REG - Phoenix SpreeDeutsch - Interim Results for 6 months ended 30 June 2023
27/09/2023 07:00
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RNS Number : 7386N Phoenix Spree Deutschland Limited 27 September 2023
Phoenix Spree Deutschland Limited
(the "Company" or "PSD")
Interim Results for the half-year to 30 June 2023
Phoenix Spree Deutschland (LSE: PSDL.LN), the specialist investor in Berlin
residential real estate, announces its Interim Results for the six months
ended 30 June 2023.
Financial Summary
€ million (unless otherwise stated) Six months to June 2023 Six months to June 2022 12 months to December 2022 12 months to December 2021
Gross rental income 13.8 13.0 25.9 25.8
(Loss) / Profit before tax (58.0) 17.0 (17.5) 45.3
Dividend per share in respect of the period - 2.35 (2.09) 2.35 (2.09) 7.50 (6.38)
(€ cents (£ pence))
Portfolio valuation(1) 714.3 820.1 775.9 801.5
Like-for-like valuation (decline) / growth (%) (6.9) 2.2 (3.1) 6.3
EPRA NTA per share (€) 4.64 5.72 5.10 5.65
EPRA NTA per share (£)(2) 3.99 4.92 4.52 4.74
EPRA NTA per share total return (€ %) (9.0) 2.2 (8.4) 8.4
Net LTV (%)(3) 42.7 36.0 39.1 34.7
Portfolio valuation per sqm (€) 3,808 4,318 4,082 4,225
Annual like-for-like rent per sqm growth (%) 3.8 3.7 3.9 3.9
Like-for-like rent growth (%) 5.6 4.3 6.1 1.3
EPRA vacancy (%) 2.7 2.5 2.4 3.1
Condominium sales notarised 2.0 3.0 4.7 15.2
(1 -Portfolio valuation includes investment properties under construction.)
(2-GBP:EUR FX rate 1:1.164 as at 30 June 2023.)
(3- Net LTV uses nominal loan balances as per note 17 rather than the loan
balance on the Consolidated Statement of Financial Position which consider
Capitalised Finance Arrangement Fees in the balance.)
Rental growth accelerating
· High net inward migration and declining construction levels are
significantly increasing the supply-demand imbalance for Berlin residential
rental property.
· Rental growth remains strong, and it is expected that annualised
like-for-like rental growth will accelerate from the current rate of 5.6 per
cent as at 30 June 2023.
· New PSD leases were signed at an average 31.2 per cent premium to
passing rents in H1 2023. New letting rental values are expected to continue
to be at a significant premium to average in-place rents across the Portfolio.
· EPRA vacancy of 2.7 per cent as at 30 June 2023 remains at a
historically low level, reflecting ongoing structural undersupply of available
rental property.
Upturn in condominium buyer interest
· During the six months to 30 June 2023, eight condominium units were
notarised for sale for an aggregate value of €2.0 million (H1 2022: € 3.0
million).
· Average achieved notarised value per sqm for residential units sold
was €5,708, representing an average 68 per cent premium to 31 December 2022
carrying value.
· Since 30 June 2023, the Company has notarised a further six
condominiums for €2.1 million. Additionally, reservations on a further three
units, with a combined value of €0.8 million, have been received and are
pending notarisation.
· Although 95 per cent of the Company's Portfolio is currently valued
on a rental property basis, it has over 78 per cent of its properties legally
split as condominiums, providing significant future optionality.
Portfolio management
· Two rental buildings are currently under offer with completion
expected at the start of 2024.
· Several new condominium projects are being brought to market,
resulting in a significant increase in apartments being offered for sale.
· Material reduction in capex spend from €16.4million in 2022, with
€4.6 million spent in H1 (H1 2022: €6.2 million) and a budget of €7.6
million for the full year.
Portfolio valuation impacted by interest rate rises and yield expansion
· Like-for-like Portfolio value, after adjusting for the impact of
acquisitions and disposals, declined by 6.9 per cent during the half-year to
30 June 2023, reflecting an increase in market yields, partially offset by
rental growth.
· Including investment properties under construction valued at €4.3
million, the Portfolio was valued at €714.3 million as at 30 June 2023,
compared to €775.9 million as at 31 December 2022.
Regulatory backdrop more supportive
· The new Berlin Mietspiegel (rent index) announced on 15 June 2023
permits, on average, an increase in industry-wide rental values of 5.4 per
cent versus 2021.
· The Company has notified all qualifying Mietspiegel tenants of rental
increases, and these will become effective from October 2023 onwards.
· Following removal of the Mietendeckel rent cap, political sentiment
is shifting from rent control towards increasing the supply of new homes.
Outlook and strategy
· Supply-demand imbalances and recent regulatory developments will
continue to positively impact rental growth.
· Higher interest rates continue to weigh on buyer sentiment and
transaction volumes and further increases in market yields and,
correspondingly, continuing pressure on sales prices, cannot be ruled out.
· Reflecting current uncertainty over the duration of the interest rate
cycle, the Company has adopted a conservative business plan, which will seek
to reduce overall debt levels and, where feasible and appropriate, return
capital to shareholders.
· Given the material difference between condominium values (for which,
during the past 12 months, the Company has achieved sales prices, on average,
of €5,545 per square metre) and the current share price (which, on an EPRA
basis, implies a value per square metre across the entire portfolio of
approximately €2,600), plans for future condominium sales have been
accelerated, with three additional properties being brought to market.
· A significant part of the rental portfolio has been identified for
disposal and is being actively marketed. Disposals at discounts to current
carrying value are likely, although at a premium to the value implied by the
share price as at 30 June 2023.
· The Company has no near-term refinancing requirements, with its first
loan maturity not due until September 2026.
Robert Hingley, Chairman of Phoenix Spree Deutschland commented:
"It is pleasing that our core rental business continues to prosper, with
rental values and growth well supported by the positive trends that continue
to exist within the Berlin residential property market. Higher interest rates
have affected property values across Europe and, against this backdrop, our
enhanced disposal programme and, where feasible, returning proceeds to
shareholders, remain a key focus during the current stage of the real estate
cycle."
Legal Entity Identifier: 213800OR6IIJPG98AG39
For further information, please contact:
Phoenix Spree Deutschland Limited +44 (0)20 3937 8760
Stuart Young
Numis Securities Limited (Corporate Broker) +44 (0)20 3100 2222
David Benda
Tulchan Communications (Financial PR) +44 (0)20 7353 4200
Olivia Peters
CHAIRMAN'S STATEMENT
The past three years have seen major changes in the geopolitical and economic
landscape. The emergence from Covid-19 lockdowns strained supply chains,
leading to inflation, which has since been exacerbated by the ongoing conflict
in Ukraine. Against this backdrop, the period of inexpensive borrowing which
characterised much of the previous decade came to an end, with central banks
hiking interest rates in response. While rental growth has continued due to
structural supply shortages, rising rates have negatively impacted buyer
sentiment, with a consequential impact on sales values and transaction volumes
for both rental properties and condominiums.
Our core rental business continues to prosper. A combination of higher costs
of home ownership, declining construction levels and high net inward migration
is significantly increasing the supply-demand imbalance for Berlin residential
rental property. Consequently, rental growth remains strongly underpinned and
is expected to accelerate during the year ahead.
Higher interest rates have, however, affected global bond and equity markets,
as well as property values across Europe, where values have fallen as rental
yields rise. It is against this backdrop that the Company has reported a
decline in the value of its properties during the first six months of the
financial year. As at 30 June 2023, the Portfolio was valued at €714.3
million, a like-for-like decline of 6.9 per cent since the financial year-end.
Reflecting this decline, the Euro EPRA NTA total return per share was (9.0)
per cent over the six-month period and the sterling return was (11.8) per
cent.
Further details relating to the Company's financial and operating performance
can be found in the Report of the Property Advisor.
Adapting to a more challenging environment
To maintain the Company's financial resilience and avoid pressure to dispose
of assets at prices that the Board considers not to be in shareholders'
interests, the difficult decision was taken last year to suspend dividend
payments until such time as condominium and other asset sales saw a
sustainable recovery.
In addition, the Board and the Property Advisor, with shareholders' approval,
have agreed to change the fees payable to the Property Advisor to align their
incentives with the Company's short-term strategic priorities. The key element
of the new agreement is to further incentivise the Property Advisor to
evaluate and implement a variety of disposal strategies, while reducing the
level of annual management fee paid.
A significant part of the Portfolio has now been identified for disposal and a
number of new condominium projects are being brought to market, resulting in
an increase in apartments offered for sale. Given that the Company's share
price remains at a material discount to EPRA NTA, disposals at discounts to
current carrying values are under consideration.
Our tenants
The topic of affordable housing has dominated public debate in Germany in
recent years and we remain committed to maintaining a portfolio of homes for
our tenants that are comfortable as well as, of course, compliant with all
health and safety standards. During the first half of the financial year, over
one third of the Company's gross revenues were reinvested into the Portfolio
as we continued to make improvements to our buildings.
