Phoenix Spree Deutschland — Accelerating the unlocking of value

Phoenix Spree Deutschland (LSE: PSDL)

Last close As at 13/12/2024

GBP1.64

−2.00 (−1.20%)

Market capitalisation

GBP153m

More on this equity

Research: Real Estate

Phoenix Spree Deutschland — Accelerating the unlocking of value

While the Berlin private rental market continues to be strong, Phoenix Spree Deutschland (PSD) has adapted its historical rent reversion strategy to the changes in market conditions. It plans a material increase in condominium sales, intended to accelerate the unlocking of value embedded in the portfolio, reduce borrowings and better position the company for refinancing in 2026. In this report we analyse in detail the potential impacts of this strategy on earnings, NAV and gearing, but, given the variables involved, refrain from forecasting the outcomes precisely.

Martyn King

Written by

Martyn King

Director, Financials

Real Estate

Phoenix Spree Deutschland

Accelerating the unlocking of value

Strategy update and outlook

Real estate

26 June 2024

Price

157p

Market cap

£144m

€1.19/£

Net debt (€m) at 31 December 2023

312.5

Net LTV as at 31 December 2023

46.3%

Shares in issue

91.8m

Free float

100%

Code

PSDL

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(1.0)

3.3

(17.0)

Rel (local)

0.0

(0.8)

(25.1)

52-week high/low

202p

125p

Business description

Phoenix Spree Deutschland is an investment company specialising in Berlin residential real estate, listed on the London Stock Exchange since 2015. Its core strategy since listing has been to acquire unmodernised apartment blocks that may be improved to the benefit of tenants, generating attractive returns for shareholders based on increased rents and capital values. In response to the change in market conditions, the company is currently focused on enhancing shareholder value through asset disposals and debt reduction.

Next events

AGM

2 July 2024

Analyst

Martyn King

+44 (0)20 3077 5700

Phoenix Spree Deutschland is a research client of Edison Investment Research Limited

While the Berlin private rental market continues to be strong, Phoenix Spree Deutschland (PSD) has adapted its historical rent reversion strategy to the changes in market conditions. It plans a material increase in condominium sales, intended to accelerate the unlocking of value embedded in the portfolio, reduce borrowings and better position the company for refinancing in 2026. In this report we analyse in detail the potential impacts of this strategy on earnings, NAV and gearing, but, given the variables involved, refrain from forecasting the outcomes precisely.

Year end

PBT*
(€m)

EPS*
(c)

NAV**/
share (€)

DPS
(c)

P/E
(x)

P/NAV
(x)

Yield
(%)

12/21

45.3

39

5.65

7.5

4.8

0.33

4.0

12/22

(17.5)

(17)

5.10

2.4

N/A

0.37

1.2

12/23

(111.8)

(107)

3.96

0.0

N/A

0.48

0.0

Note: *As reported on an IFRS basis including realised and unrealised gains. **Measured as EPRA net tangible assets per share.

Evolving strategy

The Berlin private rental sector (PRS) remains strong and PSD’s rent reversion potential is large (perhaps 30%), although market regulation slows the process of capturing this in passing rents. Meanwhile, the challenging investment market has seen property yields increase, in part-compensation for higher capital costs, and valuations fall. While PSD’s borrowing costs are largely fixed until 2026, debt reduction through asset sales would strengthen its refinancing position and longer-term profitability. Although the ‘investment market’ for single apartment buildings or portfolios remains fragile, PSD is very well placed to benefit from the large valuation gap between investment valuations and condominium (condo) sales values. In FY23, PSD continued to sell vacant condos at a large premium to book value and an even larger uplift to the portfolio valuation implied by the current share price.

Step change in condo marketing

Currently, just 6% of the portfolio is being marketed for sale as condos despite 78% being legally ‘split’ as such. PSD is working with its lending banks on changes to its borrowing arrangements that will allow it to increase the number of properties marketed by more than fivefold. In that case, it aims to achieve annual condo sales of more than €50m by 2025. Properties not marketed for sale as condos will continue to operate as PRS, but this portfolio may attract buying interest at a later stage, particularly as PSD invests in environmental enhancements. Single building sales will continue, where this creates value and as market conditions allow. Disposal proceeds will initially be used to repay debt and ultimately to return excess capital to shareholders as it becomes available.

Valuation: Significant asset value discount

The large c 50% discount to NAV at which PSD trades implies a portfolio value of c €2,600 per sqm, 28% lower than the book value of €3,598. FY23 condo sales (a blend of vacant and occupied) were at an average of €3,976 per sqm.

The strategic background

PSD’s historical strategy and track record were built around the significant shortage of supply in the Berlin PRS market, which has driven market rental growth over many years. It focused on acquiring under-rented apartment blocks at low valuations and actively managing the assets to realise reversionary rent potential, driving growth in rental income and capital values. This was supplemented by the division and subsequent resale of selected apartment blocks as private units (condos) at market-level valuations, well ahead of rental property valuations. The significant opportunity that this reversionary rental strategy was able to exploit resulted from strict rent controls in Berlin, which means that many tenants pay rents that are well below market levels. In addition to relatively modest permissible rent indexation, reversionary rent capture has been driven by the refurbishment of vacated apartments and re-letting at market-level rents.

The PRS market continues to benefit from a favourable demand-supply balance, rental growth, high levels of occupancy and strong rent collection. PSD’s portfolio continues to offer significant reversionary potential, but in the highly regulated Berlin residential market this takes time to feed through into income. The Berlin re-letting premium to average in-place rents has continued at above 30%, while average in-place cold rents (rents paid excluding service charges) per sqm have increased by around 4% in each of the past four years (4.1% in FY23). Nonetheless, war in Ukraine, increased inflation and interest rates, weak economic growth and uncertain capital markets have created challenging conditions in the real estate investment market, reflected in sharply lower investment market transactions and valuations. While this has contributed to an increase in the net yield on PSD’s Berlin rental portfolio to 3.3% at end FY23, from around 2.8% in FY21, the current Euribor benchmark lending rate is around 3.8%. Market expectations are that this will begin to decline, to a long-term level of 2.5–3.0%, much higher than in previous years.

In contrast to the fragility of the investment market for single apartment buildings or portfolios of buildings, the Berlin condo market has remained relatively robust and liquidity remains, particularly for vacant units. There is now a significant valuation gap between the average value per sqm of an apartment block and the resale value of an individual apartment to a private buyer as a condo. PSD now believes that the best way to maximise shareholder value is to exploit this arbitrage opportunity and greatly accelerate its condo sales.

Financial impacts

In this report, we provide an update on current trading and review the FY23 results. However, the main aim is to provide a detailed analysis of the financial impacts of PSD’s strategic refocus, on the assumption that it is successful in agreeing changes to its banking arrangements. While the underlying performance of the PRS business is relatively predictable, its result will depend very much on PSD’s success in disposing of assets. The latter is impossible to predict, both for the property advisor and more so for us, in terms of volume, pricing and timing. For this reason, we provide a detailed illustration based on a set of assumptions that we believe are consistent with the company’s plans, incorporating sales values that are reasonable in both a historical and market context. We have also avoided providing sensitivities around each assumption made, as to do so would introduce a level of complexity that would be unlikely to provide any clarity.

