2023 Portfolio per sqm valuation.
· 2025 performance to date:
o 34 units notarised for €9.3 million, a 169% increase versus the same
period in 2024, at an average price per sqm of €3,999.
o Further reservations pending notarisation for 10 units worth €3.4
million.
o Vacant units sold at €4,738 per sqm, a 30.5% premium to the Portfolio's
31 December 2024 valuation; occupied units sold at €3,608 per sqm, a 0.6%
discount.
Rental market remains resilient
· Reversionary reletting premium remains high, reflecting ongoing
shortage of Berlin rental supply.
· New residential leases during the year signed at an average premium
of 31% to passing rents, or
€13.9 per sqm, a record high.
· Like for like rent per sqm growth slowed to 1.6%, reflecting a lower
level of reletting.
· EPRA vacancy of 1.5% (2023: 2.0%), a record low. Residential unit
churn increased to 8.7% (2023: 6.6%).
Outlook
· Following the continuation vote, the Company is advancing with a
managed portfolio realisation programme, primarily aimed at accelerating
condominium sales.
· The Company remains optimistic in achieving its target annualised
condominium sales rate of €50 million by the end of 2025.
· Sales prices for condominiums in Berlin per sqm are expected to
remain significantly higher than the equivalent values of PRS properties.
· Discussions in relation to the refinancing of debt maturing in Q3
2026 are currently underway, and aim to increase the number of condominium
sales projects that can be made available for sale at any time and enhance
flexibility for capital returns to shareholders.
· Conditions in the investment market for PRS properties have shown
recent signs of improvement. However, the current US administration's
imposition of higher trade tariffs has the potential to impact investor
sentiment and real estate asset demand.
Robert Hingley, Chairman of Phoenix Spree Deutschland,
commented:
"I am pleased to announce that our Portfolio has reached a turning point,
achieving its first like-for-like valuation increase since the broader German
residential market downturn began in 2022.
The significant divergence in price per square meter between condominiums and
PRS properties that has been observed in the Berlin residential market in
recent years is expected to continue, and it is against this backdrop that the
Company plans to materially accelerate condominium sales in 2025 and beyond.
The company remains on track to deliver on its 2025 condominium sales targets.
The Company's strategic outlook has been further improved by recent
enhancements to its balance sheet. Asset disposals completed in December 2024
have already contributed to a considerable debt reduction, with ongoing
condominium sales expected to drive further deleveraging. Additionally,
refinancing discussions are underway with the aims of improving operational
and financial flexibility, further enhancing the Company's capacity for future
condominium sales and expediting capital returns to shareholders.
Annual Report and Accounts
The full Annual Report and Accounts will shortly be available to download from
the Company's webpage www.phoenixspree.com. (http://www.phoenixspree.com/) All
page references in this announcement refer to page numbers in the Annual
Report and Accounts. The Company will submit its Annual Report and Accounts to
the National Storage Mechanism in the required format in due course, and it
will be available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) .
For further information, please contact:
Phoenix Spree Deutschland Limited +44 (0)20 3937 8760
Stuart Young
Deutsche Numis (Corporate Broker) +44 (0) 20 7260 1263
Hugh Jonathan
Teneo (Financial PR) +44 (0)20 7353 4200
Elizabeth Snow
Annushka Shivnani
CHAIRMAN'S STATEMENT
The past year has marked a significant change in the strategic direction of
the Company. During this time, the Board conducted a comprehensive review of
options to address the Company's substantial share price discount to EPRA NTA
per Ordinary Share and to maximise value for shareholders. After extensive
engagement with our stakeholders, we determined that a managed Portfolio
realisation, focused on the accelerated sale of individual apartment units
("condominiums"), was the most effective strategy to achieve this goal.
Throughout 2024, the German residential investment market consistently
demonstrated that sales prices for individual condominium units were more
resilient than those for PRS properties. For Phoenix Spree, this was
illustrated in 2024 where, on a per sqm basis, condominium sales values were
over 90% higher than from single PRS property sales. This clear divergence
underpins our focus on accelerating condominium sales as the primary mechanism
for delivering shareholder value. A full update on our progress to date can be
found in the report of the Property Advisor.
To support this strategy, in December 2024, the Company secured amended
financing terms to the existing facility with its principal lender, enabling a
significant acceleration of the condominium sales programme in 2025 and
beyond. At the same time, the Company completed the strategic disposal of 16
properties, encompassing 385 units, to facilitate these financing adjustments.
Continuation vote
The Company's Articles of Association require a vote on the continuation of
the Company as a closed- ended investment vehicle at regular intervals. This
year, the Board proposed the continuation vote be held earlier than originally
scheduled, providing clarity and certainty regarding the Company's future
direction and to approve the necessary amendments to the Company's Articles of
Association and investment policy to align with its new strategy.
Shareholders overwhelmingly voted in favour of the Company's continuation.
This decision ensures that the Company can now proceed with its carefully
managed strategy to realise the value of its assets, further reduce debt
levels, and, ultimately, return capital to shareholders.
Financial results
I am pleased to report that the second half of the financial year marked a
turning point, with the Portfolio registering its first like-for-like
valuation increase since the broader German residential market downturn began
in 2022. As at 31 December 2024, the total Portfolio value stood at €552.8
million. On a like-for-like basis (adjusted for disposals), the Portfolio
value increased by 0.8% during the year and by 3.2% in the second half of
2024.
Reflecting the loss made on the strategic disposal mentioned above, which was
necessary to secure the amended refinancing terms to allow the Company to sell
condominiums at scale, the Euro EPRA NTA total return per share was (10.4)%
over the year. The sterling EPRA return was (14.6)% percent.
A more comprehensive review of the financial and operating performance of the
Company for the financial year to 31 December 2024 can be found in the report
of the Property Advisor.
Responsible business
We remain committed to upholding ethical and transparent business practices.
Our Corporate Responsibility Plan, "Better Futures," continues to guide our
operations, focusing on five key pillars: Tenant Satisfaction, Environmental
Stewardship, Social Responsibility, Community Investment, and Robust
Governance.
These pillars drive our efforts to reduce our environmental footprint, respect
all individuals affected by our operations, provide a high standard of tenant
services, contribute meaningfully to local communities, and ensure strong
accountability and oversight.
Our tenants
While our future strategy has changed, we remain fully committed to the
wellbeing of our rental tenants. Over the past year, we have continued to
invest in our properties to ensure they provide high- quality living spaces.
We are proud that our tenant satisfaction surveys demonstrate consistently
high levels of satisfaction with both the quality of our apartments and the
efficiency of our rental process.
We recognise the broader challenges posed by rising living costs and continue
to work constructively with those in greatest need of support.
I am pleased to report strong tenant engagement in our condominium sales
activities. All tenants in rental properties designated for sale have been
contacted, and the process has been thoroughly explained. They have also been
offered the opportunity to purchase their rental apartments outright.
