Press and Media

29 March 23

Phoenix Spree Deutschland Limited: Financial results for the year ended 31 December 2022

Phoenix Spree Deutschland Limited (LSE: PSDL.LN), the UK listed investment company specialising in Berlin residential real estate, announces its full year audited results for the financial year ended 31 December 2022.

Financial Highlights

^{1 – Portfolio valuation includes investment properties under construction.}

^{2 – Calculated at FX rate GBP/EUR 1:1.128 as at 31 December 2022 (2021: GBP/EUR 1:1.191)
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.}

Further increase in rental levels, resilient reletting premium

• Like-for-like rental income per sqm increased by 3.9 per cent versus prior year.
• New leases in Berlin signed at an average 32.3 per cent premium to passing rents.
• 320 new leases signed during the year, with the average rent of all new lettings increasing to €13.0 per sqm, a 6.6 per cent increase on the prior year.
• EPRA vacancy of 2.4 per cent as at 31 December 2022 remains at historically low level, reflecting ongoing structural undersupply of available rental property.

Portfolio valuation impacted by interest rate rises and yield expansion

• Like-for-like Portfolio value, adjusted for acquisitions and disposals, decreased by 3.1 per cent versus 2021, reflecting an increase in market yields.
• Including investment properties under construction valued at €5.3 million, the Portfolio was valued at €775.9 million as at 31 December 2022, compared to €801.5 million as at 31 December 2021.
• EPRA NTA per share down 9.7 per cent versus 2022 to €5.10.
• EPRA NTA per share total return of (8.4) per cent.

Condominium sales at a premium to carrying value, reduced volumes

• Condominiums notarised for sale during 2022 of €4.7 million, (2021 €15.2 million), reflecting deterioration in buyer sentiment and the difficulty in selling tenanted units.
• Average achieved value per sqm of €5,502 for residential units, a 22.4 per cent premium to trailing carrying value of each property. 
• Since the financial year end, a further three condominiums have been notarised for sale, for a total consideration of €0.8 million, at an average 62 per cent premium to carrying value as at 31 December 2022.
• Reservations for three additional units, with a combined value of €0.6million, and an average 80.0 per cent premium to carrying value, have recently been received and are pending notarisation.
• 77 per cent of Portfolio assets legally split into condominiums, up from 75 per cent as at 31 December 2021. 
• A number of new condominium projects are being brought to market, resulting in a significant increase in vacant apartments offered for sale.

Portfolio management

• Sales agreed on three non-core properties during the financial year for an aggregate consideration of €12.1 million and at an average 6 per cent discount to December 2021 carrying value.
• Although the Company has been actively marketing both individual assets and portfolios, and continues to do so, liquidity in Berlin has been, and remains, limited.
• The majority of offers received during the last six months have been significantly below carrying value, at levels where the Property Advisor considers that sale is not in shareholders’ interests.
• Approximately €16.4 million of capital investment was made into the Portfolio during the financial year for refurbishment of apartments and bringing new residential condominium projects to market.
• This investment is expected to be recouped from 2023 onwards through significant rental uplifts.
• It is expected that total capital investment will be materially lower in 2023.

Dividend suspended, investment in Portfolio prioritised

• Under PSD’s business model, cash to pay dividends is substantially dependent on condominium and/or other asset sales.
• Priority for use of available cash is to continue to invest in the Portfolio, underpinning our core reversionary rental business which continues to thrive.
• In light of this, and the persistent very low level of liquidity in the Berlin market, and in line with its peer group, the Company has suspended dividend payments to preserve cash and support its core business.
• Net LTV remains conservative at 39.1 per cent (31 December 2021: 34.7 per cent).
• €42.4 million of Berliner Sparkasse debt successfully refinanced during financial year.

Outlook

Supply-demand imbalances within Berlin PRS provide support for rental values:

• Rental growth remains strongly underpinned, with new letting rental values expected to continue to be at significant premia to average in-place rents across the Portfolio.
• Rising cost of home ownership forcing potential buyers to remain within the rental system for longer.
• Urban housing shortage further exacerbated by anticipated net inward migration of almost one million from Ukraine to Germany.
• Rising cost of construction further limiting new-build development.

Transaction activity and asset values

• Ongoing impact of 2022’s interest rate rises continues to weigh on buyer sentiment.
• Further declines in property values driven by macro factors such as higher medium-term interest rates are likely in H1 2023.
• The Company continues to market actively both individual properties and portfolios for sale. The Portfolio remains under continuous review and additional properties will be put up for sale. Disposals at a discount to carrying value will be considered, but only at levels which the Board considers to be in shareholders’ interests.
• Plans to bring additional condominium properties to market have been accelerated and bulk condominium sales are under active consideration.

Balance sheet and dividend

• The Board considers the current level of gearing and cash balances to be appropriate at this stage in the real estate cycle.
• The Company remains conservatively financed with its first loan maturity not due until September 2026.
• The Company intends to reinstate dividends as soon as practical to do so.
• Any surplus cash generated over amounts required to reinvest in core Portfolio and reinstate dividends on a sustainable basis will, so long as share price discount to NAV persists, be used for share buy-backs and not to acquire further properties.

Robert Hingley, Chairman of Phoenix Spree Deutschland, commented:

“During 2022, the real estate industry has had to adjust to the combined effects of global inflationary pressures and higher interest rates, both of which have weighed on industry transaction volumes and asset values. Although our core rental business continues to thrive, PSD has not been immune from these broader trends, and the Board has therefore taken the decision to suspend the dividend.  Rental values remain well supported and the Company has a strong balance sheet and conservative financing.  Whilst the speed of recovery in transaction volumes and buyer sentiment is uncertain, the Company will seek to resume dividends as soon as the outlook becomes clearer.”

To read the full results, click here