PSD’s portfolio

At end FY23, PSD’s portfolio was externally valued at €676m, or an average €3,598 per sqm. On average, portfolio valuations decreased by 11.9% in FY23, and the portfolio net rental yield increased to 3.3% from 3.0% at end FY22. Portfolio vacancy is low. By area, 5% is vacant but, adjusting for refurbishment properties and those reserved for sale, EPRA vacancy is just 2%.

Exhibit 1: Portfolio summary

Valuation (€m)

Valuation (%)

Value per sqm (€)

Buildings

Residential units

Annualised NCR*(€m)

NCR per sqm (€)

Fully occupied net yield** (%)

Vacancy (%)

Berlin rental

586.6

86.8

3,651

85

2,177

19.30

10.4

3.3

3.9

Brandenburg

53.9

8.0

2,970

3

220

2.20

10.8

4.2

7.0

Berlin condo

35.1

5.2

3,921

7

92

0.80

8.9

2.2

20.3

Total portfolio

675.6

100.0

3,598

95

2,489

22.30

10.0

3.3

5.0

Source: Phoenix Spree Deutschland. Note: *Net cold rent excludes the service charge income paid by tenants. **The fully occupied net yield is based on net cold rents, before property operating expenses.

The end-FY23 portfolio comprised 95 buildings, providing 2,489 residential units and 140 commercial units with 188k sqm of usable space. The properties are mainly classic ‘Altbau’, built before 1914, and typically five-storey buildings, each containing 20–40 units, made up of one- to three-bedroom apartments, often with shops or other commercial units on the ground floor. Structural alterations to buildings of this age and design are often easier than would be the case for some more modern post-war buildings and environmental risks such as asbestos are far less likely. Central Berlin accounts for around 90% of the portfolio by number of units, valuation and annualised contracted rents. This mainly comprises assets that are valued on the balance sheet on a ‘rental valuation’ basis and those that are carried on ‘condo valuation’ basis. Condo valuations are higher than rental valuations and disposals have historically been achieved at prices well above book value. We provide condo sales data below.

The share price implies a valuation well below book value

The share price implies a valuation per sqm that is well below the externally assessed fair value/book value and even further below condo sales values. At the current share price of 157p, PSD estimates the implied value to be around €2,600 per sqm. The methodology for this calculation is shown in Appendix 1.

Exhibit 2: Implied portfolio value per square metre

Share price (pence per share)

Implied value per sqm (€)

140

2,504

150

2,561

160

2,618

170

2,675

180

2,733

Share price (pence per share)

140

150

160

170

180

Implied value per sqm (€)

2,504

2,561

2,618

2,675

2,733

Source: Phoenix Spree Deutschland

The achieved average sales value for vacant condos in FY23 was more than double the implied fair value (based on €2,600 per sqm) and, although lower, the average value for occupied condos was 28% higher. The average condo sales premium of 7% to the book value of units sold in FY23 was slightly accretive to NAV, before taking account of sales costs, and more so compared with the implied value. Sales costs are not immaterial in the German market, primarily comprising real estate transfer tax (6% of the sales value) and any agency costs (typically 1–1.5%). Our analysis above includes an average 7% sales cost as well as the 1% disposal fee due to the investment advisor.

Exhibit 3: Sales premia versus implied value

€ per sqm

Premium to implied value

Vacant condos

5,345

106%

Occupied condos

3,332

28%

All condos

3,976

53%

Portfolio book value

3,598

38%

Implied valuation

2,600

Source: Phoenix Spree Deutschland

Focus on accelerated condo sales

PSD’s portfolio is well-positioned to exploit the significant potential valuation arbitrage between the value per sqm of condos and the value of PRS buildings. Although 78% of the end-FY23 portfolio was legally split as condos, only 6% was being marketed as such. Legislation passed in 2021 has made it much harder for landlords to split properties into condos, leaving PSD in a very strong position compared with its larger peers. The key elements of PSD’s strategy include the following:

To enable a material increase in the number of condo units that it can bring to market, PSD is seeking modifications to its financing arrangements and is engaged in detailed discussions with its principal lender, Natixis. Currently, these arrangements only permit sales from designated condominium buildings but, if successfully amended, the company expects that around half of the split portfolio will become available for sale and aims for condo sales of more than €50m by 2025.

PSD will continue to operate those properties that do not form part of the enlarged condo sales ‘pool’ on a PRS model. The company intends to invest in these properties to greatly improve their energy efficiency with the expectation that this will enhance valuations, lower running costs and facilitate more favourable longer-term financing. Moreover, by improving the energy performance of these buildings, the pool of potential buyers, such as pension funds and insurance companies, is likely to expand when market conditions improve.

PSD will continue to review the possible sale of rental properties and portfolios at discounts to carrying value, where the board believes it is in shareholders’ interests to do so. Importantly, the financing constraints on disposals that apply to individual residential units do not apply to whole properties or portfolios of properties.

Disposal proceeds will initially be used to reduce its existing debt, which matures in 2026, enhancing the company’s ability to refinance on beneficial terms. Where there is excess capital, the company will look to return this to shareholders.

The company expects to implement new fee arrangements that will further reduce the annual cap on fees paid to the external property advisor, QSix, for management, capital expenditure monitoring and investor relations, by 14%. The details can be found later in this report.

Our main conclusions

Combining our expectations for the more predictable PRS business with our illustrations for potential assets sales, we show:

Total assets sales of €202m over the period FY24–26 comprising condo sales of €136m and single building sales of €66m.

On average, sales are completed at around book value (before selling costs) with a continuing premium on vacant condo sales offsetting discounts to book value on occupied condos and single buildings.

In all cases, sales are at a premium to the current implied portfolio value.

Sales are sufficient to reduce borrowings from €321m at end FY23 to €174m by end FY25, with the loan to value ratio (LTV) declining from 46% to 35%. We have assumed no change, positive or negative, in underlying property valuations and capex is effectively ‘written down’..

PRS profitability increases over the period, with rental growth and lower property costs partly offset by the declining number of rental units. PBT before the impact of disposals increases from a loss of €3m in FY23 to a profit of €0.5m in FY26. Refinancing of debt, in FY26 or earlier, has a negative annualised impact of €2.4m.

Including property disposal costs, IFRS NAV per share falls from €3.3 at end FY23 to €2.9 at end FY26. Including the crystallisation of deferred tax liabilities generated by historical valuation gains, EPRA net tangible assets (NTA) per share falls from €4.0 to €3.3. If capex were reflected in property valuation, both FY26 IFRS NAV per share and EPRA NTA per share would be €0.2 higher.

Based on the current share price, alongside a moderately geared balance sheet, the discount to FY26 NAV remains above 40%. There is no material change in the implied portfolio valuation per sqm or predicted value per sqm compared with current levels.

Asset sales potential

Condo notarisations have been recovering

In H223, 17 condos with an aggregate value of €5.2m were notarised, up from eight with an aggregate value of €2.0m in H123, and up from 15 units (including two attic units) with a value of €4.7m in the whole of 2022. The start of FY24 has been promising and, with the publication of the FY23 results in late April, PSD reported that since the start of the year, nine condos had been notarised, with an aggregate value of €3.4m.