Environmental stewardship
Environmental stewardship remains a cornerstone of our business strategy. As a
member of the European Public Real Estate Association (EPRA), we continue to
adhere to EPRA's Best Practice Recommendations to ensure transparency in our
sustainability reporting. I am pleased to announce that, for the third
consecutive year, our efforts were recognised with a Gold Award at the 2024
EPRA Sustainability Awards. This reflects our dedication to industry-leading
standards in environmental and social responsibility reporting.
The Company has entered into a framework agreement with a leading provider of
green solutions for heating, sustainability and ESG for residential
properties, to test and supply heating optimisation systems. Subject to
successful testing, the Company intends a broader roll-out across a
substantial part of the PRS Portfolio.
Charitable initiatives
Our commitment to being a responsible corporate citizen extends to our
charitable endeavours, guided by our Community Investment Policy. We continue
to focus on supporting charities that address homelessness and help families.
In Berlin, the Company's support for The Intercultural Initiative and Laughing
Hearts charities continues to provide crucial assistance to women, children,
and those in social care. In London, our Property Advisor's partnership with
homeless charities SPEAR and SHP (Single Homeless Project) is helping to
address the needs of homeless individuals through accommodation, health
support, and employability programmes. Additionally, our Property Advisor's
support for Home-Start is positively impacting the wellbeing of families with
young children in the UK.
Board governance
The Board remains committed to maintaining a strong corporate governance
culture. We continue to follow the principles of good corporate governance as
outlined in the Association of Investment Companies Code of Corporate
Governance ("AIC Code"). Further details on how the Company has implemented
and complied with the provisions of the AIC Code can be found in the
Directors' Report.
Property Advisor
2024 has been another productive year for QSix, the Company's Property
Advisor. In addition to its day- to-day asset management responsibilities,
QSix has played a key role in laying the groundwork necessary for the Company
to implement its accelerated condominium sales strategy.
In June 2024, the Board finalised a new Property Advisory and Investor
Relations Agreement with QSix, which introduced revised fee arrangements. This
agreement resulted in a 14% reduction in ongoing fees year-on-year and a 40%
reduction compared to the fee run rate at the end of 2022.
QSix has additionally committed to using the post-tax proceeds from any future
disposal fees received under the terms of the agreement to purchase shares in
Phoenix Spree. To date, QSix has acquired 299,917 shares under this agreement,
with further purchases expected during 2025. The Board believes these updated
arrangements further strengthen the alignment of interests between QSix and
the Company.
Outlook
Following a significant three-year market downturn, PRS values are
stabilising, with transaction volumes showing signs of improvement since late
2024. However, any rebound is likely to be gradual.
The significant divergence in price per square meter between condominiums and
PRS properties is expected to continue, and it is against this backdrop that
the Company is significantly accelerating condominium sales in 2025 and
beyond.
The December 2024 portfolio disposal has achieved a material reduction in
leverage, with further reductions expected through ongoing condominium sales.
The Company is actively progressing the refinancing of its primary lending
facility, which is required to enable shareholder distributions.
In recent weeks uncertainty created by the imposition of high trade tariffs
has led to increased financial market volatility. Although it is too early to
predict any potential impact on buyer confidence as it relates to the Berlin
condominium and PRS markets, the Company is on track to achieve its previously
announced condominium sales targets.
REPORT OF THE PROPERTY ADVISOR: ACCELERATED CONDOMINIUM SALES STRATEGY
Background
The European real estate sector continues to face challenges brought on by
higher interest rates, subdued investor sentiment and a downturn in property
values.
Reflecting these headwinds, the Company's share price has not fully reflected
the intrinsic value of its Portfolio, with its shares continuing to trade at a
substantial discount to EPRA NTA per share.
Since the onset of the downturn in European real estate values, the Company
has prioritised optimising asset sale proceeds and reducing its outstanding
debt.
A polarised market
The Berlin property market has demonstrated a notable disparity in achievable
sales values per square meter between condominiums (individually owned
apartments) and PRS properties (apartment blocks intended for private rental).
While condominium prices and transaction volumes have remained broadly stable,
valuations for PRS properties have experienced a sharp decline since their
peak in 2022. This trend was reflected in the Company's disposal progress in
2024, where condominium sales achieved average per sqm valuations that were
92% higher than those of individual PRS property sales. This polarisation has
shaped the Company's strategy, which now prioritises unlocking value through
increased condominium sales.
To facilitate this strategy, the Company was required to amend the terms of
its principal debt facility. While the Company has no debt maturing until
September 2026, its previous financing arrangements limited the number of
condominiums that could be marketed at any given time to 6 properties.
Condominium potential within the Portfolio
Property status as a 31 Number of Number Area Units as %
December 2024 properties of units (sqm) total
Divided and in condominium sales pool 40 942 68,312 43.6%
Divided but not yet in condominium sales pool 20 739 47,432 34.2%
Total divided properties 60 1,681 115,744 77.8%
Undivided properties (PRS) 14 480 36,422 22.2%
Total properties 74 2,161 152,166 100.0%
As at 31 December 2024, the Portfolio comprised 74 properties, of which 60 are
legally divided for condominium sales. Following the debt amendment, 40
properties are now permitted for inclusion as condominium sales projects at
any one time. Accordingly, plans are in hand to make available for sale
properties comprising 942 units, representing 44% of the total Portfolio.
An additional 20 legally subdivided properties containing 739 units (34% of
the Portfolio) remain excluded from current sales activities. The Company is
currently working on securing new financing, with the aim of aligning the new
debt arrangements more closely with the full condominium potential of the
Portfolio.
The remaining 14 PRS properties are not divided as condominiums and have
limited prospects of obtaining consent for such division.
Condominium sales process
For the 40 properties currently approved for inclusion in condominium sales
projects, the sales process is being carried out in phases and, by the end of
2025, the total number of units available for sale is projected to reach 942.
Execution of the accelerated condominium sales plan has required an
appreciable increase in resources to prepare, market and sell units. To
facilitate this, the Company has partnered with two leading specialist
condominium sales platforms, Engel & Völkers and Lübke Kelber. These
platforms will significantly broaden the reach, particularly internationally,
of condominium marketing activities. In conjunction with the Property Advisor,
these brokers have provided an assessment of each property's potential market
price for vacant and let units. Throught the duration of the condominium sales
programme, it is currently expected that an average value per sqm of
approximately €5,000 can be achieved for vacant units and €3,500 for
tenanted units.
Condominium preparation and marketing
Property group Sales Status Number of properties Units as at 1 Jan Sqm as at 1 Jan 2025 Potential project sales
2025 value(1)
Tranche 1 On market 2024 6 108 9,291 €41.3m
Tranche 2 Added December 24 10 258 19,711 €78.5m
Tranche 3 Commencing Q2 25 12 282 19,549 €82.6m
Tranche 4 Commencing Q3 25 12 294 19,760 €96.0m
Total 40 942 68,311 €298.4m
1 Projected sales value based on 2024 estimates agreed with Engel &
Völkers and Lübke Kelber, based each building's potential market price for
vacant and let units. Assumes each sales project achieves sales split of 50%
vacant and 50% occupied and no change in condominium pricing for the duration
of each condominium sales project.
