Last close As at 05/08/2026
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GBP149m
Research: Real Estate
Phoenix Spree Deutschland’s (PSD’s) trading update contrasts the strength of the Berlin private rental sector, reflected in PSD’s increased rents and low vacancy, with the subdued investment market, which continues to weigh on property valuations. Positively, sales of individual condominiums picked up in H223, underlining the strong premium to rental values. Full year results, to 31 December 2023, are due in late April.
Phoenix Spree Deutschland |
One city but two tales |
End-2023 trading update |
Real estate |
19 February 2024 |
Share price performance
Business description
Next event
Analyst
Phoenix Spree Deutschland is a research client of Edison Investment Research Limited |
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Phoenix Spree Deutschland’s (PSD’s) trading update contrasts the strength of the Berlin private rental sector, reflected in PSD’s increased rents and low vacancy, with the subdued investment market, which continues to weigh on property valuations. Positively, sales of individual condominiums picked up in H223, underlining the strong premium to rental values. Full year results, to 31 December 2023, are due in late April.
Year end |
PBT* |
EPS |
NAV**/ |
DPS |
P/E |
P/NAV |
Yield |
12/20 |
37.9 |
30 |
5.28 |
7.5 |
6.9 |
0.38 |
3.7 |
12/21 |
45.3 |
39 |
5.65 |
7.5 |
5.3 |
0.36 |
3.7 |
12/22 |
(17.5) |
(17) |
5.10 |
2.35 |
N/A |
0.40 |
1.2 |
06/23*** |
(58.0) |
(51) |
4.46 |
N/A |
N/A |
0.50 |
0.0 |
Note: *As reported on an IFRS basis including realised and unrealised gains. **Measured as EPRA net tangible assets per share. ***Six months to 30 June 2023 (H123).
Rental growth but weaker valuations and asset sales
An increasing shortage of available rental property in Berlin is driving market rental growth. For PSD, FY23 new lettings were at a record €13.7 per sqm, 5.9% above the FY22 average, and a 31% premium to passing rents. In-place rents (+4.1% like-for-like) of €10.4 per sqm continue to offer significant reversionary potential. The new rent table, which will be released in May 2024, will support further rental growth. PSD’s condominium sales accelerated in H223, with tentative signs of an improvement in buyer sentiment, more condominiums available for sale and targeted price adjustments. This included sales of lower priced, occupied units. The 4.1% premium-to-book value was below the c 20% achieved in recent years but was still c 11% above the average portfolio value. The portfolio valuation was 11.9% lower on a like-for-like basis during the year (-5.9% in H2) and we anticipate the FY23 results will show an EPRA NTA of close to €4 per share (H123: €4.46) and a loan-to-value ratio (LTV) of c 45% (H123: 42.2%).
Reversion and capital recycling
PSD is focused on extracting the value embedded in its portfolio through reversionary rental capture and the sale of condominiums, the valuations of which are at a premium to those of rental properties. It is also actively marketing individual properties/portfolios. Disposals at discounts to current carrying value are likely, although at a premium to the value implied by the share price. Sales proceeds will primarily be used to pay down debt. There are no loan maturities before 2026, most are fixed or hedged (a blended cost of 2.5% at H1), and, with planned asset sales proceeds directed mostly at debt reduction, PSD is confident of refinancing existing borrowings well ahead of maturity. PSD is in discussions with its lenders and is examining other strategic options for a significant increase in the number of individual units that can be made available for sale.
Valuation: Significant discount to asset values
We estimate the shares are trading at a P/NAV of c 0.5x. This is in line with larger German peers despite PSD benefiting from 77% of its portfolio being split as condominiums (and only 4% valued as such), which trade in the market at a material premium to rental equivalents.
One city but two tales
The Berlin rental market has remained strong, with demand being supported by further net inward migration and higher home ownership costs, which have forced potential buyers to remain within the rental system for longer. At the same time, higher funding and construction costs are challenging the economics of new buildings, such that fewer new residential construction projects are being started and many projects that have already been initiated are being postponed or cancelled. PSD highlights that the supply-demand imbalance in the Berlin rental market is at its widest for the last several years.
Conditions in the investment market, for whole buildings/portfolios of buildings, remain challenging but PSD has seen early signs of sentiment improving in the condominium market. This is supported by the growing consensus that interest rates may have peaked and may soon begin to moderate.
Reflecting market trends, the valuation of PSD’s portfolio has declined by 17% since the peak in mid-2022 and it was independently valued at €675.6m at end-FY23. This represents an average value per sqm of €3,598 and a gross fully occupied yield of 3.3%. Most units in the portfolio are valued as rental properties and 4% as condominiums, with an aggregate value of €35.1m. This is despite 77% of the portfolio being legally split as condominiums. Legislation passed in 2021 has made in much harder for landlords to split properties into condominiums, leaving PSD in a very strong position to exploit the material gap between the market pricing of condominiums and rental properties. This is not the case for its larger peers.
The company calculates that the current share price implies a value for rental apartments within its portfolio of c €2,750/sqm compared with an average €3,976/sqm value for its 2023 condominium notarisations.