For 2023, the average achieved notarised value was €3,976 per sqm, an average 7.2% premium to their carried value at end FY22. The sales premium in any period is specific to the mix of assets, including location, floor space and, importantly, whether the condo is occupied or vacant. Given the shortage of condos in Berlin, the purchase of occupied units is becoming more popular. Occupied condos in specified areas (‘milieu protection areas’) can only be sold to the tenant during the seven-year period following splitting. However, around 80% of PSD’s condo units are located in properties that are exempt from this seven-year rule due to location or tenure, rising to 85% in 2025.

The 2023 premium was lower than the c 20% of recent years, but was nonetheless at a good premium to the portfolio average book value per sqm and even more so compared with the value per sqm implied by the share price (see below). This lower premium in FY23 reflected a higher share of occupied condos, where values are lower, as well as price reductions to stimulate demand. Whereas vacant units were sold at an average €5,345 per sqm, the average for occupied units was €3,332 per sqm.

Exhibit 4: Historical condo sales data

2016

2017

2018

2019

2020

2021

2022

2023

Average

Number of condo units sold

Occupied units

13

8

4

6

20

12

5

13

Vacant

7

20

17

9

20

22

7

12

Total condo units sold

20

28

21

15

40

34

12

25

Occupied units as a % of total

65%

29%

19%

40%

50%

35%

42%

52%

41%

Sales values per sqm

Occupied units

3,617

3,379

3,765

4,816

4,444

4,572

4,928

3,332

Vacant

4,427

4,322

4,733

4,700

4,209

5,313

5,735

5,345

Occupied sales values/vacant sales values

82%

78%

80%

102%

106%

86%

86%

62%

85%

Blended sales value (€)

4,352

4,566

4,068

4,320

4,988

5,502

3,976

Blended book value of units sold (€)

3,515

3,676

3,459

3,624

4,216

4,495

3,709

Sales value premium to book value

24%

24%

18%

19%

18%

22%

7%

19%

Portfolio average book value (€)

1,965

2,854

3,527

3,741

3,977

4,225

4,082

3,598

Sales value premium to portfolio average book value

53%

29%

9%

9%

18%

35%

11%

23%

Source: Phoenix Spree Deutschland data, Edison Investment Research

Condo sales potential

We estimate that the expanded pool will comprise around 40 buildings compared with the seven that are designated for condo sales currently. Based on the portfolio average 28 units per building, we estimate that the number of units made available for sale will increase to c 1,100 compared with 76 at end FY23. Units from the pool will be sold as they become vacant, and occupied units will also be offered for sale to both tenants and investors.

The company aims for annualised condo sales of more than €50m by 2025 and our illustration shows sales of €15m in FY24, €54m in FY25 and €68m in FY26, based on the following key assumptions:

The properties transferred to the pool are similar to the portfolio average in terms of units per property, vacancy, the size of units and the valuation per sqm. We have assumed no underlying movement in valuations1 and, since we expect continued like-for-like rental growth, this implies a widening of the portfolio valuation yield.

1 Capital expenditure is effectively written down reflected in a negative income statement revaluation movement.

The split of notarisation between occupied and vacant units is driven by the availability of the latter and hence the churn rate. Consistent with an annual churn rate of 7%, the proportion of vacant units is thus lower than the average 56% in the five years to end FY23. Churn was c 6% in FY23 and has average c 7% over the past three years.

Vacant units are notarised at €5,000 per sqm, a premium to the average portfolio book value at the beginning of each period of 39%. This compares with €5,345 in FY23 and an unweighted average of €5,060 over the past five years, a period during which market condo values have increased.

Occupied units are notarised at €3,000 per sqm, a discount to the average portfolio book value at the beginning of each period, of 11%. This compares with €3,332 in FY23 and an unweighted average of €4,418 over the past five years. In part, the lower value in FY23 is likely to reflect lower pricing to achieve sales.

The 36% discount of occupied unit notarisation values to that of vacant units is consistent with recent transactions data, but much wider than the average 14% discount since PSD listed in 2015.

On a blended basis, units are sold at a premium to the average portfolio book value at the beginning of each period, of 110–114%, generating gross gains on disposal (before costs) of €1.8m in FY24, €7.8m in FY25 and €6.0m in FY26.

Exhibit 5: Edison illustration of potential condo sales, FY24–26e

H124e

H224e

H125e

H225e

H126e

H226e

FY24e

FY25e

FY26e

Number of vacant units notarised

10

15

50

50

50

50

25

100

100

Number of occupied units notarised

10

15

40

40

70

70

25

80

140

Total number of units notarised

20

30

90

90

120

120

50

180

240

Occupied units as % of total units notarised

50%

50%

44%

44%

58%

58%

50%

44%

58%

Notarisation value of vacant units (€m)

3.6

5.4

17.9

17.9

17.9

17.9

8.9

35.7

35.7

Notarisation value of occupied units (€m)

2.3

3.4

9.1

9.1

16.0

16.0

5.7

18.3

32.0

Total value of notarisations (€m)

5.9

8.8

27.0

27.0

33.9

33.9

14.6

54.0

67.7

Vacant notarisations per sqm (€)

5,000

5,000

5,000

5,000

5,000

5,000

5,000

5,000

5,000

Occupied notarisations per sqm (€)

3,200

3,200

3,200

3,200

3,200

3,200

3,200

3,200

3,200

Average notarised value per sqm (€)

4,100

4,100

4,200

4,200

3,950

3,950

4,100

4,200

3,950

Value of vacant notarisations/opening book value

139%

139%

139%

139%

139%

139%

139%

139%

139%

Value of occupied notarisations/opening book value

89%

89%

89%

89%

89%

89%

89%

89%

89%

Average value of notarisations/opening book value

114%

114%

117%

117%

110%

110%

114%

117%

110%

Discount of vacant to occupied

36%

36%

36%

36%

36%

36%

36%

36%

36%

Book value of notarisations (€m)

5.1

7.7

23.1

23.1

30.8

30.8

12.8

46.3

61.7

Gain/(loss) on disposal (before costs) (€m)

0.7

1.1

3.9

3.9

3.0

3.0

1.8

7.8

6.0

Source: Edison Investment Research

Single building sales potential

Despite the challenging conditions in the financial and property investment market in FY23, PSD was able to sell two properties designated as rental properties for an aggregate €7.3m, c 8% below the book value of €7.9m. With the FY23 results announcement, PSD said that two further buildings had been notarised for sale since end FY23, with an aggregate value of €7.4m.

Our illustration for the sale of buildings assumes a similar rate of progress, with a total of 12 properties sold, out of 95 at the end of FY23 (or the 55 that are not in the expanded condo pool). We show sales of €10m in FY24, €22m in FY25 and €34m in FY26. Again, we believe the illustrated sales value to be realistic and consistent with, although more cautious than, what the property advisor hopes can be achieved.

It is based on the following key assumptions:

As with the condo pool illustration above, we assume that the properties sold are similar to the portfolio average in terms of units per property, vacancy, the size of units and the valuation per sqm.

We have assumed sales values based on a constant fully occupied yield of 4.5% and, as we expect continued rental growth, this is reflected in an increase of the sales value per sqm over the period. As no valuation movement is assumed in our forecasts, the increased sales value per sqm implies a narrowing discount to book value over time.

The disposal values per sqm range from €2,777 to €3,033, below book value but above the c €2,600 value implied by the current share price.

On average, the discount to book value is c 23–16%, much wider than the FY23 disposals, generating gross losses on disposal (before costs) of €3.1m in FY24, €5.1m in FY25 and €6.3m in FY26.