Preparations for marketing 10 properties in tranche 2, comprising 258 units,
began in late 2024 and these are now being actively marketed by Engel &
Völkers and Lübke Kelber. These properties were prioritised due to minimal
capital expenditure requirements to facilitate sales. The number of units
currently being marketed for sale has increased from 108 in December 2024 to
366 as at 28 April 2025.
A further 24 properties will be added to the condominium sales pool in two
further tranches. Preparatory work on the next 12 properties (282 units) is
underway, with capital expenditure projects to facilitate sales expected to
conclude by the end of the first half of the financial year, enabling their
marketing to begin. The final 12 properties (294 units), requiring more
preparation, are expected to be market-ready by Q3 2025.
REPORT OF THE PROPERTY ADVISOR: FINANCIAL AND OPERATIONAL HIGHLIGHTS
Financial highlights for the twelve months to 31 December 2024
€ million (unless otherwise stated) Year to Year to
31-Dec-24 31-Dec-23
Gross rental income 28.1 27.5
Investment property fair value loss (5.4) (97.3)
Loss before tax (39.5) (111.8)
Reported EPS (€) (0.42) (1.07)
Investment property value 552.8 675.6
Net debt (Nominal balances)(1) 223.0 313.0
Net LTV (%) 40.3 46.3
IFRS NAV per share (€) 3.01 3.43
IFRS NAV per share (£)(2) 2.49 2.97
EPRA NTA per share (€)(3) 3.55 3.96
EPRA NTA per share (£)(2) 2.93 3.43
Dividend per share in respect of the period (€ cents) - -
Dividend per share in respect of the period (£ pence) - -
€ EPRA NTA per share total return for the period (%) (10.4) (22.4)
£ EPRA NTA per share total return for the period (%)(2) (14.6) (24.0)
1 - Nominal loan balances used in calculation as per note 22 rather than
balances on the Consolidated Statement of Financial Position which consider
Capitalised Finance Arrangement Fees in the balance as per IAS 23.
2 - Calculated at FX rate GBP/EUR 1.2097 (2023: GBP/EUR 1:1.153)
3 - Further EPRA Net Asset Measures can be found in note 28 & 29
Financial results
Revenue for the financial year to 31 December 2024 was €28.1 million (2023:
€27.5 million). The Company recorded a loss before tax of €39.5 million
(2023: loss before tax €111.8 million). The primary diver of the reduced
loss before tax in 2024 reflects a smaller revaluation loss of €5.4 million
(2023: revaluation loss €97.3 million).
Property expenses declined by 5.9% over the year, due primarily to reduced
property advisor fees. Administration expenses decreased by 12.1% as a result
of decreased spend on legal and professional fees. Reported loss per share for
the period was (€0.42) (2023: (€1.07)).
Reported EPRA Net Tangible Assets (NTA) per share declined by (10.4)% in the
period to €3.55 (£2.93) (2023: €3.96 (£3.43)), primarily due to the
dilutive impact of the portfolio disposal announced on 17 December 2024 which,
alone, diluted EPRA NTA by 7.1%. The Euro-denominated EPRA NTA total return
was (10.4)% (2023: (22.4%)), while the sterling equivalent was (14.6)% (2023:
(24.0%)), a disparity driven by the pound's appreciation against the euro
during the financial year.
Portfolio valuation
Condominium values remained resilient during the financial year and, for the
first time since the decline in real estate values began in 2022, PRS
valuations have begun to stabilise.
As at 31 December 2024, the total Portfolio value was €552.8 million, with
an average value of €3,633 per sqm and a gross fully occupied yield of 3.3%.
On a like-for-like basis (adjusted for disposals), the Portfolio value
increased by 0.8% during the year (and by 3.2% in the second half of 2024),
marking the first increase since the German residential market downturn began
in 2022. The 31 December 2024 valuation is after the disposal of a portfolio
of 16 properties which completed in late December 2024.
Reflecting the change in the Company's strategy, additional disclosure is
provided to reflect the
constituent parts (PRS and Condominiums sales pool) of the Portfolio:
Table: JLL Valuation summary
Condominium sales pool 31 December 2024 31 December 2023
Number of properties 40 7
Residential units 880 92
Commercial units 62 8
Total units 942 100
Total sqm ('000) 68.3 8.9
Valuation (€m) 278.0 35.1
Value per sqm (€)(1) 4,070 3,921
PRS properties 31 December 2024 31 December 2023
Number of properties 34 88
Residential units 1,173 2,397
Commercial units 46 132
Total units 1,219 2,529
Total sqm ('000) 83.9 178.8
Valuation (€m) 274.8 640.5
Value per sqm (€)(1) 3,277 3,582
Condominium Sales Portfolio value increase of 8.7 percent
As of 31 December 2024, the condominium sales pool (40 properties, 942 units)
was valued at €278.0 million (€4,070 per sqm). The value per sqm of these
properties rose by 8.7% over the year, primarily due to the transfer of PRS
properties into the sales pool as part of the accelerated sales strategy,
resulting in a shift from PRS rental valuations to condominium valuations. In
the second half of 2024, these properties experienced an average valuation
increase of 11.1%.
PRS Portfolio value stabilising
As at 31 December 2024, the PRS Portfolio (34 properties, 1,219 units) was
valued at €274.8 million, with an average value of €3,277 per sqm. On a
like-for-like basis, its value declined by 6.3% over the year. However, the
2.8% decline in the second half was the smallest recorded since the market
downturn began in 2022.
Condominium Notarisations (2024)
Condominium sales accelerated in 2024, with 26 units notarised for a combined
value of €9.4 million, a 31% increase versus 2023 (€7.2 million). Of
these, 13 were vacant and 13 were occupied.
The average notarised price was €4,295 per sqm, a 21% premium to December
2023 carrying value of the Portfolio. Vacant units sold for an average price
of €5,027 per sqm (39.3% premium), while occupied units sold for €3,430
per sqm (3% discount). These sales accounted for 28% of the stock of
condominiums available for sale at the start of the year.
Condominium notarisations and reservations (2025 to date)
Notarisation period / Status Units Sales Value Price per Premium / (discount) to
(€m) sqm (€) Portfolio average
Notarised January (vacant) 0 0 0 0
Notarised February (vacant) 4 1.45 5,293 45.8%
Notarised March (vacant) 2 0.72 5,987 64.9%
Notarised to 24 April (vacant) 6 1.63 3,998 10.1%
Total Vacant notarisations 12 3.80 4,738 30.5%
Notarised January (occupied) 4 0.82 2,987 (17.7)%
Notarised February (occupied) 4 1.08 4,055 11.7%
Notarised March (occupied) 9 2.36 3,476 (4.2)%
Notarised to 24 April (occupied) 5 1.23 4,072 12.2%
Total occupied notarisations 22 5.49 3,608 (0.6)%
Total notarisations (vacant and occupied) 34 9.29 3,999 10.2%
Total outstanding reservations 10 3.44 4,117 13.4%
Total reservations and notarisations 44 12.73 4,030 11.0%
Conditions in the condominium market remain strong, with no discernible change
in pricing dynamics versus those experienced during 2024.
