Press and Media

02 October 23

Phoenix Spree Deutschland Limited: 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

^{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.”

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