Exhibit 6: Edison illustration of potential building sales, FY24–26e

H124e

H224e

H125e

H225e

H126e

H226e

FY24e

FY25e

FY26e

Number of buildings notarised

2

0

2

2

3

3

2.0

4.0

6.0

Number of units notarised

52

0

52

52

79

79

52.4

104.8

157.2

GLA* of units notarised (000 sqm)

3.7

0.0

3.7

3.7

5.6

5.6

3.7

7.5

11.2

Notarised value per sqm (€)

2,777

2,888

2,945

3,004

3,063

2,777

2,917

3,033

Value of notarisations (€m)

10.4

0.0

10.8

11.0

16.9

17.2

10.4

21.8

34.1

Value of notarisation/opening book value

77%

0.0

80%

82%

83%

85%

77%

81%

84%

Fully occupied yield on notarisation value

4.5%

0.0

4.5%

4.5%

4.5%

4.5%

4.5%

4.5%

4.5%

Book value of notarisations (€m)

13.5

0.0

13.5

13.5

20.2

20.2

13.5

26.9

40.4

Gain/(loss) on disposal (before costs) (€m)

(3.1)

0.0

(2.7)

(2.4)

(3.3)

(3.0)

(3.1)

(5.1)

(6.3)

Source: Edison Investment Research. Note: *Gross lettable area.

Summary of total sales potential

Aggregating the condo sales potential with that for single buildings shows aggregate disposal proceeds of €25m in FY24, €76m in FY25 and €102m in FY26, at values not materially different from book value.

Exhibit 7: Summary of sales illustrations

H124e

H224e

H125e

H225e

H126e

H226e

FY24e

FY25e

FY26e

Condo notarisations (€m)

5.9

8.8

27.0

27.0

33.9

33.9

14.6

54.0

67.7

Building notarisations (€m)

10.4

0.0

10.8

11.0

16.9

17.2

10.4

21.8

34.1

Total notarisations (€m)

16.3

8.8

37.8

38.0

50.7

51.1

25.0

75.8

101.8

Book value of condo notarisations (€m)

5.1

7.7

23.1

23.1

30.8

30.8

12.8

46.3

61.7

Book value of building notarisations (€m)

13.5

0.0

13.5

13.5

20.2

20.2

13.5

26.9

40.4

Total book value of notarised assets (€m)

18.6

7.7

36.6

36.6

51.0

51.0

26.3

73.2

102.1

GLA of notarised condos (000 sqm)

1.4

2.1

6.4

6.4

8.6

8.6

3.6

12.9

17.1

GLA of notarised buildings (000 sqm)

3.7

0.0

3.7

3.7

5.6

5.6

3.7

7.5

11.2

Total GLA of notarised assets (000 sqm)

5.2

2.1

10.2

10.2

14.2

14.2

7.3

20.3

28.4

Average notarised value per sqm (€)

3,142

4,100

3,717

3,738

3,575

3,599

3,423

3,728

3,587

Opening book value per sqm of notarisations (€)

3,598

3,597

3,597

3,597

3,597

3,597

3,598

3,597

3,597

Book value of notarisations (€m)

18.6

7.7

36.6

36.6

51.0

51.0

26.3

73.2

102.1

Gain/(loss) on disposal (before costs) (€m)

(2.4)

1.1

1.2

1.4

(0.3)

0.0

(1.3)

2.7

(0.3)

Source: Edison Investment Research

PRS earnings potential

Continuing reversionary capture

We expect the refurbishment and re-letting of vacant apartments at closer to market rent levels will continue to be the main driver of rental growth in the tightly regulated Berlin rental market although the permitted uplifts on regulated tenancies have increased in the past two years.

In response to the speed and extent of the increase in inflation and interest rates that occurred from mid-2022, a transitional Berlin Mietspiegel (rent index)2 was announced in June 2023, replacing the previous rent index of 2021, and a new qualified rent index was published in May 2024. On average, the transitional index permitted increases in rental values of 5.4% versus 2021 and the new index allows for further modest increases, averaging 0.7%. For those of PSD’s tenancies that ‘qualified’ for an increase under the transitional arrangements, this became effective from October 2023. The new qualified rent index will support rental growth from Q324 onwards.

  2 Rents for existing tenancies are pegged to local market levels, as determined by a local government rent table (the Mietspiegel), which normally calculates a reference rate every two years. This is based on rent data collected over the preceding four years and, therefore, typically lags behind free market levels. Where tenancies ‘qualify’ for a rent increase, the uplift is limited to a maximum of 15% over a three-year period, with a minimum of 15 months between increases.

Exhibit 8: Trend in whole portfolio rent levels and like-for-like growth

Source: Phoenix Spree Deutschland data

Market rents are at record levels, with new lettings across the portfolio signed at an average premium of 31.3% to passing rents (FY22: 31.8%). During FY23, 255 new leases were signed (FY22: 319), representing a letting rate of approximately 10.1% of occupied units. (FY22: 12.9%). The lower letting rate is a reflection of the shortage

Exhibit 9: Re-letting premium

Source: Phoenix Spree Deutschland

Rental uplifts to offset a reduced number of units

Our forecasts for ‘rental activities’ include the contribution from all rental properties, whether held within the condo pool or within the PRS portfolio. On this basis, we forecast net rental property income to increase in the current year, driven by like-for-like rental uplifts, but to decline as condo sales gather pace. By FY26, we expect net rental property income to be slightly lower than in FY23. Despite any drag on rental income, there is a clear benefit at the company level as disposal proceeds are used to reduce borrowings and net finance expense.

Exhibit 10: Rental activities

€m unless stated otherwise

FY23

FY24e

FY25e

FY26e

Rental units (000s)*

2,629

2,527

2,242

1,845

Y-o-y change

-2%

-4%

-11%

-18%

Rent per sqm (€)

10.4

10.8

11.3

11.7

Y-o-y change

4%

4%

4%

4%

Annualised net cold rent

22.3

22.3

20.6

17.6

Y-o-y change

4%

0%

-8%

-14%

PRS income statement

Rental income

21.4

22.2

21.4

19.1

Net service charge expense

(1.3)

(1.1)

(1.0)

(0.9)

As % of rental income

6%

5%

5%

5%

Property management expense

(1.4)

(1.4)

(1.4)

(1.2)

As % of rental income

7%

6%

6%

6%

Repairs & maintenance

(1.8)

(1.8)

(1.7)

(1.5)

As % of rental income

8%

8%

8%

8%

Impairment of rent receivable

(1.0)

0.0

0.0

0.0

Total property expenses

(5.2)

(4.1)

(3.9)

(3.5)

Net rental property income

16.2

18.1

17.5

15.6

Source: Phoenix Spree Deutschland data for FY23, Edison Investment Research illustrative-only forecasts. Note: *This includes all residential units, whether inside or outside the condo pool, as well as the relatively small number of commercial units.

Combining asset sales with PRS

The summary below combines our asset sales illustrations with our expectations for recurring (PRS) earnings that are shown in detail in the following section. We also show the FY26 projections adjusted for a full year of refinanced debt at a cost of 4.5%.

Including our sales illustrations we note the following:

Rental income is reduced by asset sales, more than offsetting the like-for-like rental growth of 4% pa that we assume, and lower property costs.