Following the addition of 10 properties to the condominium sales pool in late
December 2024, condominium sales activity has accelerated. As at 24 April
2025, 44 units have been notarised or reserved for a combined value of
€12.73 million.
Year to date, 34 units have been notarised for €9.3 million, a 169% increase
versus the same period in 2024. The average notarised sales price achieved
year-to-date was €3,999 per sqm, a 10.2 % premium to the 31 December 2024
per sqm Portfolio average. Vacant units were sold for an average price of
€4,738 per sqm (a 30.5% premium to the average per sqm valuation of the
Portfolio as at 31 December 2024), while occupied units sold for an average
price of €3,608 per sqm (0.6% discount).
A further 10 units with a combined sales value of €3.4 million have been
reserved for sale. It is expected that condominium sales will accelerate
during the year ahead as preparatory work on further condominium projects is
completed and they are brought to market.
Ratio of vacant to occupied units
The sales programme offers existing tenants first refusal to purchase their
units before broader sales commence, with uptake exceeding initial
expectations. Over time, demand is projected to shift toward vacant
apartments. Over the 4-5 year sales cycle for each project, transactions are
expected to split evenly between occupied and vacant units. The vacant
inventory will primarily derive from natural tenant churn, as around 8% of
tenants vacate their unit each year. Between 2016 and 2024, condominium
projects implemented by the Company have had an average ratio of vacant to
occupied units of 58.0%.
Ratio of notarisations to reservations
The time taken from a condominium unit being "reserved" (where the property is
"held" for the buyer while they finalise financing and conduct due diligence)
and "notarised" (making the sale agreement legally binding) is typically three
to eight weeks. For this reason, properties that are added to the sales pool
will initially exhibit a low ratio of notarisations to reservations.
To illustrate this, the table below shows that the 6 properties in the
Portfolio available for sale prior to December 2024 (Tranche 1 , which has
been in the condominium sales pool for a longer period of time) have a
significantly higher ratio of notarisations to reservations than the 10
properties which have been added to the condominium sales pool more recently
(Tranche 2).
Table: notarised / reserved units by tranche
Property group Number of Units notarised as Units reserved as Ratio of notarised
properties at 24 April 2025 at 24 April 2025 to reserved
Tranche 1 6 12 2 6.00x
Tranche 2 10 22 8 2.75x
Condominium sales velocity
The duration of the sell-down period for any given condominium property is
significant in that it impacts both the timing and quantum of proceeds which,
in turn, can be made available to pay down debt, reduce leverage and,
ultimately, be returned to investors, subject to the successful renegotiation
of the Company's primary debt facility falling due in September 2026.
Historically, properties that have been designated as condominium sales
projects have taken four to five years from the first units being placed on
the market to completion. To provide enhanced visibility on the current pace
of condominium sales, the table below shows sales velocity on a monthly basis.
The Average Annualised Sales Rate(1) measures how quickly condominiums are
sold (notarised) over time.
Table: condominium sales velocity
Period Opening units Notarisations in month New units made available during Closing units Average annualised
period sales rate(1)
January 104 4 258 358 45.3%
February 358 8 - 350 29.1%
March 350 11 - 339 37.0%
To 24 April 339 11 - 328 47.4%
1. Average annualised sales rate is calculated by dividing the number of units
sold in a given month by the total number of units available for sale at the
beginning of that month. This result is then annualised, based on the number
of days in the month, and averaged across historical months. To reduce
volatility in the calculation, newly listed units are only included one month
after marketing begins. This adjustment accounts for the typical delay before
sales commence.
Table: Rental income and vacancy rate
31 Dec 2024 31 Dec 2023
Total sqm ('000) 152.2 187.8
Annualised Net Rental Income (€m) 18.0 22.3
Net Cold Rent per sqm (€) 10.7 10.4
Like-for-like rent per sqm growth (%) 1.6 4.1
Vacancy (%) 8.0 5.0
EPRA Vacancy (%) 1.5 2.0
Rental Income
Annualised contracted net rental income at 31 December 2024 was €18.0m, a
decline of 19.3% versus the prior year. This was due to (1) a fall in the
number of units following the portfolio sale of 16 properties announced on 17
December 2024, (2) a decline in the number of units within the Portfolio
available for rent following condominium sales, and (3) a lower number of new
leases signed during the year.
The Company has always managed rent-to-income multiples for new tenants
conservatively and, notwithstanding current cost of living pressures, rent
collection levels have remained stable.
Rental Growth
As of 31 December 2024, net cold rent increased to an average of €10.7 per
sqm, up from €10.4 per sqm the previous year. On a like-for-like basis,
rental income per square meter grew by 1.6%, compared to 4.1% in 2023. This
slower growth reflects the Company's strategic emphasis on condominium sales,
which prioritises capital expenditure on condominium projects over PRS
properties. Other contributing factors include the termination of a lease with
a municipality in order to redevelop and subsequently sell the property.
EPRA vacancy at record low
Reported vacancy as at 31 December 2024 was 8.0% (2023: 5.0%), reflecting an
increase in units that have been made available for sale as condominiums. On
an EPRA basis, adjusting for units undergoing development and refurbishment,
the vacancy rate was 1.5% (2023: 2.0%), a new record low.
Residential reversionary re-letting premium steady at 31%
Market rents are at record levels, with new lettings across the Portfolio
during the year signed at an average premium of 25.2% to passing rents (2023:
31.4%) or €13.8 per sqm (2023: €13.7 per sqm). For residential units only,
new lettings were signed at an average 31.0% premium (2023: 32.9%) or €13.9
per sqm (2023: €13.6 per sqm).
During the year to 31 December 2024, 146 new leases were signed (2023: 255 new
leases), representing a letting rate of approximately 8.5% of occupied units.
(2023: 10.5%). The year-on-year decline is primarily attributed to more
apartments are being made available for sale.
Portfolio investment
A total of €5.2 million was invested in the Portfolio during 2024 (2023:
€9.4 million), recorded as capital expenditure in the financial statements.
Additionally, €2.0 million (2023: €1.8 million) was spent on asset
maintenance, which is expensed through the Profit and Loss account. There were
no acquisitions during the year.
The decrease in capital expenditure in 2024 compared to the prior year is
primarily due to reduced renovation and modernisation activities for vacant
apartment improvements, reflecting a decline in unit turnover. However,
capital expenditure in 2025 is expected to increase significantly, with a
primary focus on preparing properties designated for condominium sales.
Following the portfolio disposal in December 2024, the Company has sufficient
cash reserves to fund all necessary capital expenditure required to optimise
the sales values of units designated for condominium disposal.
Table: EPRA Capital Expenditure (€m)
Capex category 31 Dec 2024 31 Dec 2023
Acquisitions 0.0 5.6
Like-for-like Portfolio 4.5 5.9
Development 0.5 3.0
Other 0.2 0.5
Total Capital Expenditure 5.2 15.0
Strategic disposal of 16 rental properties
In response to the downturn in the German real estate market that began in
2022, the Company marketed a significant portion of its Portfolio for sale,
including single-property transactions and portfolios of apartment blocks.