Our latest tenant satisfaction survey, completed in the first half of 2023,
demonstrated high tenant satisfaction levels with both the quality of their
apartment and the rental process.
Protecting our environment
We acknowledge that the German property sector needs to play a major role in
Germany achieving its target of climate neutrality by 2045. Our Environment
Policy sets guidance as to how PSD, our Property Advisor (QSix) and other key
suppliers should operate to help achieve this. We continue to develop the
environmental measurement and reporting of our Portfolio, in line with EPRA's
sBPR framework.
Our most recent EPRA Sustainability report, for which the Company achieved a
Gold Award, can be viewed on the Company website.
Our charities
The Company has continued its financial support programme to two
Berlin-focused charities, The Intercultural Initiative and Laughing Hearts.
The Intercultural Initiative is a Berlin refuge that helps women and children
affected by domestic violence. Laughing Hearts supports children living in
children's homes and social care.
Our Property Advisor has also continued to support two London-based homeless
charities, SPEAR and SHP. Funding is given to SPEAR to run an outreach
service, providing accommodation to rough sleepers and helping with their
health and wider social care problems. SHP supports an employability programme
that assists homeless people, or those at high risk of becoming homeless, with
finding a job and securing a sustainable income. QSix additionally supports
Home-Start, a UK community network of trained volunteers and expert support
helping families with young children.
Our Board
Following the death of Greg Branch in August 2022, the Board was pleased to
announce the appointment of Steven Wilderspin as a non-executive Director of
the Company with effect from 10 January 2023. Steven, a Jersey resident, is a
fellow of the Institute of Chartered Accountants of England and Wales and has
acted as an independent director of several public and private investment
funds and commercial companies since 2007. His experience and insight add a
valuable perspective to complement and enhance the skill set of the Board.
Outlook
At present, it remains too early to predict when the real estate cycle will
reach its inflexion point. Reflecting current uncertainty in economic and
capital market conditions, the enhanced disposal activity outlined above will
be the primary focus of the Company's strategy for the foreseeable future. In
the meantime, our core rental business continues to thrive, with rental values
and growth well supported by the positive trends that continue to exist within
the Berlin residential property market.
REPORT OF THE PROPERTY ADVISOR
Financial results
Table: Financial highlights for the six-month period to 30 June 2023
€ million (unless otherwise stated) 6 months to 30-Jun-23 6 months to 30-Jun-22 Year to Year to
31-Dec-22
31-Dec-21
Gross rental income 13.8 13.0 25.9 25.8
Investment property fair value (loss) / gain (57.3) 11.4 (42.2) 38.0
(Loss) /gain before tax (PBT) (58.0) 17.0 (17.5) 45.3
Reported EPS (€) (0.51) 0.15 (0.17) 0.39
Investment property value 714.3 820.1 775.9 801.5
Net debt (Nominal balances)(1) 305.0 295.6 303.3 278.0
Net LTV (%)(1) 42.7 36.0 39.1 34.7
IFRS NAV per share (€) 3.99 4.84 4.50 4.74
IFRS NAV per share (£)(2) 3.43 4.17 3.99 3.98
EPRA NTA per share (€) 4.64 5.72 5.10 5.65
EPRA NTA per share (£)(2) 3.99 4.92 4.52 4.74
Dividend per share (€ cents) - 2.35 2.35 7.50
Dividend per share (£ pence) - 2.09 2.09 6.38
€ EPRA NTA per share total return for period (%) (9.0) 2.2 (8.4) 8.4
£ EPRA NTA per share total return for period (%) (11.8) 4.8 (3.2) 1.0
(1 - Net LTV and net debt uses nominal loan balances as per note 17 rather
than the loan balances on the Consolidated Statement of Financial Position
which consider Capitalised Finance Arrangement Fees in the balance as per IAS
23.)
(2 - GBP:EUR FX rate 1:1.164 as at 30 June 2023)
( )
Revenue for the six-month period was €13.8 million (six months to 30 June
2022: €13.0 million). The Company recorded a loss before tax of €58.0
million (six months to 30 June 2022: profit before tax €17.0 million),
reflecting the non-cash impact of a revaluation loss of €57.3 million (six
months to 30 June 2022: revaluation gain of €11.4 million).
Property expenses rose by 8.2 per cent over the year. The primary driver of
this was a 23.2 per cent increase in service charges paid on behalf of tenants
in relation to energy and utility price movements, partially offset by a 9.9
per cent decline in the Property Advisor's fees and expenses. Reported
earnings per share for the period were (€0.51) cents (30 June 2022:
€0.15 cents).
Reported EPRA NTA per share declined by 9.0 per cent in the first half of 2023
to €4.64 (£3.99) (31 December 2022: €5.10 (£4.52)). The € EPRA NTA
total return in the first half of 2023 was (9.0) per cent (H1 2022: 2.2 per
cent). The £ EPRA NTA total return for the same period was (11.8) per cent,
reflecting a strengthening of the £ against the € during the first six
months of the year.
Like-for-like Portfolio value decline of 6.9 per cent
During the first half of the financial year, buyer sentiment and transaction
volumes within the Berlin residential market continued to be affected by
historically high inflation and interest rates. These weaker market
conditions have negatively impacted the valuation of the Portfolio.
As at 30 June 2023, the Portfolio, including investment properties under
construction valued at €4.3 million, was valued at €714.3 million (31
December 2022: €775.9 million). On a like-for-like basis, after adjusting
for the impact of acquisitions and disposals, the Portfolio valuation declined
by 6.9 per cent during the half-year to 30 June 2023 and 11.6 per cent versus
the first half of the prior year.
The like-for-like valuation decrease in the year has been substantially driven
by the increase in risk-free yields which reflect movements in market interest
rate expectations and the subsequent impact on all real estate asset
classes.
Table: Portfolio valuation and breakdown
30-Jun-23 30-Jun-22 31-Dec-22 31-Dec-21
Total sqm ('000) 186.5 188.1 188.8 189.7
Valuation (€m) 714.3 820.1 775.9 801.5
Like-for-like valuation (decline) / growth (%) (6.9) 2.2 (3.1) 6.3
Value per sqm (€)(1) 3,808 4,318 4,082 4,225
Fully occupied gross yield (%) 3.3 2.8 3.0 2.8
Number of buildings 94 95 96 97
Residential units 2,477 2,554 2,553 2,569
Commercial units 137 136 135 138
Total units 2,614 2,690 2,688 2,707
(1 - Excludes Investment property under construction.)
The valuation represents an average value per square metre of €3,808
(31 December 2022: €4,082), and a gross fully occupied yield of 3.3 per
cent (31 December 2022: 3.0 per cent). Included within the Portfolio are
seven multi-family properties valued as condominiums, with an aggregate value
of €39.2 million (30 June 2022: six properties; €32.8 million).
Rental income per square metre growth of 3.8 per cent
Net rental income grew by 4.3 per cent in the twelve months period to €21.7
million annualised. Adjusting for acquisitions and disposals, like-for-like
rental income grew by 5.6 per cent, driven by like-for-like rental income per
square metre growth of 3.8 per cent to €10.2 (30 June 2022: 3.7 per cent),
and a reduction in vacancy, driven by the letting of 39 renovated units in our
project in Brandenburg.
The new transitional Berlin Mietspiegel, announced on 15 June 2023, provides
an additional tailwind to rental values. This replaces the previous rent index
of 2021 and applies until a new qualified rent index is published, expected to
be in the first half of 2024. On average, the new index represents an increase
in rental values of 5.4 per cent versus 2021. Although this is not the primary
driver of PSD's rental growth, it is expected that it will be accretive to
rental income in the second half of the financial year.
Notwithstanding current cost-of-living pressures, rent collection levels have
remained stable. The Company continues to manage rent-to-income affordability
multiples for new tenants conservatively and expects rent collection levels to
remain resilient.
Table: Rental income and vacancy rate
30-Jun-23 30-Jun-22 31-Dec-22 31-Dec-21
Total sqm ('000) 186.5 188.1 188.8 189.7
Annualised Net Rental Income (€m)(1) 21.7 20.8 21.4 20.3
Net Cold Rent per sqm (€) 10.2 9.8 10.0 9.6
Like-for-like rent growth (%) 5.6 4.3 6.1 1.3
Like-for-like rent per sqm growth (%) 3.8 3.7 3.9 3.9
Vacancy (%) 5.2 7.0 6.2 8.4
EPRA Vacancy (%) 2.7 2.5 2.4 3.1
(1 - Net Rental Income excludes heating and service costs.)
EPRA vacancy remains at historically low levels
Reported vacancy as at 30 June 2023 was 5.2 per cent (30 June 2022: 7.0 per
cent). On an EPRA basis, which adjusts for units undergoing development and
made available for sale, the vacancy rate was 2.7 per cent (30 June 2022: 2.5
per cent). EPRA vacancy is expected to remain at historically low levels given
the ongoing supply-demand imbalance for rental property in Berlin.
Reversionary re-letting premium of 31.2 per cent
During the six months to 30 June 2023, 148 new leases were signed,
representing a letting rate of approximately 6.2 per cent of occupied units.