Finance expense is significantly reduced by an almost halving of net debt and drives growth in recurring PBT.

Property advisor fees are below the FY23 level, but the impact of the fee cap is partly offset by disposal fees.

Based on the FY26 illustration and allowing for the annualised impact of debt refinancing at 4.5% pa, there is a recurring PBT loss of €2.4m.

The income statement shows a deferred tax credit in respect of the realised and unrealised (nil) changes in property valuations, before disposal costs. More significantly, the sale of assets crystalises the payment of deferred tax liabilities, generated by historical revaluation gains. We have assumed that this is in proportion to the percentage of the portfolio sold and generates tax payments of c €2m in FY24, €6m in FY25 and c €8m in FY26. This affects cash and reduces IFRS NAV (but not EPRA NTA).

Resulting from the net loss on disposals and crystallisation of deferred tax liabilities, NAV per share and EPRA NTA per share decline modestly, but LTV is significantly reduced to c 36%.

Assuming no asset sales, an unrealistic outcome, but included to provide a comparison, we note the following:

Rental growth and lower advisor fees drive growth in recurring PBT.

PBT is insufficient to fully fund capex (we assume €10m pa) and, by assuming no asset sales, this is reflected in higher net debt. The repricing of borrowing costs almost doubles net finance charges and has a significant negative impact on recurring PBT.

NAV and NTA per share are little changed and LTV creeps upwards.

Exhibit 11: Summary of forward-looking financials

Disposal illustration

Without disposals

€m unless stated otherwise

FY23

FY24e

FY25e

FY26e

FY26e at
4.5% debt cost

FY24e

FY25e

FY26e

FY26e at
4.5% debt cost

INCOME STATEMENT

Rental income (excluding service charge income)

21.4

22.2

21.4

19.1

19.1

22.9

24.0

25.2

Net property expenses

(5.4)

(4.3)

(4.1)

(3.7)

(3.7)

(4.4)

(4.6)

(4.8)

Net property income

15.9

17.9

17.3

15.4

15.4

18.5

19.4

20.3

Management fees (excluding disposal fee)

(5.8)

(4.5)

(4.4)

(4.3)

(4.3)

(4.5)

(4.4)

(4.3)

Disposal fee

0.0

(0.3)

(0.8)

(1.0)

(1.0)

0.0

0.0

0.0

Admin expenses

(3.8)

(3.8)

(3.9)

(4.0)

(4.0)

(3.8)

(3.9)

(4.0)

Net finance charge

(9.4)

(8.6)

(7.1)

(5.6)

(8.5)

(9.0)

(8.3)

(8.5)

Recurring PBT

(3.0)

0.7

1.1

0.5

(2.4)

1.2

2.8

3.6

Change in fair value of financial instruments

(7.2)

(5.2)

(2.2)

(1.4)

(5.2)

(2.2)

(1.4)

Change in fair value of investment property

(97.3)

(10.7)

(10.7)

(10.7)

0.0

0.0

0.0

Gross value of property disposals

Book value of property disposals

13.0

25.0

75.8

101.8

0.0

0.0

0.0

Gross gain/(loss) on property disposals

(12.8)

(26.3)

(73.2)

(102.1)

0.0

0.0

0.0

Costs of disposal

0.3

(1.3)

2.7

(0.3)

0.0

0.0

0.0

Costs of disposal

(0.4)

(1.8)

(5.3)

(7.1)

0.0

0.0

0.0

Net gain/(loss) on property disposals

0.0

0.1

0.1

0.1

0.0

0.0

0.0

Erkner-related adjustments

(0.2)

(3.0)

(2.7)

(7.4)

0.0

0.0

0.0

PBT

(4.1)

0.0

0.0

0.0

0.0

0.0

0.0

Current tax

(111.8)

(18.2)

(14.4)

(19.0)

(4.0)

0.6

2.2

Deferred tax

(0.6)

0.0

0.0

0.0

0.0

0.0

0.0

Minority

13.6

2.2

2.1

2.9

0.0

0.0

0.0

IFRS attributable earnings

0.6

0.1

0.1

0.1

0.0

(0.0)

(0.0)

BALANCE SHEET

(98.1)

(16.0)

(12.3)

(16.0)

(4.0)

0.5

2.2

Investment properties

Net debt (inc unamortised loan arrangement fees)

675.6

649.2

576.1

474.0

686.3

697.0

707.7

Deferred tax liability

(313.0)

(300.4)

(245.0)

(168.3)

(320.9)

(328.2)

(334.6)

Other assets/liabilities

(57.3)

(52.9)

(44.5)

(33.2)

(57.3)

(57.3)

(57.3)

Net asset value

9.8

3.1

0.3

(1.7)

3.1

0.2

(1.9)

Deferred tax assets & liabilities

315.1

299.1

286.8

270.8

311.1

311.6

313.8

Derivative financial instruments

57.3

52.9

44.5

33.2

57.3

57.3

57.3

EPRA net tangible assets (NTA)

(8.8)

(3.6)

(1.4)

0.0

(3.6)

(2.5)

(1.4)

IFRS NAV per share (€)

363.6

348.4

330.0

304.0

364.8

366.4

369.7

EPRA NTA per share (€)

3.4

3.3

3.1

2.9

3.4

3.4

3.4

Loan to value ratio

4.0

3.8

3.6

3.3

4.0

4.0

4.0

Source: FY23 as reported by Phoenix Spree Deutschland, Edison Investment Research illustrative-only forecast

PRS investment

PSD will continue to invest in the properties operating within the PRS portfolio, primarily targeting an improvement in energy efficiency and a medium-term increase in EPC ratings to C or better. This will not only benefit tenants but is increasingly important to investors, with energy-efficient properties, more able to meet expected regulatory requirements, attracting a premium.

A relatively low proportion of the portfolio is rated EPC C or better, reflecting that it primarily comprises Altbau. These are typically older, pre-war properties, often prized for their character and central locations, and valued at a premium compared to the more generic ‘out-of-town’ housing schemes of the latter half of the 20th century. However, compared with newbuild properties, designed with modern construction techniques and materials, they are notably less energy efficient.

Exhibit 12: Current distribution of EPC ratings

Source: Phoenix Spree Deutschland

Investments to improve the energy efficiency of the portfolio include upgrades to windows, heating systems, insulation, installing LED lighting and the implementation of advanced controls that allow residents to manage their heating more effectively and reduce unnecessary energy consumption and emissions.

PSD is in discussions with a leading energy technology company regarding the installation of energy valves, contact sensors and actuators in the basement of rental properties, which PSD says has the potential to increase EPC ratings by as much as two notches with no upfront costs to the company. The procedure has the advantage of being minimally invasive, eliminating the requirement to enter individual rental apartments, with potential savings of 20–30% on energy costs and CO2 taxes. German law allows all ongoing costs to be passed onto tenants, while a percentage of the energy cost savings can be passed on as higher rents.

PSD has not quantified what additional investments may be required. Like-for-like capital expenditure has averaged c €5m pa in the past five years, although this primarily relates to refurbishments undertaken on vacant apartments prior to re-letting. As a working assumption, our forecasts allow for €10m pa in FY25 and FY26. Importantly, we have no recognition of this capex in property valuations, which may be conservative. Fully recognition would reduce FY26 LTV by c 2 percentage points.