However, challenging market conditions prevented sales at prices the Board
considered to represent fair value, with few transactions reaching completion.
However, to facilitate the amendment of the Company's primary debt facility,
the Company announced in December 2024 the sale of a portfolio comprising 16
rental properties, comprising 385 units, for
€75.9 million. This strategic disposal, structured as a share deal,
reflected a material discount to the June 2024 carrying value of these
properties. Despite the discount, the sale was a critical step in securing
revised financing terms, enabling the Company to significantly expand
condominium sales.
While further rental property disposals are not ruled out, the current pricing
differential between condominium units and PRS properties suggests that
focusing on condominium sales will generate substantially greater capital
returns for shareholders compared to the alternative of selling entire PRS
properties.
Debt and gearing
The Company has loan facilities with two principal lenders, Natixis
Pfandbriefbank AG and Berliner Sparkasse, with an average remaining duration
of the loan book of 1.8 years and none of the Company's debt reaching maturity
until September 2026.
As at 31 December 2024, the Company had gross borrowings of €269.6 million
(2023: €324.0 million) and cash balances of €46.5million (2023: €11.0
million), resulting in net debt of €223.1 million (2023:
€313.0 million) and a net loan-to-value ratio on the Portfolio of 40.3 per
cent (2023: 46.3 per cent). The reduction in gross debt from 2023 to 2024 was
primarily a consequence of the portfolio sale of the 16 properties in December
2024 and the repayment of €38.8 million of associated Berliner Sparkasse
debt. Further reductions also occurred as a result of condominium sales during
the period, although this represented a smaller amount.
Balance sheet category 31 December 2024 31 December 2023
Gross borrowings €269.6m €324.0m
Cash balances €46.5m €11.0m
Net borrowings €223.1m 313.0m
Net LTV 40.3% 46.3%
Average remaining duration 1.8 years 2.8 years
The majority of the Company's debt effectively has a fixed interest rate
through hedging. As at 31 December 2024, the blended interest rate of the
Company's loan book was 2.5 per cent (2023: 2.5 per cent). The blended cost of
financing has remained stable despite various influencing factors, including
adjustments in the cost of the unhedged portion of debt (with a relatively
small notional amount) and the repayment of the Berliner Sparkasse debt.
Outlook
Geopolitical and macroeconomic
Although recent data indicates a recovery in transaction activity within
Germany's residential real estate market during the latter half of 2024,
uncertainties persist regarding the potential effects of escalating
macroeconomic risks - particularly those stemming from the current US
administration's imposition of higher trade tariffs - on investor sentiment
and real estate asset demand.
Germany has embarked on a historic fiscal expansion, channelling €500
billion into infrastructure modernisation (transport, energy, and digital
networks) and an equal sum into defence. This dual-track spending surge marks
a departure from decades of fiscal conservatism, driven by geopolitical
tensions and aging infrastructure. Constitutional reforms to the
Schuldenbremse (debt brake) underpin these initiatives. Previously capping
structural deficits at 0.35% of GDP, the revised framework permits borrowing
for "future-oriented projects," including green energy and defence.
The bond market experienced significant volatility in early 2025, with German
10-year bond yields climbing 0.5% to reach 2.8% by March, as investors
anticipated increased German debt issuance. This upward pressure later eased
following the European Central Bank's rate reduction and heightened demand for
German bunds, which have been viewed as a relatively safer haven during
escalating global trade tensions.
Structural imbalances
There remains a significant and growing shortage of available residential
accommodation in Berlin metropolitan areas, particularly Berlin itself, driven
by persistent supply-demand imbalances. Whilst the population of Germany has
grown by over 1.3 million since 2020, new construction activity has fallen
significantly. Project cancellations hit a record high in 2024, and annual
apartment completions are projected to fall to 175,000 by 2025 - far below the
Federal Government's 400,000 unit annual target.
A widening cost-price gap has exacerbated supply challenges: since 2022
construction costs have risen by 28%, far outstripping new build price growth.
This disparity has pushed tenanted multi-family property values 40% below
replacement costs in many regions. New developments now typically focus on
high-end or government-backed social housing, leaving Berlin's middle-market
segment (the Company's core market) underserved.
Without policy support for development, supply-demand imbalances will deepen.
Whilst the new coalition government aims to address the affordable housing
crisis by accelerating construction through eliminating bureaucracy and
financial incentives for cost-effective projects, it is unlikely that this
will alleviate housing shortages in the near term. The outlook for Berlin
rental values therefore remains positive.
Condominium supply shortage.
In 2021, The Federal Government introduced laws enabling States to prevent the
division of apartment blocks into condominiums. The Berlin State Government
has implemented these measures, significantly limiting the future supply of
condominiums. The new German coalition government is expected to extend the
life of this ban, further exacerbating the condominium supply shortage.
Berlin's inventory of condominiums is now largely restricted to units in
grandfathered pre-approved projects under specific provisions of Berlin's
Conversion Ordinance, along with properties below certain size thresholds
exempt from the ban.
This regulatory landscape positions the Company's approved Berlin condominium
portfolio as among the largest within the city.
Actionable opportunities
The Berlin real estate market is expected to maintain a notable valuation
premium for condominium sales compared to disposals of traditional PRS
properties.
While the Company's NAV discount is broadly consistent with that of its listed
peers, its condominium- oriented portfolio sets it apart. Unlike competitors,
where portfolios typically include fewer properties subdivided into
condominium units, the Company is well positioned to leverage this
differentiation as it undertakes a carefully managed Portfolio realisation
programme designed to maximise shareholder value.
The Company's strategic outlook is further improved by recent enhancements to
its balance sheet. Asset disposals completed in December 2024 have already
contributed to significant debt reduction, with ongoing condominium sales
expected to drive further deleveraging. Additionally, refinancing discussions
are underway with the aims of improving operational and financial flexibility,
further enhancing the Company's capacity for future condominium sales and
expediting capital returns to shareholders.
KEY PERFORMANCE INDICATORS
For the financial year ended 31 December 2024, the Company has made changes to
the key performance indicators ("KPI's") that have historically served to
benchmark the Company's financial and operating performance. The evolution of
KPIs reflects Berlin's evolving residential real estate dynamics and the
Company's shift in strategic focus, with an emphasis on condominium sales.
The removal of EPRA vacancy and Portfolio rent per sqm as KPIs underscores
Berlin's structurally tight rental market. Instead, the Company has
reclassified these factors as stable market fundamentals, allowing greater
attention to metrics that directly align with the Company's capital recycling
and value- unlocking objectives. Additionally, dividend per share has been
removed as a KPI, reflecting the current prioritisation of deleveraging over
shareholder distributions.
The 2024 KPIs emphasise transparency around the Company's accelerated
condominium sales strategy. Condominium sales velocity offers greater
visibility into transaction activity. The inclusion of share price discount to
EPRA NTA addresses the persistent valuation gap demonstrating management
accountability for closing the disconnect between underlying asset values and
equity market pricing. The addition of net loan-to-value (LTV) reinforces the
Company's commitment to deleveraging.