The average rent achieved on all new lettings was €13.39 per sqm, a 5.7 per
cent increase on the prior year, and an average premium of 31.2 per cent to
passing rents. This compares to a 28.4 per cent premium in the six-month
period to 30 June 2022. The unit churn rate for the 12-month period to 30 June
2023 was 8.4 per cent (30 June 2022: 10.6 per cent).
Historically, the reversionary premium for the Portfolio overall has been
negatively impacted by the inclusion of re-lettings from the acquisition in
Brandenburg in 2020, where rents were lower than those achieved in central
Berlin. However, during the first six months of the current financial year,
both rental values and the reversionary premium in Brandenburg matched those
recorded in central Berlin.
Table: EPRA Net Initial Yield (NIY)
(All figures in € million unless otherwise stated)
30-Jun-23 30-Jun-22 31 Dec 2022 31 Dec 2021
Investment property 714.3 820.1 775.9 801.5
Reduction for NCI share and property under development (5.7) (12.9) (12.3) (12.8)
Completed property portfolio 708.7 807.2 763.6 788.7
Estimated purchasers' costs 57.8 67.9 63.2 65.1
Gross up completed property portfolio valuation 766.5 875.1 826.8 853.8
Annualised cash passing collected rental income 21.7 20.8 21.4 20.3
Property outgoings (3.7) (3.5) (3.6) (3.4)
Annualised collected net rents 18.0 17.2 17.8 16.8
EPRA NIY (%) 2.3 2.0 2.1 2.0
Investment in the Portfolio
During the first half of 2023, a total of €4.6 million was invested across
the Portfolio (H1 2022: €6.2 million). These items are recorded as capital
expenditure in the Financial Statements. A further €0.9 million (H1 2022:
€0.9 million) was spent on maintaining the assets and is expensed through
the profit and loss account. The Company will continue to carefully consider
all elements of discretionary capital expenditure and it is expecting a
material year-on-year decline for the full financial year, reflecting the
Company's stated intention to conserve cash at the current stage of the real
estate cycle.
Table: EPRA Capital Expenditure
(All figures in €'million unless otherwise stated)
30-Jun-23 30-Jun-22 31-Dec-22 31-Dec-21
Acquisitions - - 11.6 -
Like-for-like portfolio 2.2 1.8 7.4 4.7
Development 2.2 4.3 8.5 4.4
Other 0.2 0.2 0.5 0.4
Total Capital Expenditure 4.6 6.2 28.0 9.5
Disposals and acquisitions
The Property Advisor has undertaken a detailed analysis of the entire
Portfolio of assets to identify individual apartment blocks, portfolios of
apartment blocks and additional condominiums units for sale and continues to
actively market a wide range of properties. Given that the Company's share
price remains at a material discount to NTA, disposals at discounts to current
carrying values are under consideration. Any surplus cash generated will be
returned to shareholders or used to reduce debt levels.
Since the financial year end, the Company has completed the sale of two
properties for €7.3 million. These buildings were acquired in 2008 for
€2.3 million and, prior to notarisation, had a carrying value of €7.9
million. Excluding condominium sales, the combined value of disposals
completed during the past 12 months is €12.1 million. Since 30 June 2023,
the Company has accepted offers on two additional properties and discussions
are ongoing on a range of other assets however there can be no guarantee that
sales will complete.
The Company has previously stated that it will not seek to undertake further
acquisitions at this point in the real estate cycle. In August 2023 the
Company completed on an acquisition which was notarised in September 2022 for
a purchase price of €4.9 million, representing a price per sqm of €2,312.
No further payments are expected to be made during 2023 in relation to the
development project in Erkner.
Upturn in Condominium volumes in Q3 2023
PSD's condominium strategy involves the division and resale of selected
properties as single apartments. This is subject to regulatory approval and
involves the legal splitting of the freeholds in properties that have been
identified as being suitable for condominium conversion.
During the six months to 30 June 2023, eight condominium units were notarised
for sale for an aggregate value of €2.0 million (H1 2022: €3.0 million).
The average achieved notarised value per sqm for the residential units was
€5,708, representing an average 68 per cent premium to 31 December 2022
carrying value. The premium achieved on these buildings reflects the fact that
they were fully renovated and unoccupied.
Although condominium sales volumes were impacted by higher borrowing costs
during the first half of the financial year, buyer interest has since shown
tentative signs of recovery, with the volume of properties notarised or
reserved for notarisation having increased since the half year end. Since 30
June 2023, the Company has notarised a further six condominiums for €2.1
million. The majority of these units were occupied, with a combined sales
value representing a 2.9 per cent discount to 31 December 2022 carrying
value.
Reservations on a further three occupied units with a combined value of €0.8
million have been received and are pending notarisation.
Asking prices of condominiums are regularly reviewed and benchmarked to market
comparables, particularly for tenanted units, where sales conditions remain
challenging. Following recent price revisions, the Company expects condominium
sales to accelerate in H2 2023 and H1 2024, reflecting revised sales price
expectations and a greater stock of renovated vacant units which are currently
work in progress. Moreover, several new projects are in preparation and
expected to be brought to market by the year-end. It is expected that the
greater availability of units for sale will further support sales activities
in 2024.
As at 30 June 2023, 78 per cent of the Portfolio was registered as
condominiums, providing opportunities for the implementation of future sales
projects. Although a further 6 per cent of the Portfolio is currently in
application for splitting, the Federal Government has implemented strict
regulations that limit landlords' ability to split their properties into
condominiums in the future. Due to this, it cannot be guaranteed that ongoing
applications will be completed. Importantly, however, this legislation only
applies to current and future applications and does not affect properties that
have already been split. Moreover, these regulations are likely to result in a
reduced supply of condominiums for sale in the future.
Debt and gearing
As at 30 June 2023, PSD had total borrowings of €318.1 million (31 December
2022: €315.8 million) and cash balances of €13.1 million (31 December
2022: €12.5 million), resulting in net debt of €305.0 million (31 December
2022: €303.3 million) and a net loan to value on the Portfolio of 42.7 per
cent (31 December 2022: 39.1 per cent).
The small change in gross debt in the period results from an additional
drawdown from the Natixis facility, which includes borrowings to fund historic
capital expenditure. Partly offsetting these drawdowns were repayments of debt
following the sale of properties and condominiums, alongside amortisation of
debt held with Berliner Sparkasse.
The interest rate on 88.3 per cent of PSD's debt is fixed or hedged with
swaps. As at 30 June 2023, the blended interest rate of PSD's loan book was
2.49 per cent (31 December 2022: 2.23 per cent).
The average remaining duration of the loan book at 30 June 2023 had decreased
to 3.3 years (31 December 2022: 3.8 years).
Market conditions and outlook
Economic backdrop
The decade leading up to mid-2022 was characterised by a sustained period of
low interest rates and cheap money and these tailwinds led to steady increases
in real estate prices. However, government support measures during the
Covid-19 pandemic and supply shortages created by the ongoing conflict in
Ukraine have created significant inflationary pressures. The response from
global central banks has been a significant tightening in monetary policy to
combat inflation, with the ECB lending rate rising from zero in 2019 to 4.5
per cent currently. With prime yields for German residential real estate
having fallen to little above 2 per cent in 2021, significantly lower than in
most of continental Europe and the UK, the speed of the upward correction in
residential yields across Germany has been significant.
Although the rate of inflation in Germany is now in decline, the German
manufacturing sector in particular, has been significantly impacted by energy
price shocks linked to the war in Ukraine. The International Monetary Fund
currently predicts that Germany will be the only major advanced economy to
shrink in 2023. The city of Berlin, which has a significantly higher reliance
on the service, technology and education sectors, is less exposed to the
economic impact of a downturn in manufacturing.
Rental growth
Higher interest rates have meant that in Berlin it is usually less expensive
to rent versus the debt servicing costs of buying an equivalent apartment.
Demand for rental properties therefore continues to rise as a higher cost of
home ownership encourages potential buyers to remain within the rental system
for longer.
Rental demand has been further increased by inward migration of more than 1.5
million refugees into Germany from Ukraine during 2022 and 2023, placing
further pressure on residential vacancy levels, which are already at
historically low levels. The bulk of net inward migration has been in major
urban areas, including Berlin. The Berlin Senate currently estimates that over
60,000 have settled in the city since the onset of the war.
At the same time, higher funding, labour, and construction costs have
continued to present significant headwinds to new-build construction, limiting
the future supply of rental accommodation. According to JLL, construction
costs in aggregate increased by 17 per cent during 2022 and this, coupled with
sharply increased borrowing costs now being incurred by developers, has meant
that fewer construction projects are economically viable. The most recent
prediction from GdW, a trade body representing housing associations, is for
residential completions to fall from 295,300 in 2022 to 242,000 in 2023 and
214,000 in 2024. This compares with an annual average of 405,000 between 1950
and 2022 and is well below the annual forward target set by the German
Government of 400,000. Moreover, the number of building permits granted in
Germany during the first half of 2023 is approaching a 10-year low, which
suggests that future construction will be significantly constrained.