Borrowings

End-FY23 borrowings were €324m on a nominal basis, gross of unamortised loan arrangement fees of €2.7m. Net borrowing increased by c €10m in the year, primarily to fund capital expenditure. Net debt was €313m and the LTV was 46.3%.

Exhibit 13: Summary of borrowings

Drawn borrowing (€)

Maturity date

Years to maturity

Effective interest rate

Natixis Pfandbrief

263.6

September 2026

2.7

2.8%

Berliner Sparkasse

60.3

October 2027

3.3

2.0%

Total nominal value

323.9

2.8

2.5%

Unamortised loan arrangement fees

(2.7)

Balance sheet/book value

321.2

Source: Phoenix Spree Deutschland data, Edison Investment Research

The main borrowing facility with Natixis is a seven-year, non-amortising, interest-only facility that matures in September 2026. The majority (84%) of the floating rate interest cost for the Natixis facility has been hedged to give a blended effective rate of 2.8% at end FY23.

With Berliner, PSD has an amortising facility that matures in October 2027. The facility has been fully drawn and, after loan amortisation, €60.3m remained outstanding at end FY23, the interest cost on 92% of which is fixed or hedged, with an end-FY23 blended average cost of 2.0%. In total, the interest cost on 85% of debt drawn (at book value) at end FY23 was fixed or hedged with swaps at a blended effective rate of 2.5%. The end-FY23 average remaining debt duration was 2.8 years, closely matched by the swaps.3

  3 The interest rate swaps are expected to mature between September 2026 and February 2027.

Exhibit 14: Hedging

€m

Fixed

Floating

Total borrowing

Swaps

Fixed/swapped

Natixis Pfandbrief

nil

262.2

262.2

219.0

83.5%

Berliner Sparkasse

43.6

16.7

60.3

11.7

91.7%

Total

43.6

278.9

322.6

230.7

85.0%

Source: Phoenix Spree Deutschland data, Edison Investment Research

Financial covenants relating to the Natixis loans include a projected interest cover of at least 150%4, minimum debt yield of 4.3%5 and a maximum LTV of 67.5%. There are no financial covenants relating to the Berliner loans.

  4 Property net operating income as percentage of finance costs.

  5 Property net operating income as a percentage of borrowings.

Of the covenants, it is the minimum debt yield that has the lowest level of cover, reflecting the portfolio gross yield of 3.3%, and this would benefit from asset sales and debt repayment.

We expect that the renegotiation of financing arrangements, to allow additional buildings to be marketed as condos, will trigger additional banking fees but we do not expect these to be material.

FY23 results in detail

The FY23 results were published in April and followed a portfolio valuation update in February, which had also provided details on condo sales and rental growth.

Exhibit 15: Summary of FY23 financial performance

€m unless stated otherwise

FY23

FY22

FY23/FY22

Gross rental income

21.4

20.3

5%

Net property expenses

(3.7)

(3.1)

18%

Repair & maintenance expense

(1.8)

(1.5)

15%

Net property income

15.9

15.7

2%

Property advisor fees & expenses

(5.8)

(6.9)

-15%

Property advisor performance fee

0.0

0.3

Administrative expenses

(3.8)

(3.3)

15%

Operating profit before valuation movements and non-recurring items

6.4

5.9

8%

Gain/(loss) on disposal of investment property

(4.3)

(0.2)

Fair value movement on investment property

(97.3)

(42.2)

Operating profit

(95.2)

(36.5)

Net finance charge

(9.4)

(7.9)

Change in fair value of interest rate derivatives

(7.2)

26.9

Profit before tax

(111.8)

(17.5)

Tax

13.0

1.7

Profit after tax

(98.8)

(15.8)

Non-controlling interest

0.6

0.4

Attributable profit after tax

(98.1)

(15.4)

EPS (€c)

(106.8)

(16.8)

DPS (€c)

0.0

2.4

EPRA NTA per share (€)

3.96

5.10

NAV total return

-22.3%

-8.4%

Gross debt at nominal value

(324.0)

(315.8)

Cash

11.0

12.5

Net debt

(313.0)

(303.3)

Net LTV

46.3%

39.1%

Source: Phoenix Spree data, Edison Investment Research

Key features of the FY23 results were:

Increased rental income more than offset higher property expenses and net property income increased by 2%.

Repair & maintenance expenses increased to €1.8m. A further €9.4m of portfolio investment was capitalised.

Investment management fees were lower, although the revised fee arrangements were in place for just six months.

Administrative costs increased 15%, including higher legal and professional fees related to transactional activity.

Operating profit before the impact of valuation losses increased 4% to €6.4m.

The unrealised revaluation loss of €97m reflected the 11.9% like-for-like revaluation movement in the year. The realised loss of €4m reflected the termination of PSD’s forward funding commitment to the development in Erkner, removing the requirement for further investment of €13m, and partly offset by a €1.2m real estate transfer tax reclaim.

The increase in finance expense reflected higher average debt and an increase in the cost of the unhedged portion of borrowings.

The positive tax result was primarily driven by the property revaluation loss and reduction in the deferred tax liability.

The net attributable loss of €98m reduced net attributable equity to €315m or €3.43 per share. Adjusted for deferred tax liabilities and accumulated movements in the fair value of interest rate derivatives, EPRA NTA was €364m or €3.96 per share (FY22: €468m/€5.10 per share).

Additional company details

PSD is a Jersey-based, closed-ended investment company that was founded in 2007. It was initially listed on the Channel Islands Securities Exchange in 2007 and, after a period of strong growth, moved to a Main Market listing on the London Stock Exchange (LSE) in June 2015. It is externally managed by QSix, an independent and owner-managed specialist real estate manager, founded in 2006, with an established track record of performance in the German residential property market. QSix advises PSD on property acquisitions and disposals, supervises the renovation of properties, provides oversight of the third-party property managers and reviews tenant selection. It also advises on the initiation of bank finance and the preparation of business plans.

In February 2024, Christian Daumann was appointed CEO of the property advisor’s German operations, succeeding Jörg Schwagenscheidt, who had held the position since 2015 and remains a partner of QSix Group. Christian Daumann has over 25 years of experience in the real estate and asset management sector and has strong industry contacts.

Management and governance

PSD has an experienced board with a diverse range of non-executive directors who bring a wealth of experience in real estate, corporate finance, investment funds and capital markets. The board is chaired by Robert Hingley, appointed in June 2015, with over 30 years’ experience as a corporate finance adviser. Full biographies can be found on the company’s website.

Exhibit 16: Board remuneration

Appointed

FY23 remuneration (€)

FY22 remuneration (€)

Number of shares held

Robert Hingley (chair)

Jun-15

50,000

50,000

5,150

Jonathan Thompson

Jan-18

45,000

45,000

7,337

Antonia Burgess

Aug-20

45,000

45,000

Isabel Robins

Mar-22

45,000

36,000

Steven Wilderspin

Jan-23

43,875

-

Monique O'Keefe*

11,250

Greg Branch**

33,750

Total

228,875

221,000

12,487

Source: Phoenix Spree. Notes: *Monique O'Keefe retired from the board in March 2022. **Greg Branch died in August 2022.

Property advisor fees

Under the investment advisory agreement, currently subject to temporary amendments, QSix is entitled to receive a portfolio and asset management fee calculated annually as:

1.2% on EPRA net tangible assets of less than €500m.