Like-for-like Portfolio valuation, EPRA NTA per share and condominium sales
have been retained as KPIs
The Company believes this recalibrated KPI framework aligns to value creation
levers more directly within management's control, while deprioritising metrics
rendered less relevant by Berlin's supply- demand dynamics.
Table: Changes to key performance indicators
Key performance indicators (2024) Status Key performance indicators (2023) Status
LFL Portfolio valuation growth (%) retained LFL Portfolio valuation growth (%) Retained
EPRA NTA per Share (€) retained EPRA NTA per Share (€) Retained
Condominium notarisations (€m) retained Condominium notarisations (€m) Retained
Share price discount to EPRA NTA (%)(1) new EPRA vacancy (%) Removed
Condominium sales velocity (%) new Portfolio rent per sqm (€) Removed
Net loan to value (%) new Dividend (£ pence) (€) Removed
Table: 2024 key performance Indicators
Key performance indicators (2024) 31 December 2024 31 December 2023
LFL Portfolio valuation growth (%) 0.8 (11.9 )
EPRA NTA per Share (€) 3.55 3.96
Share price discount to EPRA NTA (%)(1) 42.2 50.7
Condominium notarisations (€m) 9.4 7.2
Condominium sales velocity - LTM (%) 34.0 26.5
Net loan to value (%) 40.3 46.3
1 For any given year, share price discount to EPRA NTA is calculated using the
sterling share price as at 31 December, the €/£ exchange rate as at 31
December and the Euro EPRA NTA as at 31 December.
PRINCIPAL RISKS AND UNCERTAINTIES
Effective risk management is fundamental to achieving our strategic objectives
and delivering long- term sustainable value to our shareholders. Operating
within the Berlin residential property market, we recognise the importance of
proactively identifying, mitigating, and managing risks that could impact our
business.
As with any property investment company, risks and uncertainties are inherent
in our activities. These risks may have financial, operational, regulatory,
environmental, or reputational impacts. Through a structured and disciplined
approach to risk management, we aim to mitigate potential threats while also
capitalising on opportunities as they arise.
Governance and accountability
The Board of Directors is ultimately responsible for overseeing risk
management and ensuring that the principal risks, including emerging risks,
are identified, evaluated, and effectively managed. Each year, the Board
conducts a comprehensive assessment of the principal risks that could affect
the Company's business model, financial performance, solvency, or liquidity.
Regular reviews of risk exposures are integrated into Board meetings, enabling
the Board to assess mitigation.
Decentralised risk identification
Our business model empowers the Property Advisor to identify, evaluate, and
manage the risks relevant to their specific areas of responsibility. These
assessments consider a range of factors, including operational, regulatory,
and market-specific risks, as well as external influences such as geopolitical
and macroeconomic developments. The Property Advisor provides regular updates
to the Board, ensuring alignment with the Company's overall risk management
framework.
Emerging risk management
Emerging risks are identified and evaluated at both the Company and Portfolio
levels. This process includes assessing geopolitical developments, regulatory
changes, market trends, and competitor activity.
Reporting and review
The Board prepares an annual summary of the Company's principal risks,
mitigation strategies, and relevant policies. These risks represent the key
challenges that could impact the Company's ability to deliver its strategic
objectives.
RISK IMPACT MITIGATION MOVEMENT
Economic and geopolitical risk The global economic and political environment remains uncertain. While the Board and Property Advisor cannot influence external macroeconomic Increased
and geopolitical risks, they continuously monitor economic indicators to
ensure the Company's strategy is adjusted appropriately.
After contractions in 2023 and 2024, Germany's GDP is projected to remain weak
in 2025.
The Company always monitors costs and cash balances closely and plans budgets
for capital expenditure that take into consideration the potential for cost
inflation.
Germany's reliance on exports and its
industrial base continues to pose risks. Trade uncertainties, especially with
major partners like the U.S. and China, as well as supply chain disruptions, The Company has suspended dividend payments to preserve cash.
could weigh on economic performance.
The Board receives regular performance and market trend reports from the
Property Advisor and JLL, its property valuer.
Anticipation of higher government spending in Germany, particularly related to
infrastructure investments, energy transition policies and defence, has
already been reflected in rising bond yields, which could impact debt
availability and cost. The Company has strengthened its condominium sales capability, having engaged
the services of two leading condominium sales platforms, Engel C Völkers and
Lübke Kelber.
The ongoing war in Ukraine and a weak macroeconomic backdrop have the
potential to create buyer uncertainty in the condominium market. This could
There remains a significant shortage of residential property, including
negatively impact condominium demand and pricing. condominiums, in Berlin, driven by low levels of construction and high net
inward migration.
The global uncertainty created by the imposition of higher trade tariffs by
the US administration could lead to increased economic volatility, potentially
impacting investor confidence and financing conditions, thereby posing risks
to stability and growth within the German residential real estate industry.
Financing and interest rate risk The Company relies on borrowing to finance the Portfolio of properties. The Company seeks to manage its loan to value ratio through the property cycle Increased
Changes in interest rates can therefore affect financing costs and to ensure that, in the event of a significant decline in property values, its
profitability. financial position remains robust.
Difficult market conditions, a decline in property prices and higher interest The Company has suspended dividend payments to preserve cash and will
rates can reduce the availability of financing, increase financing costs, and prioritise the reduction of debt from the proceeds of any property disposals,
cause higher than planned leverage. These to facilitate renegotiation of its financing arrangements which mature in
September 2026.
issues could affect the Company's ability to obtain new financing on
acceptable terms when its current loan facilities mature in September 2026.
Interest rate risk is managed using derivative
instruments with matching maturity or fixed-rate debt. At least 80% of drawn
Covenant testing on the Company's loan facilities could be negatively impacted loan facilities are hedged.
if asset valuations decline further. This could potentially trigger
requirements for additional security, repayment of facilities or higher
borrowing costs.
The Company continues to model expected revenues, property values and covenant
levels, and these are reported to the Board as part of its annual Viability
Assessment.
Inadequate management of financing
risks could lead to insufficient funds for sustaining business operations and
In 2024, the Company modified its debt facility with its principal lender,
timely repayment of existing debt facilities. Natixis, to facilitate a significant
acceleration in its condominium sales programme. Work to refinance this
facility, which matures in September 2026, is underway.
The Company must comply with certain financial covenants under its Natixis
debt facility: Interest
coverage ratio (ICR), and debt yield covenants. Breach of these "hard"
covenants results in an event of default. In addition to the financial
covenants, the Company is subject to debt yield and loan-to-value "cash trap"
events (the requirement to hold all related rental income in Natixis accounts
until sufficient debt is repaid to return within the covenant level), with no
event of default. The Company carried out extensive sensitivity analysis
before signing this facility and, even in the most stressed rent scenarios, no
covenants were breached.