The combination of rising demand and supply shortage is providing a tailwind
for PSD's rental business, and it is expected that annualised like-for-like
rental growth will accelerate from its current level of 5.6 per cent as at 30
June 2023, helped by the Company's modernisation and renovation programme.
Asset values
Although higher interest rates are positively affecting rental values, they
have weakened transaction volumes and asset values. CBRE estimates that
transaction volumes of over 50 units in the German multi-family market
totalled approximately €3.1 billion in the first half of 2023 - more than 60
per cent less than in the same period of the previous year, with the second
quarter being the weakest in terms of sales since 2011.
Whilst there is evidence to suggest that there is a substantial amount of
capital that has been earmarked to invest in German residential property,
uncertainty about the extent and duration of the interest rate cycle and
associated correction in property values continues to weigh on deployment
decisions. In instances where portfolios of properties are being placed on the
market, either pricing is not matching vendor expectations, with no
transaction occurring, or transaction values have been at distressed levels.
This risk continues to be reflected in the share prices of listed German
residential companies, all of which are trading at a c.50-70 per cent discount
to most recently published EPRA net asset value.
Positioning the Company
In common with its German residential listed peers, PSD has not been immune
from these trends. Since 30 June 2022, the gross yield on the Portfolio has
risen from 2.8 to 3.3 per cent, leading to a decline in the value of the
Portfolio of 12.1 per cent after taking into account a 3.8 per cent increase
in portfolio rents.
Although it is still difficult to assess the future development of interest
rates, volatility has decreased significantly, reflecting the fact that
inflation is now in decline. However, inflation across Europe is proving to be
more stubborn than in the US, and the monetary response is therefore likely to
be more protracted. Further declines in property values therefore cannot be
ruled out.
Against this backdrop, the Company will continue to focus on conserving cash
through careful monitoring of capex, reducing debt and returning capital to
shareholders, where feasible and appropriate. To this end, a significant
part of the Portfolio has been identified for disposal. Given the material
difference between condominium values (for which, during the past 12 months,
the Company has achieved average sales prices of €5,545 per square metre)
and the current share price (which, on an EPRA basis, implies a value square
metre across the entire Portfolio of approximately €2,600), plans for future
condominium sales have also been accelerated.
Key Performance Indicators
PSD has chosen a number of Key Performance Indicators (KPIs), which the Board
believes will help investors understand the performance of PSD and the
underlying property Portfolio.
· The value of the Portfolio declined by 6.9 per cent on a
like-for-like for basis for the first half of the year (H1 2022: 2.2 per cent
increase).
· Like-for-like Portfolio rent per sqm increased by 3.8 per cent in the
half-year to 30 June 2023 (H1 2022: 3.7 per cent).
· The EPRA vacancy of the Portfolio as at 30 June 2023 stood at 2.7 per
cent (31 December 2022: 2.4 per cent).
· The Group continued with its targeted condominium sales programme,
notarising sales of €2.0 million in the half year to 30 June 2023 (H1 2022:
€3.0 million).
· EPRA NTA per share declined by 9.0 per cent to €4.64 as at 30 June
2023 (31 December 2022: €5.10).
· No dividend was declared for H1 2023 (H1 2022 2.35 € cents per
share).
Statement of Directors' responsibilities
The important events that have occurred during the period under review, the
key factors influencing the condensed consolidated financial statements and
the principal factors that could impact the remaining six months of the
financial year are set out in the Chairman's Statement and the Property
Advisor Report.
Since the date of the Annual Report for the year ended 31 December 2022,
capital and investment markets have continued to react negatively to
inflationary pressures, rising interest rates and economic uncertainty more
generally.
As stated above, sentiment in the Berlin real estate market remains poor.
Other principal risks considered are substantially unchanged since the date of
the Annual Report for the year ended 31 December 2022, and continue to be as
set out in that report. These include, but are not limited to:
· Financial and economic risk
· Market risk
· Inflationary and interest rate risk
· Tenant, letting and political risk
· Outsourcing risk
· IT and Cyber Security risk
· Regulatory risk
The Directors confirm that, to the best of their knowledge:
· The condensed set of financial statements contained within this half
yearly financial report have been prepared in accordance with International
Accounting Standard ("IAS") 34 'Interim Financial Reporting' and give a true
and fair view of the assets, liabilities, financial position and profit of the
Group; and
· The half yearly financial report includes a fair review of the
information required by the FCA's Disclosure and Transparency Rule 4.2.7R
being disclosure of important events that have occurred during the first six
months of the financial year, their impact on the condensed set of financial
statements and a description of the principal risks and uncertainties for the
remaining six months of the year; and
· The half yearly financial report includes a fair review of the
information required by the Disclosure and Transparency Rule 4.2.8R being
disclosure of related party transactions during the first six months of the
financial year, how they have materially affected the financial position of
the Group during the period and any changes therein.
The half yearly financial report was approved by the Board on 26 September
2023 and the above responsibility statement was signed on its behalf by:
Director
26 September 2023
Condensed Consolidated Statement of Comprehensive Income
For the period from 1 January 2023 to 30 June 2023
Six months ended Six months ended Year ended
Notes 30 June 2023 30 June 2022 31 December 2022
(unaudited) (unaudited) (audited)
€'000 €'000 €'000
Continuing operations
Revenue 13,827 12,972 25,934
Property expenses 5 (9,455) (8,737) (17,119)
Gross profit 4,372 4,235 8,815
Administrative expenses 6 (1,467) (1,306) (3,264)
Gain / (loss) on disposal of investment property (including investment 7 516 88 (185)
property held for sale)
Investment property fair value (loss) /gain 10 (57,340) 11,395 (42,241)
Performance fee due to Property Advisor 20 - 343 343
Operating (loss) / profit (53,919) 14,755 (36,532)
Net finance charge (before gain on interest rate swaps) 8 (4,470) (3,892) (7,937)
Gain on interest rate swaps 8 349 6,089 26,920
(Loss) / profit before taxation (58,040) 16,952 (17,549)
Income tax credit / (expense) 9 11,012 (2,981) 1,739
(Loss) / profit after taxation (47,028) 13,971 (15,810)
Other comprehensive income - - -
Total comprehensive (loss) / income for the period (47,028) 13,971 (15,810)
Total comprehensive income attributable to:
Owners of the parent (46,614) 13,891 (15,435)
Non-controlling interests (414) 80 (375)
(47,028) 13,971 (15,810)
Earnings per share attributable to the owners of the parent:
From continuing operations
Basic (€) 22 (0.51) 0.15 (0.17)
Diluted (€) 22 (0.51) 0.15 (0.17)
Condensed Consolidated Statement of Financial Position
At 30 June 2023
As at As at As at
Notes 30 June 2023 30 June 2022 31 December 2022
(unaudited) (unaudited) (audited)
€'000 €'000 €'000
ASSETS
Non-current assets
Investment properties 12,14 704,644 779,290 761,377
Property, plant and equipment 11 18 12
Other financial assets at amortised cost 15 816 938 828
Derivative financial instruments 19 16,385 - 16,036
Deferred tax asset 9 - 759 -
721,856 781,005 778,253
Current assets
Investment properties - held for sale 13 9,705 40,804 14,527
Trade and other receivables 16 13,714 11,775 10,068
Cash and cash equivalents 13,059 9,550 12,485
36,478 62,129 37,080
Total assets 758,334 843,134 815,333
EQUITY AND LIABILITIES
Current liabilities
Borrowings 17 1,029 835 820
Trade and other payables 18 13,568 10,962 15,130
Current tax 9 760 1,296 808
15,357 13,093 16,758
Non-current liabilities
Borrowings 17 313,815 300,270 311,264
Derivative financial instruments 19 - 4,795 -
Deferred tax liability 9 59,799 76,413 70,920
373,614 381,478 382,184
Total liabilities 388,971 394,571 398,942
Equity
Stated capital 21 196,578 196,578 196,578
Treasury shares (37,448) (37,111) (37,448)
Share based payment reserve 20 - - -
Retained earnings 207,435 285,429 254,049
Equity attributable to owners of the parent 366,565 444,896 413,179
Non-controlling interest 2,798 3,667 3,212
Total equity 369,363 448,563 416,391
Total equity and liabilities 758,334 843,134 815,333
Condensed Consolidated Statement of Changes in Equity
For the period from 1 January 2023 to 30 June 2023
Attributable to the owners of the parent
Stated capital Treasury Shares Share based payment reserve Retained earnings Total Non-controlling interest Total equity
€'000 €'000 €'000 €'000 €'000 €'000 €'000
Balance at 1 January 2022 196,578 (33,275) 343 276,394 440,040 3,587 443,627
Comprehensive income:
Profit for the period - - - 13,891 13,891 80 13,971
Other comprehensive income - - - - - - -
Total comprehensive income for the period - - - 13,891 13,891 80 13,971
Transactions with owners -
recognised directly in equity:
Dividends paid - - - (4,856) (4,856) - (4,856)
Performance fee - - (343) - (343) - (343)
Acquisition of treasury shares - (3,836) - - (3,836) - (3,836)
Balance at 30 June 2022 (unaudited) 196,578 (37,111) - 285,429 444,896 3,667 448,563
Comprehensive income:
Loss for the period - - - (29,326) (29,326) (455) (29,781)
Other comprehensive income - - - - - - -
Total comprehensive income for the period - - - (29,326) (29,326) (455) (29,781)
Transactions with owners -
recognised directly in equity:
Dividends paid - - - (2,054) (2,054) - (2,054)
Acquisition of treasury shares - (337) - - (337) - (337)
Balance at 31 December 2022 (audited) 196,578 (37,448) - 254,049 413,179 3,212 416,391
Comprehensive income:
Loss for the period - - - (46,614) (46,614) (414) (47,028)
Other comprehensive income - - - - - - -
Total comprehensive income for the period - - - (46,614) (46,614) (414) (47,028)
Balance at 30 June 2023 (unaudited) 196,578 (37,448) - 207,435 366,565 2,798 369,363
The share based payment reserve had been established in relation to the issue
of shares for the payment of the performance fee of the property advisor.
