Press and Media

03 August 23

Phoenix Spree Deutschland Limited: Investment property valuation and business update

Phoenix Spree Deutschland Limited
(the “Company”, the “Group” or “PSD”)

Portfolio valuation and business update for the six months ended 30 June 2023

Phoenix Spree Deutschland (LSE: PSDL.LN), the UK listed investment company specialising in Berlin residential real estate, announces the valuation for the portfolio of investment properties held by the Company and its subsidiaries (the “Portfolio”) as at 30 June 2023 and an update on business activity.

Financial Summary:

Portfolio valuation impacted by interest rate rises and yield expansion

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 €4.3m, was valued at €714.3 million. This valuation represents an average value per square metre of €3,808 and a gross fully occupied yield of 3.3 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; €32.3 million).

On a like-for-like basis, after adjusting for the impact of acquisitions net of disposals, the Portfolio valuation declined by 6.9 per cent during the half year to 30 June 2023.

Rental market remains robust

Rental market conditions remain strong. During the first half of the financial year, supply-demand imbalances within the Berlin PRS market have widened. Further net inward migration and higher home ownership costs, which have forced potential buyers to remain within the rental system for longer, continue to increase demand. At the same time, supply continues to be constrained by higher funding and construction costs. Against this backdrop, new lettings in Berlin were signed at an average premium of 31 per cent to passing rents.

The Company welcomed the release by The Senate Department for Urban Development, Building and Housing of a new transitional Berlin Mietspiegel (rent index). Announced on 15 June 2023, this replaces the previous rent index of 2021 and applies until a new qualified rent index is published in the first half of 2024. On average, the new index permits an increase in rental values of 5.4 per cent versus 2021.

Where applicable, the Company has notified qualifying tenants of any adjustments to future monthly rental payments, which will become effective from October 2023. Although this is not the primary driver of PSD’s rent growth, it is anticipated that it will be accretive to rental income in the second half of the financial year.

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). The average achieved notarised value per sqm for the residential units was €5,715, representing an average 68 per cent premium to 31 December 2022 carry value.

Since the half year end, the Company has notarised a further three condominiums for €1.0m. The valuation represents a 2.2 per cent premium to 31 December 2022 carry value, reflecting the fact that these units were occupied. June 2023 book values have been adjusted to reflect the agreed sales prices.

Reservations on a further seven units have been received and are pending notarisation. Combined, these have a value of €2.6 million, representing a gross premium of 5.1% per cent to carry value as at 30 June 2023. Of the seven reservations, three units are currently occupied and therefore carry lower premiums.

Outlook

Against a backdrop of higher inflation and interest rates, rental yields in the Berlin residential market have risen and values of rental properties have correspondingly fallen. However, condominium values remain well supported, as evidenced by the premia to carry values that the Company continues to achieve on sales. Although 93 per cent of the Company’s portfolio is currently valued on a rental property basis, it has over 78 per cent of its properties split as condominiums.

The Property Advisor has produced a detailed analysis of the entire Portfolio of assets to identify individual properties, portfolios as well as additional condominiums 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 a discount to current carry value are under consideration. Any surplus cash generated over amounts required to reinstate dividends on a sustainable basis will be returned to shareholders or used to reduce debt levels.

Buyer interest in the condominium market has shown early signs of recovery and supply-demand imbalances within the Berlin PRS market remain firmly supportive of rental values. Given the strong rental market backdrop and the positive effect of the new Mietspiegel, it is anticipated that annualised like-for-like rental growth will accelerate from 5.5 per cent as a 30 June 2023 to approximately 6.5 per cent over the next 12 months.

Interim results

The Company intends to publish its interim results for the six months to 30 June 2023 at the end of September 2023.

Legal Entity Identifier: 213800OR6IIJPG98AG39

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