If rent levels or property values were to fall to a point where the covenants
were in danger of being
breached, the Company will use its surplus cash and seek to make further
property sales to pay down debt balances.
The portfolio disposal announced on 17 December 2024 has already reduced
leverage significantly (net LTV decreased from 46.4% as at 30 June 2024 to
40.3% as at 31 December 2024), with further material reductions expected from
future condominium sales.
Valuation risk Geopolitical and macroeconomic The Company engages an independent valuation agent with comprehensive Unchanged
knowledge of the Berlin residential property market as well as a wider
uncertainties, rising interest rates, and regulatory changes pose a risk to
the Company's asset valuations. understanding of the political and economic factors affecting the market.
Semi-annual property valuations are audited or reviewed by the auditor's own
property experts, and calculations of EPRA NAV are audited or reviewed.
The valuation of the Company's Portfolio is influenced by changes in market
yields and conditions. An increase in property yields or a decrease in
valuations due to The Company, through its Property Advisor, monitors the macroeconomic
environment and market
macroeconomic uncertainty or rising interest rates could have a negative
impact. conditions closely to identify potential risks at an early stage and take
mitigating actions where feasible.
Falling capital values and achievable sale prices can undermine the viability
of disposal and capital expenditure projects, potentially causing delays, The Company's non-executive directors include professional property surveyors
budget overruns, or project and others with experience of asset valuation and NAV calculation.
cancellations.
The Company maintains a diversified Portfolio of assets across different
Berlin locations and tenants to reduce over-reliance on any single part of the
A significant or unexpected decline in the Portfolio's value could affect the Portfolio.
Company's ability to secure refinancing on favourable terms or lead to
breaches of financial covenants (see Financing and Interest Rate Risk).
Modernisation and renovation projects for individual units are typically short
in duration, giving good
visibility on expected costs, rents and values at completion. Timeframes are
continually assessed to optimise timing.
The Company has modified its strategy to place a greater emphasis on
condominium sales. Properties within the Portfolio which are available for
sale as
condominiums projects command a higher per sqm valuation compared to
equivalent PRS properties.
Inability to sell properties including condominiums Investor and consumer confidence remains fragile due to ongoing geopolitical Pricing and liquidity in the Berlin market for Reduced
and macroeconomic
condominiums has remained resilient in 2024.
uncertainties, including higher interest rates.
Reflecting this, the Company has modified its strategy to place a greater
emphasis on condominium sales.
A higher cost of financing has seen investor appetite for German residential
assets weaken, particularly for single property and portfolio sales. In
parallel with this, a number of larger market participants remain net sellers The number of permitted condominium sales assets has increased from 6 to 40
of assets as they seek to reduce leverage. properties, with units available for sale expected to rise from 108 units in
December 2024 to 942 units by Q3 2025.
Given this, combined with the current liquidity in the Berlin condominium
Higher mortgage rates combined with economic and geopolitical uncertainty can market, the Company considers that the risk of inability to sell assets has
hurt buyer sentiment for declined.
condominiums.
The Company regularly reviews whether any current or future changes in the
property market outlook present risks which should be reflected in the
Asset disposals at a discount to book value may undermine confidence in the execution of its asset management and capital position.
published EPRA NTA.
The Company continually monitors the Portfolio to ascertain the potential for
disposals of properties.
The Company is in regular contact with its
independent valuers who provide assessments of the
property market outlook. The Company can flex asking prices to stimulate
demand in instances when it considers it is in the is in the best interests of
shareholders to do so.
The Property Advisor maintains a strong network of Berlin residential
investors and actively monitors valuation and liquidity trends in the Berlin
residential market.
Share price During 2024, the Company's share continued to trade at a significant discount The Company receives regular advice from its Property Advisor, corporate Unchanged
to EPRA NAV. broker, and financial public relations company, with a view to securing new
discount to NAV
investor demand for PSD shares.
Lack of liquidity or low market
The shareholder register is regularly reviewed to
capitalisation may make the Company less attractive to institutional investors
and cause the shares to be excluded from relevant market indices. identify investor underweight holdings and/or sellers of the shares. The
Property Advisor makes every effort to reach out to these investors to ensure
that they are
In March 2024, the Company was excluded from the FTSE EPRA index, leading to fully informed when making investment decisions.
several investors having to sell shares, with a consequent adverse impact on
the share price.
The Company has a dedicated Investor Relations resource that is available to
discuss share price movements, industry developments and the performance of
the Company.
The Company has mandated Edison Research to provide additional coverage of the
Company.
German property law risk Changes in legislation or regulation affecting property rights, zoning, The Board keeps informed via the Property Adviser on the impact that existing Unchanged
and proposed law and regulation could have on future rental values,
environmental regulations, and taxation can have implications for the ability
of the Company to successfully condominium disposals and planning applications.
implement its strategy. Regulatory risks can additionally impact operational
costs and the costs of legal compliance. The Company has appointed German lawyers who can advise on forthcoming changes
to any laws relevant to the activities of the Company.
The Federal Government introduced laws which allow States to block the
splitting of apartment blocks into Blocking the ability of landlords to split assets at the land registry is
likely to be a net positive for the Company since the supply of condominiums
condominiums. The Berlin Government has adopted these proposals. will be materially reduced, increasing the value of the existing stock. With
78% of the Company's Portfolio already split in the land registry as
condominiums, the Company is likely to benefit from this.
German tenancy law risk Laws and regulations affecting landlord rental practices remain under constant The Company has historically been able to adapt its business model to Unchanged
review by both the Federal Government and the coalition government in Berlin. accommodate new rent regulations.
Changes to, or breaches of, tenant law and regulation, or how they are The Property Advisor regularly monitors the impact that existing and proposed
enforced could negatively affect rental values and property valuations and/or laws or regulations could have on future rental values.
reputation.
The Property Advisor maintains regular contact with a broad network of
Changes to the Mietspiegel (rent table) which states the maximum permissible professional advisors and industry participants to ensure that it is kept up
rent allowable are subject to change and could negatively impact rental to date on property tenancy laws and regulations, both current and future.
values.
Further tightening of the
Mietpreisbremse laws, which limit the amount that landlords can increase rent
in apartments in certain zoned areas,
could negatively impact the Company's reversionary reletting strategy.
Tenant There has been increasing use of online platforms by tenants to ascertain if Tenant rental challenges are closely monitored and, where deemed necessary, Increased
rents prescribed by landlords are compliant with all tenancy laws and contested. Rental charges are adjusted in instances where claims are
affordability and tenant rental challenges. regulations. This could lead to legal challenges which, if successful, could successful.
result in rental reductions.
The Company, through its Property Advisor and Property Manager, maintains
The risk of financial loss resulting from tenants' inability to pay their close contact with tenants. The creditworthiness of new tenants is closely
rents due to personal economic circumstances. monitored and strict income-to-rent criteria for incoming tenants are
maintained.
Unexpected tenant default and vacancy trends across the Portfolio could lead
to a rental income shortfall. The Company has in place a Vulnerable Tenant Policy. A vulnerable tenant list
is maintained and reviewed by the Board. In instances of hardship, where
appropriate, the Company seeks to support its tenants, both residential and
commercial.