1.0% on EPRA net tangible assets of €500m or more.

The property adviser is also entitled to fees relating to property transactions and debt financings, lettings and investor relations activities. A capex monitoring fee (7% of capex) is also payable to the investment adviser and this is reported in the financial statements within capital expenditure.

The property adviser is also entitled to a performance fee calculated as 15% of the excess by which annual EPRA NTA total return exceeds 8% pa on a cumulative basis measured over consecutive three-year periods, subject to a high watermark, and payable and settled in shares.

During 2023, the company and the property advisor, with shareholders’ approval, agreed a temporary 12-month amendment to the investment advisory agreement (IAG), with effect from July 2023. Aggregate asset management, capital expenditure monitoring and investor relations fees were capped at €5.0m and a disposal fee was introduced, set at 1% of the gross value of assets sold. The disposal fee is aimed at aligning the incentives of the property advisor with the company’s intention to accelerate disposal activity.

The company and the property advisor expect soon to conclude a further temporary amendment to the IAG, to be effective from July 2024. This is expected to reduce the fee cap by a further 14%, to €4.3m, while retaining the disposal fee at 1%.

QSix will continue to receive an additional 1% fee on all disposals, but intends to use the post-tax proceeds to buy shares in PSD.

Sensitivities

We highlight the following key sensitivities that would have an impact on the outlook for PSD and our forecasts:

Changes to property and tenant law, which may be politically driven. German property laws remain under constant review. Changes in the framework of regulation and rent control could affect rental values and property valuations, positively or negatively. Recent examples include the short-lived impact of the 2019 Mietendeckel, subsequently repealed, and the 2021 restrictions applied to condo splitting.

A deterioration in the economic environment.

While this has the potential to adversely affect tenant demand, vacancy, rents and rent collection, particularly if severe or prolonged, there has been no material impact during the pandemic or since inflation and interest increased. Housing is effectively non-discretionary and there is a shortage of rental property supply in the Berlin market. Controlled rents are especially affordable and ‘valuable’ to tenants. PSD’s rental income is insulated from any weakness in market rental values by significant reversionary upside. While PRS property valuations have weakened, condo prices have remained firm.

Rising interest rates have had a negative impact on property valuations and, despite the widespread expectation that rates will soon fall, they are likely to remain well above the levels of recent years. A significant recovery in valuations will likely require a combination of lower interest rates and continued rental growth.

The successful execution of PSD’s strategy is highly dependent on the strength of the condo market.

Diversification. PSD is completely focused on the wider Berlin region (including Brandenburg as well as central Berlin) and, while this currently enjoys positive market fundamentals, any deterioration would have an impact on the company.

Financing. Debt costs have increased and availability has deteriorated. A satisfactory refinancing of PSD’s existing debt at maturity in 2026 will, to a large extent, depend on the success of its asset disposal programme.

Appendix: Implied portfolio value

PSD’s implied portfolio value per sqm is based on total capital value or enterprise value (the market capitalisation plus net borrowings), with adjustment for deferred tax and excluding the fair value of interest rate derivatives.

The deferred tax adjustment represents a theoretical recalculation of the deferred tax liability, based on the implied portfolio value compared with its external valuation.

Exhibit 17: Implied value per sqm as at end-FY23.

FY23

Portfolio area (000s per sqm)

187.8

External portfolio valuation (€m)

675.6

External value per sqm (€)

3,598

Market capitalisation (€m)

171.9

Net debt (€m)

309.0

Enterprise value (€m)

480.9

Enterprise value per sqm (€)

2,561

Discount to external valuation

-29%

Deferred tax adjustment (€m)

19.5

Exclude fair value of derivative financial instruments (€m)

(8.8)

Adjusted enterprise value (€m)

491.6

Adjusted enterprise value per sqm (€m)

2,618

Portfolio area (000s per sqm)

External portfolio valuation (€m)

External value per sqm (€)

Market capitalisation (€m)

Net debt (€m)

Enterprise value (€m)

Enterprise value per sqm (€)

Discount to external valuation

Deferred tax adjustment (€m)

Exclude fair value of derivative financial instruments (€m)

Adjusted enterprise value (€m)

Adjusted enterprise value per sqm (€m)

FY23

187.8

675.6

3,598

171.9

309.0

480.9

2,561

-29%

19.5

(8.8)

491.6

2,618

Source: Phoenix Spree

Exhibit 18: Financial summary

Year ending 31 December, €m unless stated otherwise

2018

2019

2020

2021

2022

2023

INCOME STATEMENT

Gross rental income (excluding service charge income)

17.5

17.9

19.1

20.6

20.3

21.4

Net property expenses

(2.9)

(1.8)

(3.6)

(2.5)

(3.1)

(3.7)

Repairs and maintenance expense

(1.7)

(1.7)

(1.6)

(1.7)

(1.5)

(1.8)

Net property income

12.9

14.5

13.9

16.4

15.7

15.9

Property advisor fees & expenses

(5.9)

(6.1)

(6.4)

(6.7)

(6.9)

(5.8)

Property advisor performance fee

(4.0)

(2.8)

0.4

(0.3)

0.3

0.0

Administrative expenses

(3.2)

(3.1)

(3.3)

(3.4)

(3.3)

(3.8)

Operating profit before valuation movements and non-recurring items

(0.3)

2.5

4.6

5.9

5.9

6.4

Gain on disposal of investment property

1.0

0.9

2.2

1.5

(0.2)

(4.3)

Fair value movement on investment property

66.1

41.5

41.5

38.0

(42.2)

(97.3)

Separately disclosed items

(1.0)

(0.3)

0.0

0.0

0.0

0.0

Operating profit

65.9

44.6

48.3

45.4

(36.5)

(95.2)

Net finance charge

(9.5)

(6.0)

(8.2)

(7.5)

(7.9)

(9.4)

Gain on financial asset

0.0

(10.0)

(2.2)

7.3

26.9

(7.2)

Profit before tax

56.4

28.6

37.9

45.3

(17.5)

(111.8)

Tax

(11.1)

(5.8)

(7.6)

(7.9)

1.7

13.0

Profit after tax

45.4

22.7

30.3

37.4

(15.8)

(98.8)

Non-controlling interest

(0.3)

(0.5)

(0.5)

(0.1)

0.4

0.6

Attributable profit after tax

45.1

22.3

29.8

37.3

(15.4)

(98.1)

Closing basic number of shares (m)

100.8

97.8

96.1

92.8

91.8

91.8

Average diluted number of shares (m)

99.0

102.1

98.9

95.0

92.1

91.8

IFRS EPS, diluted (€ cents)

4,557

21.8

30.1

39.3

(16.8)

(106.8)

DPS declared (€ cents)

7.5

7.5

7.5

7.5

2.4

0.0

EPRA NTA total return

13.1%

9.3%

8.8%

8.4%

-8.4%

-22.3%

BALANCE SHEET

Investment properties

632.9

719.5

749.0

759.8

761.4

615.0

Other non-current assets

3.4

3.5

3.8

2.7

16.9

9.6

Total non-current assets

636.4

723.0

752.8

762.5

778.3

624.6

Investment properties held for sale

12.7

10.6

19.3

41.6

14.5

60.6

Cash & equivalents

26.9

42.4

37.0

10.4

12.5

11.0

Other current assets

7.5

9.5

8.4

11.7

10.1

12.8

Total current assets

47.1

62.6

64.7

63.8

37.1

84.4

Borrowings

(3.6)

