REG - Phoenix SpreeDeutsch - Portfolio Valuation and Business Update

Phoenix Spree DeutschlandAnnouncement

01/08/2024 07:00

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RNS Number : 6602Y  Phoenix Spree Deutschland Limited  01 August 2024

1 August 2024

Phoenix Spree Deutschland Limited

(the "Company", the "Group" or "PSD")

 

Portfolio Valuation and Business Update

Phoenix Spree Deutschland (LSE: PSDL.LN), the UK listed investment company
specialising in Berlin residential real estate, announces an update on
business activity and the valuation of the portfolio of investment properties
held by the Company and its subsidiaries (the "Portfolio") as at 30 June 2024.

Financial Summary:

                                                        30 June 2024  30 June 2023  31 December 2023
 Portfolio Valuation, as at (€ million)                 646.4         714.3         675.6
 Valuation per square metre, as at (€)                  3,480         3,808         3,598
 Gross fully occupied yield (%)                         3.5           3.0           3.3
 Condominium notarisations during period (€ million)    5.3           2.0           7.2

 

Portfolio valuation

During the first half of the financial year, buyer sentiment and transaction
volumes within the Berlin residential market continued to be negatively
affected by historically high interest rates. As at 30 June 2024, the
Portfolio was valued at €646.4 million, which  represents an average value
per square metre of €3,480 and a gross fully occupied yield of 3.5 per cent.
Included within the Portfolio are six multi-family properties valued as
condominiums, with an aggregate value of €29.6 million (30 June 2023: seven
properties; €39.2 million).

On a like-for-like basis, after adjusting for the impact of  disposals, the
Portfolio valuation declined by 3.3 per cent during the half year to 30 June
2024, reflecting an increase in market yields, partially offset by rental
growth. This compares with a decline of 6.9 percent in the first half of 2023
and 5.0 percent second half of 2023. Cumulatively, the like-for-like decline
in the Portfolio valuation since the peak of  30 June 2022 is 19.2 per cent.

 

Upturn in condominium buyer interest

During the six months to 30 June 2024, 15 condominium units were notarised for
sale for an aggregate value of €5.3 million (30 June 2023: eight
condominiums, €2.0 million). The average achieved notarised value per sqm
for all residential units notarised was €4,292, in line with 31 December
2023 carry value. June 2024 book values have been adjusted to reflect the
agreed sales prices.

Of the 15 units notarised, eight were vacant and seven were occupied. The
average achieved notarised value per sqm for vacant units was €4,841 and the
average achieved value for occupied units was €3,611. Of the eight vacant
units, seven were sold in either a bare shell or un-refurbished condition.
 The Company additionally has outstanding reservations for a further four
residential units for a combined value of €1.3million.  The average value
per sqm of €3,545 reflects the fact that 3 of these units were occupied.

The average price for all condominiums notarised stood at a 23 per cent
premium to the average per sqm valuation of the Portfolio as a whole as at 30
June 2024 and a 62 per cent premium to the valuation of the Portfolio implied
by the current share price.

Vacant condominiums were notarised at a 39 per cent premium to the average per
sqm valuation of the Portfolio as a whole as at 30 June 2024 and an 83 per
cent premium to the valuation of the Portfolio implied by the current share
price.

Whole building sales

As previously announced, during the first half of the financial year, the
Company notarised for sale two properties with a combined value of €7.4
million. The Company marketed a significant proportion of its Portfolio as
single-building sales and portfolios of apartment blocks.  However, market
conditions were not conducive to achieving sales at prices which the Board
believed represented fair value for the assets.

Berlin rental market conditions remain strong

Conditions across the Berlin PRS market remain strong, with supply-demand
imbalances at their widest in recent memory, leading to record market rents.
New lettings across PSD's Berlin portfolio during the first six months of 2024
were signed at an average premium of 31.2 per cent to passing rents and EPRA
vacancy as at 30 June 2024 stood at 1.4 per cent, a new all-time low.

Following the release on 30 May 2024 of the new Berlin Mietspiegel (rent
index),  it is anticipated that the impact on annualised like-for-like rent
(per sqm) across the entire Portfolio will be approximately 2 per cent. Where
applicable, the Company will notify qualifying tenants of any upward revisions
to future monthly rental payments, with increases expected to become effective
from September 2024.

Strategy update.

The current market environment remains characterised by historically weak
pricing and transaction volumes for whole building and portfolio sales. As a
result, the Board remains of the view that the best way to maximise
shareholder returns in the medium term is to focus sales activities on the
significant difference that currently exists between the average per square
metre value of an apartment as a rental unit and the resale value per square
metre of an apartment to a private buyer as a condominium. This was again
evidenced in the first half of 2024, given the premiums achieved on
condominium sales.

Accelerating condominium sales volumes to the previously disclosed target of
over €50m annually will require a significant increase in time and resource
to prepare, market and sell units in greater volume. To facilitate the
increase in sales capacity, the Company will operate with several specialist
condominium sales platforms, which have completed viewings of all relevant
assets and have delivered valuations for vacant and let units that are in line
with the Company's expectations. Assets that can be sold quickly with and / or
with limited preparation work have been prioritised.

As previously announced, the acceleration of condominium sales is conditional
on amending the Company's current financing arrangements to increase the
number of buildings that can be made available for sale as condominiums from 6
to 40. Negotiations with the Company's principal lender and its loan
syndication partners are progressing positively, and the Company expects to
provide an update on progress on or before the announcement of its interim
financial statement on 26 September 2024.

Outlook

While the rental market continues to benefit from high demand and limited
supply, historically high interest rates and a weakening German economy
continue to impact buyer sentiment and investment transaction volumes.
However, with ECB interest rates now on a downward trajectory, buyer sentiment
in the investment market for single buildings and portfolios of buildings has
recently begun to show tentative signs of recovery, albeit from a low base.

Conditions in the condominium market remain relatively more robust. Despite
some reductions, sales prices and market volumes, particularly for vacant
units, have held up well. It is against this backdrop that the Company plans
to materially increase condominium sales to unlock the inherent value within
the Portfolio. The Company has over 1,900 units, representing 78 per cent of
its Portfolio, already legally split in the land registry and, subject to a
successful conclusion of negotiations to amend the terms of its current
financing arrangements, is well placed to benefit from this pricing trend.
Moreover, given that legislation passed in 2021 has made any future splitting
of buildings into condominiums in Berlin effectively impossible, the
supply-demand imbalance for condominiums is expected to widen.

The primary goals of the acceleration in condominium sales are to enhance the
Company's ability to secure new long-term financing on favourable terms,
reduce overall debt and provide capital for targeted capital expenditure into
the condominium and PRS properties in order to optimise their sales value.

The Company will additionally continue to explore the sale of whole rental
properties and portfolios of buildings at discounts to their carrying value
when it is deemed to be in the best interest of shareholders. To this end, the
recently observed upturn in buyer activity in Berlin is encouraging.

Funds from disposals will be allocated to debt reduction and capital
expenditure for the preparation of further condominium sales, establishing a
foundation to refinance the current debt facility on more advantageous terms
before its maturity in September 2026.

Half-year results

 

The Company intends to publish its half year results for the six months to
months to 30 June 2024 on 26 September2024.

For Further Information, Please Contact:

Phoenix Spree Deutschland Limited
 
+44 (0) 20 3937 8760

Stuart Young

 

Deutsche Numis (Corporate Broker)
                                   +44 (0)
20 7260 1000

David Benda

 

Teneo (Financial PR)
                                  +44 (0) 20 7353 4200

Elizabeth Snow

Annushka Shivnani

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