The Company has many tenants and properties therefore heightened credit risk
on some of the tenants, and low occupancy rates for some of the properties
should not materially impact the Portfolio as a whole.
Continued inward migration of both refugees and professionals, combined with
low levels of residential property construction, continues to drive high
demand for rental property.
IT and Cyber Security risk As cybercrime remains prevalent, this is considered a significant risk by the IT systems and infrastructure relied on by the Company are subject to review. Unchanged
Company. A breach could lead to the illegal access of commercially sensitive Service providers are required to report to the Board on request, and at least
information and the potential to impact investor, supplier, and tenant annually, on their IT controls and procedures.
confidentiality and disrupt the business of the Company.
A detailed review has been undertaken of the cyber security of the Company and
The Russian and Chinese states have been linked to cyber-attacks on government its outsourced
and international infrastructure and the risk of an
processes. As part of this review, the Company has required all its key
increase in these attacks is highly likely now that Russia is subject to service providers to confirm to the Company their procedures and protocols
international sanctions due to its invasion of Ukraine. around cyber security on an annual basis. Additionally, the Company has
requested that all service providers carry out cyber penetration testing and
report back to the Board with any significant observations. No material
concerns have arisen from these reviews.
Service providers are also required to hold detailed risk and control
registers regarding their IT systems. The Property Advisor and the Board
review service organisations' IT reports as part of Board meetings each year.
No material concerns have arisen from these reviews.
The Board believes that, while the risk of cyber-attacks has increased due to
the sanctions imposed on Russia, the risk to its service providers directly
remains low. The secondary risk from cyber-attacks on digital infrastructure,
such as payment systems,
remains high and the Board, and the Property Advisor, will continue to monitor
the situation.
Outsourcing risk The Company's future performance relies heavily on the effectiveness of its The Property Advisor is wholly owned by an FCA regulated entity. Since the Unchanged
outsourced third-party suppliers, Company listed on the London Stock Exchange, the Property Advisor has expanded
headcount through the recruitment of several additional experienced London and
particularly its Property Advisor, QSix, as well as Core, which manages day to Berlin- based personnel. Additionally, senior Property Advisor personnel and
day tenant interaction. This also includes its IFRS and German GAAP their families retain a significant stake in the Company, aligning their
interests with other key stakeholders.
accountants and administrative service providers.
The Board receives regular reporting from the Property Advisor including
To accelerate condominium sales, the Company has enhanced its sales actual performance, future budgets,
capabilities by partnering with two leading condominium sales platforms, Engel and cash flows. The Board requests further reporting information as
C Völkers and Lübke Kelber, placing reliance on their expertise. appropriate.
The loss of one or more key third-party providers could negatively impact the The key third parties responsible for property management, accounting and
Company's performance. administration are continually monitored by the Property Advisor and must
respond annually to a Board assessment questionnaire regarding their internal
controls and performance. These questionnaires are reviewed annually by the
Board. Any changes in the service
agreements or key service providers are approved by the Board.
The Property Advisor closely monitors the
condominium sales activities of Engel C Völkers and Lübke Kelber, requiring
both to submit weekly activity reports.
Environmental risk A failure to anticipate and respond to energy performance and climate All investment in the modernisation of assets is Unchanged
legislation could damage the Company's reputation and lead to unplanned undertaken with a view to the energy efficiency impact and is performed on an
capital expenditure. asset-by-asset basis.
Future investor expectations for ESG compliance could result in diminished The Company maintains its own ESG consultant to advise and assist in the
asset values and/or illiquidity in the resale market if assets are not deemed implementation of ESG related activity and has mandated an external specialist
compliant. to advise on current and future climate and energy performance legislation.
The Company seeks to ensure accurate reporting of its ESG related activities
and, in 2024, was awarded a gold medal for its sustainability reporting by the
European Public Real Estate Association (EPRA).
The Company's housing stock primarily consists of "Altbau" properties,
recognised for their unique architectural features, and historical
significance. Environmental upgrades are carried out while preserving these
characteristics, with a focus on improving heating system efficiency. The
Company is piloting heating-system balancing or optimisation, which currently
shows the most potential. Testing of these systems is underway for several
properties, and the results will inform future environmental strategies.
Going concern
The Directors have reviewed projections for the period up to 30 June 2028,
using assumptions which the Directors consider to be appropriate to the
current financial position of the Group with regard to revenues, its cost
base, the Group's investments, borrowing and debt repayment plans. These
projections show that the Group should be able to operate within the level of
its current resources and expects to manage all debt covenants for a period of
at least 12 months from the date of approval of the financial statements. The
Group's business activities together with the factors likely to affect its
future development and the Group's objectives, policies and processes from
managing its capital and its risks are set out in the Strategic Report.
The Directors have a reasonable expectation that the Group has adequate
resources to continue in operational existence for the foreseeable future,
and, therefore, continue to adopt the going concern basis in the preparation
of these financial statements.
Viability Statement
The Directors have assessed the viability of the Group over a three-year
period to 30 June 2028. The Directors have chosen three years because that is
the period that broadly fits within the strategic planning cycle of the
business.
The Viability Statement is based on a robust assessment of those risks that
would threaten the business model, future performance, solvency or liquidity
of the Group, as set out in the assessment of principal risks on pages 17 to
23.
For the purposes of the Viability Statement, the Directors have considered, in
particular, the impact of the following factors affecting the projections of
cash flows for the three-year period ending 30 June 2028:
a) the potential operating cash flow requirement of the
Company;
b) refinancing existing debt facilities prior to their
maturity in September 2026;
c) seasonal fluctuations in working capital
requirements;
d) property vacancy rates during the period;
e) capital and corporate expenditure during the period;
f) condominium and whole asset sales proceeds.
The model assumes stressed scenarios a) through to f) in the above list.
Financial modelling and stress testing was carried out on the Group's cash
flows, taking into account the following assumption, which the Directors
believe to reflect the conditions present in a reasonable 'low case' scenario
over the forecast period if it proves not possible to amend the existing debt
facilities such that condominium disposals are limited to those currently
permitted, capex is maintained and self-funded.
After applying the assumption above, there was no scenario by which the
viability of the Company over the next 12 months was brought into doubt from a
cash flow perspective. Under the stresses set out above, cash flow mitigation
would not be required during the three-year period. However, should mitigation
be necessary, it may be obtained in the following ways:
· reducing or postponing discretionary capital expenditure, none of
which is committed;
· disposing of whole property assets; and
· amending condominium pricing to increase rate of sales and expedite
cash proceeds.
Under these stressed assumptions, the Group remains able to manage all
existing banking covenant obligations during the period using the available
liquidity to reduce debt levels, as appropriate.
The projection of cash flows includes the impact of already contracted
property acquisitions. On the basis of this assessment, and assuming the
principal risks are managed or mitigated as expected, the Directors have a
reasonable expectation that the Group will be able to continue in operation
and meet its liabilities as they fall due over the three-year period of their
assessment.
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