(17.8)

(1.0)

(0.9)

(0.8)

(1.4)

Other current liabilities

(13.2)

(15.6)

(9.6)

(12.4)

(15.9)

(12.8)

Total current liabilities

(16.8)

(33.4)

(10.6)

(13.3)

(16.8)

(14.3)

Borrowings

(191.6)

(258.5)

(286.5)

(283.2)

(311.3)

(319.8)

Other non-current liabilities

(65.2)

(76.8)

(86.5)

(86.1)

(70.9)

(57.3)

Total non-current liabilities

(256.9)

(335.3)

(373.0)

(369.3)

(382.2)

(377.1)

Net assets

409.8

416.9

434.0

443.6

416.4

317.6

Non-controlling interest

(2.0)

(3.0)

(3.5)

(3.6)

(3.2)

(2.6)

Net attributable assets

407.9

413.9

430.4

440.0

413.2

315.1

Adjust for:

Deferred tax assets & liabilities

52.5

58.3

65.4

73.5

70.9

57.3

Derivative financial instruments

6.0

16.0

18.2

10.9

(16.0)

(8.8)

Other EPRA adjustments

(5.4)

(6.8)

(6.4)

(0.3)

0.0

0.0

EPRA net tangible assets (NTA)

461.0

481.4

507.6

524.1

468.1

363.6

IFRS NAV per share (€)

4.05

4.23

4.48

4.74

4.50

3.43

EPRA NTA per share (€)

4.58

4.92

5.28

5.65

5.10

3.96

CASH-FLOW

Cash flow from operating activity

13.2

1.5

8.1

7.8

2.2

7.4

Income tax paid

(4.7)

(0.0)

(1.3)

0.2

(0.5)

(0.5)

Net cash flow from operating activity

8.5

1.4

6.7

8.0

1.7

6.8

Property additions

(47.3)

(32.2)

0.0

0.0

(13.2)

(4.9)

Proceeds from disposal of investment property

86.0

13.5

7.2

13.8

17.3

6.1

Capital expenditure on investment property

(7.9)

(6.5)

(4.2)

(9.5)

(16.4)

(9.4)

Other cash flow from investing activity

0.0

0.1

(5.9)

0.0

4.2

0.5

Cash flow from investing activity

30.8

(25.1)

(2.9)

4.3

(8.2)

(7.7)

Interest paid

(5.1)

(6.2)

(7.5)

(6.7)

(7.3)

(8.4)

Bank debt drawn/(repaid)

(27.0)

64.6

11.2

(3.2)

27.4

7.8

Share issuance/repurchase

0.0

(11.5)

(6.0)

(20.5)

(4.2)

0.0

Dividends paid

(7.5)

(7.7)

(7.0)

(7.4)

(6.9)

0.0

Other cash flow from financing activity

0.0

0.0

0.0

(1.0)

(0.5)

0.0

Cash flow from financing activity

(39.6)

39.2

(9.3)

(38.8)

8.5

(0.6)

Change in cash

(0.3)

15.5

(5.4)

(26.6)

2.0

(1.5)

FX

(0.0)

(0.0)

(0.0)

0.0

0.0

0.0

Opening cash

27.2

26.9

42.4

37.0

10.4

12.5

Closing cash

26.9

42.4

37.0

10.4

12.5

11.0

Closing debt

(195.3)

(280.2)

(291.4)

(288.4)

(315.8)

(324.0)

Closing net debt

(168.4)

(237.8)

(254.4)

(278.0)

(303.3)

(313.0)

LTV

26.1%

32.6%

33.1%

34.7%

39.1%

46.3%

Source: Phoenix Spree data, Edison Investment Research

Contact details

Revenue by geography

QSix Residential
Royal Trust House, 54 Jermyn Street
London SW1Y 6LX
UK
+44 20 3937 8760
info@phoenixspree.com
www.pheonixspree.com

Contact details

QSix Residential
Royal Trust House, 54 Jermyn Street
London SW1Y 6LX
UK
+44 20 3937 8760
info@phoenixspree.com
www.pheonixspree.com

Revenue by geography

Leadership team

Independent non-executive chairman: Robert Hingley

CEO, QSix: Mike Hilton

Robert has over 30 years’ experience as a corporate finance adviser, retiring as a partner at Ondra Partners in 2017. He joined the Association of British Insurers as director, investment affairs in September 2012 and, following the merger of its investment affairs with the Investment Management Association (IMA), acted as a consultant to the enlarged IMA until the end of 2014. From 2010 until January 2015, he was a managing director, and later senior adviser, at Lazard. He was previously director general of the Takeover Panel from December 2007, on secondment from Lexicon Partners, where he was vice chairman. Prior to joining Lexicon Partners in 2005, he was co-head of the Global Financial Institutions Group and head of German investment banking at Citigroup Global Capital Markets, which acquired the investment banking business of Schroders in 2000. He joined Schroders in 1985 after having qualified as a solicitor with Clifford Chance in 1984. He is chairman of Euroclear UK and International and The Law Debenture Corporation and a director of Marathon Asset Management.

Mike is one of QSix’s founding partners, focused on the firm’s growth strategy and overseeing all aspects of the German residential business and Phoenix Spree Deutschland. Prior to founding QSix, Mike was managing director and European sector head at UBS where he worked closely with Matthew Northover, with whom he founded QSix in 2006. Mike also held roles at Charterhouse Bank and Dresdner Kleinwort Benson as an equity research analyst and LEK Partners within its corporate strategy division. Mike holds an MA in economics from Cambridge University.

CEO, Germany, QSix: Christian Daumann

Partner, head of public markets, QSix: Stuart Young

Christian joined QSix in March 2024 as CEO of its German operation. He has over 25 years of experience in the real estate and asset management sector and has strong industry contacts. Prior to joining QSix, he established and led the German operations of Ivanhoé Cambridge. He previously held senior positions at Morgan Stanley and at Cerberus/LNR, and was CEO of market listed Anterra. He has also served as a board member at Hamburg Trust, then co-owned by Colony Capital. Christian holds two state examinations in law and graduated from Bayreuth university.

Stuart joined QSix in 2014 and is largely responsible for raising capital within public markets and overseeing activities related to Phoenix Spree Deutschland. Stuart began his career at Ernst & Young and then spent over 20 years in investment banking, where he held senior equity research and marketing positions at Charterhouse Bank, Dresdner Kleinwort Benson, Citigroup and Barclays Capital, and worked on a wide spectrum of IPOs, acquisitions, corporate restructurings and recapitalisations. Stuart holds a degree in accountancy and finance from the University of Glasgow.

Principal shareholders (source: Phoenix Spree 2023 Annual Report)

(%)

Columbia Threadneedle Investments

22.3

Bracebridge Capital

15.5


General disclaimer and copyright

This report has been commissioned by Phoenix Spree Deutschland and prepared and issued by Edison, in consideration of a fee payable by Phoenix Spree Deutschland. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial managers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by Phoenix Spree Deutschland and prepared and issued by Edison, in consideration of a fee payable by Phoenix Spree Deutschland. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial managers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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