Treasury shares comprise the accumulated cost of shares acquired on-market.
Condensed Consolidated Statement of Cash Flows
For the period from 1 January 2023 to 30 June 2023
Notes Six months ended Six months ended Year ended
30 June 2023 30 June 2022 31 December 2022
(unaudited) (unaudited) (audited)
€'000 €'000 €'000
Profit / (loss) before taxation (58,040) 16,952 (17,549)
Adjustments for:
Net finance charge 4,121 (2,197) (18,983)
(Gain) / loss on disposal of investment property (516) (88) 185
Investment property revaluation loss / (gain) 57,340 (11,395) 42,241
Depreciation 31 8 8
Performance fee due to property advisor - (343) (343)
Operating cash flows before movements in working capital 2,936 2,937 5,559
Increase in receivables (3,646) (4,424) (2,882)
Decrease in payables (1,562) (931) (463)
Cash (used in) / generated from operating activities (2,272) (2,418) 2,214
Income tax paid (157) (19) (521)
Net cash (used in) / generated from operating activities (2,429) (2,437) 1,693
Cash flow from investing activities
Proceeds on disposal of investment property (net of disposal costs) 9,380 11,244 21,010
Interest received 2,829 2 474
Capital expenditure on investment property (4,649) (6,234) (16,437)
Property additions - (7,724) (13,229)
(Acquisition) / disposals of property, plant and equipment (30) (6) -
Net cash generated from / (used in) investing activities 7,530 (2,718) (8,182)
Cash flow from financing activities
Interest paid on bank loans (6,572) (3,687) (7,296)
Loan arrangement fees paid - - (499)
Repayment of bank loans (4,821) (3,281) (6,354)
Drawdown on bank loan facilities 6,866 20,012 33,765
Dividends paid - (4,856) (6,910)
Acquisition of treasury shares - (4,001) (4,173)
Net cash (used in) / generated from financing activities (4,527) 4,187 8,533
Net increase / (decrease) in cash and cash equivalents 574 (968) 2,044
Cash and cash equivalents at beginning of period/year 12,485 10,441 10,441
Exchange gains on cash and cash equivalents - - -
Cash and cash equivalents at end of period/year 13,059 9,550 12,485
Reconciliation of Net Cash Flow to Movement in Debt
For the period from 1 January 2023 to 30 June 2023
Six months ended Six months ended Year ended
30 June 2023 30 June 2022 31 December 2022
€'000 €'000 €'000
Cashflow from increase in debt financing 2,045 16,731 27,411
Loan arrangement fees paid - - (499)
Non-cash changes from increase in debt financing 715 219 1,017
Change in net debt resulting from cash flows 2,760 16,950 27,929
Movement in debt in the period/year 2,760 16,950 27,929
Debt at the start of the period/year 312,084 284,155 284,155
Debt at the end of the period/year 17 314,844 301,105 312,084
Notes to the Condensed Consolidated Financial Statements
For the period from 1 January 2023 to 30 June 2023
1. General information
The Group consists of a Parent Company, Phoenix Spree Deutschland Limited
('the Company'), incorporated in Jersey, Channel Islands and all its
subsidiaries ('the Group') which are incorporated and domiciled in and operate
out of Jersey and Germany. Phoenix Spree Deutschland Limited is listed on the
premium segment of the Main Market of the London Stock Exchange.
The Group invests in residential and commercial property in Germany.
The registered office is at IFC 5, St Helier, Jersey, JE1 1ST, Channel
Islands.
2. Basis of preparation
The interim set of condensed consolidated financial statements has been
prepared in accordance with the Disclosure and Transparency Rules of the
Financial Conduct Authority and with IAS 34 Interim Financial Reporting as
adopted by the European Union and the United Kingdom.
The interim condensed consolidated financial statements do not include all the
information and disclosures required in the annual financial statements, and
should be read in conjunction with the Group's annual financial statements for
the year ended 31 December 2022.
As required by the Disclosure and Transparency Rules of the Financial Conduct
Authority, the financial statements have been prepared applying the accounting
policies and presentation that were applied in the preparation of the
Company's published consolidated financial statements for the year ended 31
December 2022.
The comparative figures for the financial year ended 31 December 2022 are
extracted from but do not comprise, the Group's annual consolidated financial
statements for that financial year.
The interim condensed consolidated financial statements were authorised and
approved for issue on 27 September 2023.
The interim condensed consolidated financial statements are neither reviewed
nor audited, and do not constitute statutory accounts within the meaning of
Section 105 of the Companies (Jersey) Law 1991.
2.1 Going concern
The interim condensed consolidated financial statements have been prepared on
a going concern basis which assumes the Group will be able to meet its
liabilities as they fall due for the foreseeable future. The Directors have
prepared forecasts for the Company in the light of the continuing global
inflationary pressures and rising interest rates, the conclusion of which was
that there were no concerns. These condensed consolidated financial statements
have therefore been prepared on a going concern basis.
2.2 New standards and interpretations
There are currently no new standards, amendments or interpretations effective
for annual periods beginning on or after 1 January 2023 that are required to
be adopted by the Group.
3. Critical accounting estimates and judgements
The preparation of condensed consolidated financial statements in conformity
with IFRS requires the Group to make certain critical accounting estimates and
judgements. In the process of applying the Group's accounting policies,
management has decided the following estimates and assumptions have a
significant risk of causing a material adjustment to the carrying amounts of
assets and liabilities within the financial period;
i) Estimate of fair value of investment properties
The valuation of the Group's property portfolio is inherently subjective due
to, among other factors, the individual nature of each property, its location
and condition, and expected future rentals. The valuation as at 30 June 2023,
which has been used to prepare these financial statements is based on the
rules, regulations and market as at that date. The fair value estimates of
investments properties are detailed in note 12.
The best evidence of fair value is current prices in an active market of
investment properties with similar leases and other contracts. In the absence
of such information, the Group determines the amount within a range of
reasonable fair value estimates. In making its estimate, the Group considers
information from a variety of sources, including:
a) Discounted cash flow projections based on reliable estimates of future cash
flows, derived from the terms of any existing lease and other contracts, and
(where possible) from external evidence such as current market rents for
similar properties in the same location and condition, and using discount
rates that reflect current market assessments of the uncertainty in the amount
and timing of the cash flows.
b) Current prices in an active market for properties of different nature,
condition or location (or subject to different lease or other contracts),
adjusted to reflect those differences.
c) Recent prices of similar properties in less active markets, with
adjustments to reflect any changes in economic conditions since the date of
the transactions that occurred at those prices.
The Directors remain ultimately responsible for ensuring that the valuers are
adequately qualified, competent and base their results on reasonable and
realistic assumptions. The Directors have appointed JLL as the real estate
valuation experts who determine the fair value of investment properties using
recognised valuation techniques and the principles of IFRS 13. Further
information on the valuation process can be found in note 12.
For further information with regard to the movement in the fair value of the
Group's investment properties, refer to the management report on pages 6 to 7.
ii) Judgment in relation to the recognition of assets held for sale
In accordance with the requirement of IFRS 5, Management has made an
assumption in respect of the likelihood of investment properties - held for
sale, being sold within the following 12 months. Management considers that
based on historical and current experience of market since 30 June 2023, the
properties can be reasonably expected to sell within this timeframe.
4. Segmental information
Information reported to the Board of Directors, the chief operating decision
maker, relates to the Group as a whole. Therefore, the Group has not included
any further segmental analysis within these condensed consolidated unaudited
interim financial statements.
