Press and Media

27 September 24

Phoenix Spree Deutschland Limited: Financial Results for the half-year to 30 June 2024

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 2024. The Company also provides an update on its strategy to significantly accelerate condominium sales and reduce debt. 

Financial Highlights

 1 – 2022 Portfolio valuation includes investment properties under construction. 

2 – Calculated at FX rate GBP/EUR 1:1.178 as 30 June 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 acquisitions and disposals in the period. 

5 – EPRA metrics defined and calculated in note 21 

FINANCIAL AND OPERATIONAL SUMMARY: 

Significant progress in strategy to accelerate condominium sales to €50m annually 

• Negotiations with the Company’s main lender, Natixis Pfandbriefbank AG (“Natixis”), to modify the Company’s principal lending facility have concluded successfully. 
• This will increase the number of buildings that are permitted to be sold as condominiums from 6 currently to 40, representing c.900 units. 
• The Company is in advanced discussions to sell a portfolio of 16 rental buildings. 
• The proceeds of the proposed portfolio sale will enable other debt to be repaid in full which will allow additional property collateral to be provided to Natixis, upon which the debt amendment is conditional, and will release cash to fund capital expenditure to optimise the sale values of condominium units designated for disposal. 
• The company has engaged two leading Berlin condominium sales platforms to facilitate the expected acceleration in condominium sales. 
• 10 buildings have been earmarked for the first condominium sales tranche, increasing the total number of condominiums that can be made available for sale from c.75 units currently to c.250 units by year-end 2024, with a further 24 properties expected to be made available for sale in H1 2025. 
• Condominiums continue to sell at a significant premium per sqm to equivalent single rental building valuations. During H1 2024, PSD notarised 15 condominiums for sale at an average price of €4,292 per sqm. This represents a 23 per cent premium to the H1 2024 JLL Portfolio valuation and a 571 per cent premium to the Portfolio value implied by the current share price. 

1. Implied premium calculated using a share price of 175p and a Sterling/Euro exchange rate of 1:1.20. 

Decline in Portfolio valuation, although recent transaction activity showing tentative signs of recovery 

• As reported in the recent Portfolio update published in July, buyer sentiment and transaction volumes remain subdued; the like-for-like Portfolio value decreased by 3.3 per cent during H1 2024, reflecting a further increase in market yields, partially offset by rental growth. 
• The rate of decline in asset values since H1 2023 has slowed and Berlin transaction volumes have shown tentative signs of recovery since the half-year end. 

Reversionary reletting premium remains high, reflecting ongoing shortage of Berlin rental supply 

• 120 new leases were signed during the six months to 30 June 2024. The average premium to passing rents for residential re-lets was 33 per cent, or €13.8 per sqm, a record high. 
• EPRA vacancy of 1.4 per cent (H1 2023: 2.7 per cent), at a record low. 
• New rent table (Mietspiegel) released in May 2024 is expected to add approximately 2 per cent to in-place rent growth on an annualised basis, supporting rent growth in the second half. 

Upturn in condominium buyer interest 

• Fifteen condominium units notarised for sale for an aggregate value of €5.3 million in H1 2024 (H1 2023: eight condominiums, €2.0 million). 
• Since the half year end, four condominiums, with an aggregate sales price of €1.2 million and one commercial unit with a sales price of €230k, have been notarised. A further four condominium reservations are outstanding with an aggregate value of €1.7million. 
• First-half sales represent an annualised rate of 33 per cent of available stock, (17 per cent in H1 2023). 
• A new condominium sales project was recently launched with an estimated aggregate sales value of €14 million. Initial levels of interest have been encouraging.

Outlook 

• Condominium sales prices are expected to remain at a significant premium to both the average per sqm valuation across the Portfolio and transaction values of rental buildings in the Berlin market, as well as to the value of the PSD Portfolio implied by the current share price. 
• Conditions in the investment market for single rental building and portfolio sales have seen some tentative signs of improvement. The Portfolio remains under continuous review for further disposals. 
• Cash generated from all future asset sales will initially be used to pay down debt and to provide capital for targeted investment in existing condominium properties. 
• It is the intention of the Company to refinance the Natixis debt facility ahead of its expiry in September 2026, after which any surplus capital from the condominium sales process is expected to be available for distribution to shareholders. In the meantime, PSD is required to prioritise the repayment of debt. 
• The Company’s rental business is expected to continue to perform well, driven by growing structural imbalances and supplemented by the introduction of the new Mietspiegel. 

Robert Hingley, Chairman of Phoenix Spree Deutschland, commented: 

“The ongoing supply-demand imbalances in the Berlin market continue to drive rental growth, leading to record rents. Although buyer sentiment and transaction volumes within the Berlin residential market have continued to be negatively affected by historically high interest rates, the rate of decline in asset values has slowed and we have started to see tentative signs of recovery in Berlin transaction volumes. 

“We have made significant progress in our strategy to take advantage of the significant per square meter valuation gap between an apartment block as a rental property compared to its condominium resale value. The recent agreement with our lenders will, when completed, allow us to materially increase the number of buildings that can be sold as condominiums at higher values. As almost 80 per cent of the portfolio is already legally registered as condominiums, the Company is well placed to accelerate condominium sales.” 

Half Year Report and Accounts 

The full Half Year Report and Accounts will shortly be available to download from the Company’s webpage www.phoenixspree.com. The Company submits its Half Year Report and Accounts to the National Storage Mechanism in the required format, and it is available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.

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To read the full report, click here