Notes to the Condensed Consolidated Financial Statements
For the period from 1 January 2023 to 30 June 2023
5. Property expenses
30 June 2023 30 June 2022 31 December 2022
(unaudited) (unaudited) (audited)
€'000 €'000 €'000
Property management expenses 720 613 1,233
Repairs and maintenance 937 899 1,525
Impairment charge - trade receivables (52) (66) 868
Service charges paid on behalf of tenants 4,759 3,862 6,631
Property Advisors' fees and expenses 3,091 3,429 6,862
9,455 8,737 17,119
6. Administrative expenses
30 June 2023 30 June 2022 31 December 2022
(unaudited) (unaudited) (audited)
€'000 €'000 €'000
Secretarial & administration fees 446 318 651
Legal & professional fees 913 895 2,261
Directors' fees 135 152 275
Bank charges 8 41 74
(Profit) / loss on foreign exchange (1) (105) 5
Depreciation 31 8 8
Other income (65) (3) (10)
1,467 1,306 3,264
7. Gain / (loss) on disposal of investment property (including investment
property held for sale)
Notes 30 June 2023 30 June 2022 31 December 2022
(unaudited) (unaudited) (audited)
€'000 €'000 €'000
Disposal proceeds 9,514 7,314 13,754
Book value of disposals 12 (8,864) (6,720) (12,982)
Disposal costs (134) (506) (957)
516 88 (185)
Where there has been a partial disposal of a property, the net book value of
the asset sold is calculated on a per square metre rate, based on the December
valuation.
8. Net finance charge / (income)
30 June 2023 30 June 2022 31 December 2022
(unaudited) (unaudited) (audited)
€'000 €'000 €'000
Interest income (156) (14) (376)
Swap interest income (2,661) - -
Fair value gain on interest rate swap (349) (6,089) (26,920)
Finance expense on bank borrowings 7,287 3,906 8,313
4,121 (2,197) (18,983)
9. Income tax (credit) / expense
30 June 2023 30 June 2022 31 December 2022
(unaudited) (unaudited) (audited)
The tax charge for the period is as follows: €'000 €'000 €'000
Current tax charge 109 803 817
Deferred tax credit - origination and reversal of temporary differences (11,121) 2,178 (2,556)
(11,012) 2,981 (1,739)
Notes to the Condensed Consolidated Financial Statements
For the period from 1 January 2023 to 30 June 2023
9. Income tax (credit) / expense (continued)
The tax charge for the year can be reconciled to the theoretical tax charge on
the profit in the condensed consolidated statement of comprehensive income as
follows:
30 June 2023 30 June 2022 31 December 2022
€'000 €'000 €'000
(Loss) / gain before tax on continuing operations (58,040) 16,952 (17,549)
Tax at German income tax rate of 15.8% (2022: 15.8%) (9,185) 2,678 (2,773)
Income not taxable (82) (14) 29
Tax effect of losses brought forward (1,746) 316 1,005
Total tax (credit) / expense for the period / year (11,012) 2,981 (1,739)
Reconciliation of current tax liabilities
30 June 2023 30 June 2022 31 December 2022
€'000 €'000 €'000
Balance at beginning of period/year 808 512 512
Tax paid (157) (19) (521)
Current tax charge 109 803 817
Balance at end of period/year 760 1,296 808
Reconciliation of deferred tax
Capital gains on properties Interest rate swaps Total
€'000 €'000 €'000
Liability Liability Net liabilities
Balance at 1 January 2022 (75,198) 1,722 (73,476)
Charged to the statement of comprehensive income (1,215) (963) (2,178)
Deferred tax (liability) / asset at 30 June 2022 (76,413) 759 (75,654)
Charged to the statement of comprehensive income 8,031 (3,297) 4,734
Deferred tax liability at 31 December 2022 (68,382) (2,538) (70,920)
Charged to the statement of comprehensive income 11,176 (55) 11,121
Deferred tax liability at 30 June 2023 (57,206) (2,593) (59,799)
10. Investment property fair value gain
30 June 2023 30 June 2022 31 December 2022
(unaudited) (unaudited) (audited)
€'000 €'000 €'000
Investment property fair value (loss) / gain (57,340) 11,395 (42,241)
Further information on investment properties is shown in note 12.
11. Dividends
30 June 2023 30 June 2022 31 December 2022
(unaudited) (unaudited) (audited)
€'000 €'000 €'000
Amounts recognised as distributions to equity holders in the period:
Interim dividend for the year ended 31 December 2022 of 2.35c (2.09p) declared - - 2,158
29 September 2022, paid 29 October 2022 (2021: 2.35c (2.02p)) per share.
No final dividend was paid for the year ended 31 December 2022 (2021: 5.15c - 4,856 4,752
(4.36p) per share, declared 30 March 2022, paid 9 June 2022.
The Board are not proposing to declare a dividend for the first half of the
year (six months to 30 June 2022: 2.35c (2.09p)).
12. Investment properties
30 June 2023 30 June 2022 31 December 2022
(unaudited) (unaudited) (audited)
Fair value €'000 €'000 €'000
Balance at beginning of period/year 775,904 801,461 801,461
Capital expenditure 4,649 6,234 16,437
Property additions - - 13,229
Disposals (8,864) (6,720) (12,982)
Fair value (loss) / gain (57,340) 11,395 (42,241)
Investment properties at fair value - as set out in the report by JLL 714,349 812,370 775,904
Assets considered as "Held for sale" (Note 13) (9,705) (40,804) (14,527)
Assets considered as "Under construction" (Note 14) - 7,724 -
Balance at end of period/year 704,644 779,290 761,377
The property portfolio was valued at 30 June 2023 by the Group's independent
valuers, Jones Lang LaSalle GmbH ('JLL'), in accordance with the methodology
described below. The valuations were performed in accordance with the current
Appraisal and Valuation Standards, 8th edition (the 'Red Book') published by
the Royal Institution of Chartered Surveyors (RICS).
Notes to the Condensed Consolidated Financial Statements
For the period from 1 January 2023 to 30 June 2023
12. Investment properties (continued)
The valuation of the property Portfolio (other than the assets held at
directors' valuation as noted below) is performed on a building-by-building
basis and the source information on the properties including current rent
levels, void rates and non-recoverable costs was provided to JLL by the
Property Advisors QSix Residential Limited. Assumptions with respect to rental
growth, adjustments to non-recoverable costs and the future valuation of these
are those of JLL. Such estimates are inherently subjective and actual values
can only be determined in a sales transaction. JLL also uses data from
comparable market transactions where these are available alongside their own
assumptions.
Having reviewed the JLL report, the Directors are of the opinion that this
represents a fair and reasonable valuation of the properties and have
consequently adopted this valuation in the preparation of the condensed
consolidated financial statements.
The valuations have been prepared by JLL on a consistent basis at each
reporting date and the methodology is consistent and in accordance with IFRS
which requires that the 'highest and best use' value is taken into account
where that use is physically possible, legally permissible and financially
feasible for the property concerned, and irrespective of the current or
intended use.
All properties are valued as Level 3 measurements under the fair value
hierarchy (see note 24) as the inputs to the discounted cash flow methodology
which have a significant effect on the recorded fair value are not observable.
Additionally, JLL perform reference checks back to comparable market
transactions to confirm the valuation model.
The unrealised fair value gain or loss in respect of investment property is
disclosed in the condensed consolidated statement of comprehensive income as
'Investment property fair value gain or loss.
Valuations are undertaken using the discounted cash flow valuation technique
as described below and with the inputs set out as follows:
Discounted cash flow methodology (DCF)
The fair value of investment properties is determined using discounted cash
flows.
Under the DCF method, a property's fair value is estimated using explicit
assumptions regarding the benefits and liabilities of ownership over the
asset's life including an exit or terminal value. As an accepted method within
the income approach to valuation the DCF method involves the projection of a
series of cash flows on a real property interest. To this projected cash flow
series, an appropriate, market-derived discount rate is applied to establish
the present value of the income stream associated with the real property.
The duration of the cash flow and the specific timing of inflows and outflows
are determined by events such as rent reviews, lease renewal and related lease
up periods, re-letting, redevelopment, or refurbishment. The appropriate
duration is typically driven by market behaviour that is a characteristic of
the class of real property.
Periodic cash flow is typically estimated as gross income less vacancy,
non-recoverable expenses, collection losses, lease incentives, maintenance
cost, agent and commission costs and other operating and management expenses.
The series of periodic net operating incomes, along with an estimate of the
terminal value anticipated at the end of the projection period, is then
discounted.
Included within Investment Properties is an investment property under
construction which has been valued by the Directors using a methodology that
the Directors deem appropriate to represent the fair value of this asset.
The fair value of the investment property under construction has been
calculated as the Red Book value of the completed asset minus the present
value of cashflows required to achieve the finished asset. The Red Book value
has been provided by JLL based on the same valuation methodology as the rest
of the portfolio. The present value of cashflows required to achieve the
finished asset has been derived using a discounted cashflow using the
remaining contractual payments and the same discount rate as JLL have applied
to cashflows post completion. The subjectivities surrounding the present
value of future payments are deemed to be the finished asset value, the
discount rate and the timing of payments.
The Group categorises all investment properties in the following three ways;
Rental Scenario
Where properties have been valued under the "Discounted Cashflow Methodology"
and are intended to be held by the Group for the foreseeable future, they are
considered valued under the "Rental Scenario" This will equal the "Investment
Properties" line in the Non-Current Assets section of the condensed
consolidated statement of financial position.
Condominium Scenario
Where properties have the potential or the benefit of all relevant permissions
required to sell apartments individually (condominiums), and have been
approved for sale by the Board, then we refer to this as a 'condominium
scenario'. Properties expected to be sold in the coming year from these assets
are considered held for sale under IFRS 5 and can be seen in note 13. The
additional value is reflected by using a lower discount rate under the DCF
methodology. Properties which do not have the benefit of all relevant
permissions are described as valued using a standard 'rental
scenario'. Included in properties valued under the condominium scenario are
properties not yet released to held for sale as only a portion of the
properties are forecast to be sold in the coming 12 months.
Disposal Scenario
Where properties have been notarised for sale prior to the reporting date, but
have not completed; they are held at their notarised disposal value. These
assets are considered held for sale under IFRS 5 as set out in note 13.
The table below sets out the assets valued using these 3 scenarios:
30 June 2023 30 June 2022 31 December 2022
€'000 €'000 €'000
Rental scenario 675,193 779,540 738,554
Condominium scenario 37,745 32,318 28,470
Disposal scenario 1,411 512 8,880
Total 714,349 812,370 775,904
Notes to the Condensed Consolidated Financial Statements
For the period from 1 January 2023 to 30 June 2023
13. Investment properties - Held for sale
30 June 2023 30 June 2022 31 December 2022
(unaudited) (unaudited) (audited)
€'000 €'000 €'000
Fair value - held for sale investment properties
At beginning of period/year 14,527 41,631 41,631
Transferred from investment properties 3,352 5,359 (14,566)
Capital expenditure 558 534 1,038
Properties sold (8,864) (6,720) (12,982)
Valuation gain on apartments held for sale 132 - (594)
At end of period/year 9,705 40,804 14,527
Investment properties are re-classified as current assets and described as
'held for sale' in three different situations: properties notarised for sale
at the reporting date, properties where at the reporting date the Group has
obtained and implemented all relevant permissions required to sell individual
apartment units, and efforts are being made to dispose of the assets
('condominium'); and properties which are being marketed for sale but have
currently not been notarised.
Properties notarised for sale by the reporting date are valued at their
disposal price (disposal scenario), and other properties are valued using the
condominium or rental scenarios (see note 12) as appropriate.
Investment properties held for sale are all expected to be sold within 12
months of the reporting date based on management knowledge of current and
historic market conditions.
14. Investment properties - Under construction
30 June 2023 30 June 2022 31 December 2022
(unaudited) (unaudited) (audited)
€'000 €'000 €'000
Fair value - under construction investment properties
At beginning of period/year - - -
Properties purchased - 5,550 -
Capital expenditure - 2,174 -
At end of period/year - 7,724 -
For the presentation of the 30 June 2022 interim consolidated financial
statements, investment properties were considered as under construction from
the point of completion of the acquisition of the property up until the
completion of the development, at which point the property would be
transferred to investment properties. The presentation was changed for the
31 December 2022 annual consolidated financial statements, to include
investment properties under construction within investment properties. The
valuation methodology for investment properties under construction has been
included within note 12.
15. Other financial assets at amortised cost
30 June 2023 30 June 2022 31 December 2022
(unaudited) (unaudited) (audited)
€'000 €'000 €'000
Non-current
Balance at beginning of period/year 828 926 926
Transfer to current other financial assets at amortised cost - - (122)
Repayment of loan interest (24) - -
Accrued interest 12 12 24
Balance at end of period/year 816 938 828
The Group entered into a loan agreement with the minority interest of Accentro
Real Estate AG in relation to the acquisition of the assets as share deals.
This loan bears interest at 3% per annum.
These financial assets are considered to have low credit risk and any loss
allowance would be immaterial.
None of these financial assets were either past due or impaired.
16. Trade and other receivables
30 June 2023 30 June 2022 31 December 2022
(unaudited) (unaudited) (audited)
€'000 €'000 €'000
Current
Trade receivables 827 1,061 932
Less: impairment provision (321) (249) (373)
Net receivables 506 812 559
Prepayments and accrued income 618 2,321 68
Service charges receivable 9,530 8,066 6,192
Other receivables 3,060 576 3,249
13,714 11,775 10,068
Notes to the Condensed Consolidated Financial Statements
For the period from 1 January 2023 to 30 June 2023
17. Borrowings
30 June 2023 30 June 2022 31 December 2022
(unaudited) (unaudited) (audited)
€'000 €'000 €'000
Current liabilities
Bank loans - NATIXIS Pfandbriefbank AG* 228 34 19
Bank loans - Berliner Sparkasse 801 801 801
1,029 835 820
Non-current liabilities
Bank loans - NATIXIS Pfandbriefbank AG** 253,850 239,454 250,872
Bank loans - Berliner Sparkasse 59,965 60,816 60,392
313,815 300,270 311,264
314,844 301,105 312,084
* Nominal value of the borrowings as at 30 June 2023 was €1,240,000 (31
December 2022: €1,031,000, 30 June 2022: €986,000).
** Nominal value of the borrowings as at 30 June 2023 was €256,074,000 (31
December 2022: €253,602,000, 30 June 2022: €242,497,000).
For further information on borrowings, refer to the management report on page
10.
18. Trade and other payables
30 June 2023 30 June 2022 31 December 2022
(unaudited) (unaudited) (audited)
€'000 €'000 €'000
Trade payables 3,868 609 4,525
Accrued liabilities 1,283 2,806 1,485
Service charges payable 8,417 5,769 5,394
Advanced payment received on account - 1,778 3,700
Deferred income - - 26
13,568 10,962 15,130
19. Derivative financial instruments
30 June 2023 30 June 2022 31 December 2022
(unaudited) (unaudited) (audited)
€'000 €'000 €'000
Interest rate swaps - carried at fair value through profit or loss
At beginning of period/year 16,036 10,884 (10,884)
Loss in movement in fair value through profit or loss 349 (6,089) 26,920
At end of period/year 16,385 4,795 16,036
The notional principal amounts of the outstanding interest rate swap contracts
at 30 June 2023 were €230,098,750 (December 2022: €214,878,750, June 2022:
€204,269,000). At 30 June 2023 the fixed interest rates vary from 0.775% to
3.21% (December 2022: 0.775% to 1.287%, June 2022: 0.24% to 1.01%) above the
main factoring Euribor rate.
Maturity analysis of interest rate swaps
30 June 2023 30 June 2022 31 December 2022
€'000 €'000 €'000
Between 2 and 5 years 16,385 4,795 16,036
16,385 4,795 16,036
20. Share based payment reserve
Performance fee
€'000
Balance at 1 January 2022 343
Settlement of performance fee in shares (343)
Balance at 30 June 2022 -
-
Fee charge for the period
Balance at 31 December 2022 -
Fee charge for the period -
Balance at 30 June 2023 -
No performance fee has been recognised in the period because the performance
criteria were not met.
Notes to the Condensed Consolidated Financial Statements
For the period from 1 January 2023 to 30 June 2023
20. Share based payment reserve (continued)
Performance Fee
The Property Advisor is entitled to an asset and estate management performance
fee, measured over consecutive three year periods, equal to 15% of the excess
(or in the case of the initial period or any performance period ending prior
to 31 December 2020, 16%) by which the annual EPRA NAV total return of the
Group exceeds 8% per annum, compounding (the 'Performance Fee'). As the EPRA
NAV measurement has been superseded by EPRA NTA (See note 23), future
performance fees will be calculated with respect to movements in EPRA NTA. The
Performance Fee is subject to a high watermark, being the higher of:
(i) EPRA NTA per share at 1 January 2021; and
(ii) the EPRA NTA per share at the end of a Performance Period in relation to
which a performance fee was earned in accordance of the provisions continued
with the Property Advisor and Investor Relations Agreement.
Other Property Advisor Fees
Under the Property Advisory Agreement for providing property advisory
services, the Property Advisor will be entitled to a Portfolio and Asset
Management Fee as follows:
(i) 1.2% of the EPRA NTA of the Group where EPRA NTA of the Group is equal to
or less than €500 million; and
(ii) 1% of the EPRA NTA of the Group greater than €500 million.
The Property Advisor is entitled to receive a finance fee equal to:
(i) 0.1% of the value of any borrowing arrangement which the Property Advisor
has negotiated and/or supervised; and
(ii) a fixed fee of £1,000 in respect of any borrowing arrangement which the
Property Advisor has renegotiated or varied.
The Property Advisor is entitled to a capex monitoring fee equal to 7% of any
capital expenditure incurred by any Subsidiary which the Property Advisor is
responsible for managing.
The Property Advisor is entitled to receive a transaction fee fixed at £1,000
in respect of any acquisition or disposal of property by any Subsidiary.
The Property Advisor is entitled to a letting fee equal to between one and
three month's net cold rent (being gross rents receivable less service costs
and taxes) for each new tenancy signed by the Company where the Property
Advisor has sourced the relevant tenant.
The Property Advisor shall be entitled to a fee for Investor Relations
Services at the annual rate of £75,000 payable quarterly in arrears.
The management fee will be reduced by the aggregate amount of any transaction
fees and finance fees payable to the Property Advisor in respect of that
calendar year.
On 17 August 2023 the Company announced an amendment to the fees payable to
the Property Advisor. Details of the revised fee paid to the Property Advisor
are set out in note 27.
21. Stated capital
30 June 2023 30 June 2022 31 December 2022
(unaudited) (unaudited) (audited)
€'000 €'000 €'000
Issued and fully paid:
At 1 January 196,578 196,578 196,578
196,578 196,578 196,578
The number of shares in issue at 30 June 2023 was 100,751,410 (including
8,924,047 as Treasury Shares) (31 December 2022: 100,751,410 (including
8,924,047 as Treasury Shares), 30 June 2022: 100,751,410 (including 8,879,802
as Treasury Shares)).
22. Earnings per share
30 June 2023 30 June 2022 31 December 2022
(unaudited) (unaudited) (audited)
Earnings for the purposes of basic earnings per share being net profit (46,614) 13,891 (15,435)
attributable to owners of the parent (€'000)
Weighted average number of ordinary shares for the purposes of basic earnings 91,827,363 92,456,025 92,139,098
per share (Number)
Effect of dilutive potential ordinary shares (Number) - - -
Weighted average number of ordinary shares for the purposes of diluted 91,827,363 92,456,025 92,139,098
earnings per share (Number)
Earnings per share (€) (0.51) 0.15 (0.17)
(0.51) 0.15 (0.17)
Diluted earnings per share (€)
Notes to the Condensed Consolidated Financial Statements
For the period from 1 January 2023 to 30 June 2023
23. Net asset value per share and EPRA Net Tangible Assets (NTA)
30 June 2023 30 June 2022 31 December 2022
(unaudited) (unaudited) (audited)
Net assets (€'000) 366,565 444,896 413,179
Number of participating ordinary shares 91,827,363 91,871,607 91,827,363
Net asset value per share (€) 3.99 4.84 4.50
EPRA NTA
30 June 2023 30 June 2022 31 December 2022
(unaudited) (unaudited) (audited)
Net assets (€'000) 366,565 444,896 413,179
Add back deferred tax assets and liabilities, derivative financial instruments 59,799 80,449 54,884
and share based payment reserves (€'000)
EPRA NTA (€'000) 426,364 525,345 468,063
EPRA NTA per share (€) 4.64 5.72 5.10
24. Financial instruments
The Group is exposed to the risks that arise from its use of financial
instruments. This note describes the objectives, policies and processes of the
Group for managing those risks and the methods used to measure them. Further
quantitative information in respect of these risks is presented throughout the
condensed consolidated financial statements.
Principal financial instruments
The principal financial instruments used by the Group, from which financial
instrument risk arises, are as follows:
• financial assets
• cash and cash equivalents
• trade and other receivables
• trade and other payables
• borrowings
• derivative financial instruments
The Group held the following financial assets at each reporting date:
30 June 2023 30 June 2022 31 December 2022
(unaudited) (unaudited) (audited)
€'000 €'000 €'000
Held at amortised cost
Trade and other receivables - current 13,096 9,454 10,000
Cash and cash equivalents 13,061 9,552 12,485
Loans and receivables 816 938 828
26,973 19,944 23,313
Fair value through profit or loss
Derivative financial asset - interest rate swaps 16,385 - 16,036
16,385 - 16,036
43,358 19,944 39,349
The Group held the following financial liabilities at each reporting date:
30 June 2023 30 June 2022 31 December 2022
(unaudited) (unaudited) (audited)
€'000 €'000 €'000
Held at amortised cost
Borrowings payable: current 1,029 835 820
Borrowings payable: non-current 313,815 300,270 311,264
Trade and other payables 13,568 10,962 15,130
328,412 312,067 327,214
Fair value through profit or loss
Derivative financial liability - interest rate swaps - 4,795 -
- 4,795 -
328,412 316,862 327,214
Notes to the Condensed Consolidated Financial Statements
For the period from 1 January 2023 to 30 June 2023
24. Financial instruments (continued)
Fair value of financial instruments
The fair values of the financial assets and liabilities are not materially
different to their carrying values due to the short-term nature of the current
assets and liabilities or due to the commercial variable rates applied to the
long-term liabilities.
The interest rate swap was valued externally by the respective counterparty
banks by comparison with the market price for the relevant date.
The interest rate swaps are expected to mature between September 2026 and
February 2027.
The Group uses the following hierarchy for determining and disclosing the fair
value of financial instruments by valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets or
liabilities;
Level 2: other techniques for which all inputs which have a significant effect
on the recorded fair value are observable, either directly or indirectly; and
Level 3: techniques which use inputs which have a significant effect on the
recorded fair value that are not based on observable market data.
During each of the reporting periods, there were no transfers between
valuation levels.
Group fair values
30 June 2023 30 June 2022 31 December 2022
(unaudited) (unaudited) (audited)
€'000 €'000 €'000
Financial (liabilities) / assets
Interest rate swaps - Level 2 - current - - -
Interest rate swaps - Level 2 - non-current 16,385 (4,795) 16,036
16,385 (4,795) 16,036
The valuation basis for the investment properties is disclosed in note 12.
25. Capital commitments
30 June 2023 30 June 2022 31 December 2022
(unaudited) (unaudited) (audited)
€'000 €'000 €'000
Contracted capital commitments at the end of the year 22,750 12,950 26,750
Capital commitments include contracted obligations in respect of the
acquisition, construction, enhancement and repair of the Group's properties.
Within the amount disclosed above, €12.95m relates to an asset under
construction and is matched 100% with secured debt finance.
26. Related party transactions
Related party transactions not disclosed elsewhere are as follows:
QSix Residential Limited is the Group's appointed Property Advisor. No
Directors of QSix Residential Limited currently sit on the Board of PSD,
although its Principals retain a shareholding in the Company. For the
six-month period ended 30 June 2023, an amount of €3,262,874 (€3,219,011
Management Fees and €43,863 Other expenses and fees) (December 2022:
€6,861,680 (€6,773,608 Management fees and €88,072 Other expenses and
fees), June 2022: €3,429,000 (€3,384,000 Management Fees and €45,000
Other expenses and fees)) was payable to QSix Residential Limited. At 30 June
2023 €1,315,162 (December 2022: €1,584,505, June 2022: €839,000) was
outstanding.
The Property Advisor is also entitled to an asset and estate management
performance fee. The charge for the period in respect of the performance fee
was €Nil (December 2022: €Nil, June 2022: credit €343,000). Please refer
to note 20 for more details.
Apex Financial Services (Alternative Funds) Limited, the Company's
administrator provided administration and company secretarial services to PSDL
and its subsidiaries in 2023. For the six-month period ended 30 June 2023, an
amount of €307,602 (December 2022: €651,000, June 2022: €289,000) was
payable to Apex Financial Services (Alternative Funds) Limited. At 30 June
2023 €8,730 (December 2022: €Nil, June 2022: €117,500) was outstanding.
Dividends paid to Directors in their capacity as a shareholder amounted to
€Nil (December 2022: €937, June 2022: €643).
27. Events after the reporting date
The Company has exchanged contracts for the sale of six residential units in
Berlin with aggregated consideration of €2.1 million after the reporting
date. The sale of these is expecting completion in 2023.
In September 2022 the Company exchanged contracts to acquire an asset in
Berlin for the purchase price of €4.9m. The transaction completed in Q3
2023.
On 17 August 2023 the Company announced an amendment to the fees payable to
the Property Advisor. From 1 July 2023 all ongoing fees to the Property
Advisor are subject to a cap of €5.0m for a period of 12 months. The
Property Advisor has agreed to waive any Performance fee for the period. The
Property Advisor will be entitled to an additional disposal fee of 1% of the
gross value of assets sold over the 12-month period.
Professional Advisors
Property Advisor QSix Residential Limited
54-56 Jermyn Street
London SW1Y 6LX
Administrator Apex Financial Services (Alternative Funds) Limited
Company Secretary IFC 5
and Registered Office St Helier
Jersey JE1 1ST
Registrar Link Asset Services (Jersey) Limited
IFC 5
St. Helier
Jersey JE1 1ST
Principal Banker Barclays Private Clients International Limited
13 Library Place
St. Helier
Jersey JE4 8NE
UK Legal Advisor Stephenson Harwood LLP
1 Finsbury Circus
London EC2M 7SH
Jersey Legal Advisor Mourant Ozannes
22 Grenville Street
St. Helier
Jersey JE4 8PX
German Legal Advisor Mittelstein Rechtsanwälte
as to property law Alsterarkaden 20
20354 Hamburg
Germany
German Legal Advisor Mittelstein Rechtsanwälte
as to general matters Alsterarkaden
20354 Hamburg
Germany
German Legal Advisor as Taylor Wessing Partnerschaftsgesellschaft mbB
to German partnership law Thurn-und-Taxis-Platz 6
60313 Frankfurt a.M.
Germany
Sponsor and Broker Numis Securities Limited
45 Gresham Street
London EC2V 7BF
Independent Property Valuer Jones Lang LaSalle GmbH
Rahel-Hirsch-Strasse 10
10557 Berlin
Germany
Auditor RSM UK Audit LLP
25 Farringdon Street
London EC4A 4AB
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