Continuing positive demand-supply supports rent growth and reversionary capture
While the refurbishment and re-letting of vacant apartments at closer to market rent levels has historically been a key driver of rental growth in the tightly regulated Berlin rental market, PSD expects that, this year, rent increases will become a more important driver of rental growth. This expectation is driven by two factors. The first is that portfolio vacancy is at a historical low (1.6% on an EPRA basis for the Berlin assets at end-FY23, compared with 2.4% the prior year), with fewer refurbishment opportunities. Secondly, there is an acceleration in the permitted uplifts on regulated tenancies.
In response to the speed and extent of the increase in inflation and interest rates that occurred from mid-2022, a new, transitional Berlin Mietspiegel (rent index)2 was announced in June 2023, replacing the previous rent index of 2021. It is expected that a new qualified rent index will be published in H124. On average, the transitional index permitted increases in rental values of 5.4% versus 2021 and for those of PSD’s tenancies that ‘qualified’ for an increase, this became effective from October 2023. The company expects the new qualified rent index to support rental growth from Q324 onwards.
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.
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Exhibit 1: Trend in whole portfolio rent levels and like-for-like growth |
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Source: Phoenix Spree Deutschland data |
The re-letting premium (31% in FY23) has increased in each of the past four years and confirms the continuation of significant rent reversion potential in the portfolio.
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Exhibit 2: Re-letting premium |
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Source: Phoenix Spree Deutschland data |
Condominium notarisations picked up in H223
In H223, 17 condominiums 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 2024 has been promising, with a further four condominiums notarised in the year-to-date with an aggregate value of €1.9m.
For 2023, the average achieved notarised value was €3,976/sqm, or 4.1% above the end-2022 book value. The sales premium in any period is specific to the mix of assets, including location, floor space and, importantly, whether the condominium is occupied or vacant. The 2023 premium of 4.1% was lower than the average c 20% of the past four years but was nonetheless at a good premium to the portfolio average book value per sqm. This reflects a significant share of occupied condominiums, where values are lower, and price reductions to stimulate demand. The average notarisation value per sqm for vacant condominiums was €4,885/sqm.
Exhibit 3: Condominium notarisations
2019 |
2020 |
2021 |
2022 |
2023 |
|
Sales value of notarisations (€m) |
8.8 |
14.6 |
15.2 |
4.7 |
7.2 |
Average notarised value per sqm (€) |
4,068 |
4,320 |
4,988 |
5,502 |
3,976 |
Average book value of notarised properties per sqm (€) |
3,459 |
3,624 |
4,216 |
4,495 |
3,819 |
Premium to book value |
17.6% |
19.2% |
18.3% |
22.4% |
4.1% |
Portfolio average value per sqm at year end (€) |
3,741 |
3,977 |
4,225 |
4,082 |
3,598 |
Premium to portfolio average |
8.8% |
8.6% |
18.1% |
34.8% |
10.5% |
Source: Phoenix Spree Deutschland data
Making further condominium units available for sale
PSD is evaluating options, including its financing, to significantly increase the number of condominiums made available for sale in 2024. Under current banking arrangements, condominium sales can only be made from designated condominium buildings, and it is only when all the units in one of these have been sold that a new building can be designated as such. The company hopes to agree changes with lenders that will permit sales from properties across the portfolio. Only 4% of residential units in the portfolio, sitting within the condominium projects, are valued as such, while a further 73% of units are legally split as condominiums but valued on a private rental basis.
The financing constraints that apply to individual residential units do not apply to whole properties or portfolios of properties.
Wider asset sales and capital management
As previously announced, PSD’s forward funding commitment to the Erkner development project, signed in March 2022, has been terminated in consideration of the subsequent weakness in property market values and increased capital costs. The company’s commitment to fund a further €13m of €18.5m is now removed from development payments in 2024. PSD expects to reclaim c €1.2m in previously incurred real estate transfer tax.
PSD says that, despite more positive indications that interest rates may soon decrease, buyer sentiment in the investment market for single buildings and portfolios of buildings remains fragile. Investment volumes across the German residential market in 2023 were more than 60% lower versus 2022.
While PSD actively marketed a substantial part of its portfolio, in most cases it was unable to attract buyers at satisfactory price levels and the handful of transactions that were agreed failed to complete. Encouragingly, the company has accepted offers on two buildings with a combined value of c €7.4m and both bidders have been granted exclusivity periods to run due diligence processes.
Exhibit 4: Financial summary
Year ending 31 December, €m unless stated otherwise |
2018 |
2019 |
2020 |
2021 |
2022 |
H123 |
INCOME STATEMENT |
||||||
Revenue |
22.7 |
22.6 |
23.9 |
25.8 |
25.9 |
13.8 |
Total property expenses |
(15.8) |
(14.2) |
(16.4) |
(16.1) |
(17.1) |
(9.5) |
Gross profit |
6.9 |
8.4 |
7.5 |
9.7 |
8.8 |
4.4 |
Administrative expenses |
(3.2) |
(3.1) |
(3.3) |
(3.4) |
(3.3) |
(1.5) |
Gain on disposal of investment property |
1.0 |
0.9 |
2.2 |
1.5 |
(0.2) |
0.5 |
Fair value movement on investment property |
66.1 |
41.5 |
41.5 |
38.0 |
(42.2) |
(57.3) |
Property advisor performance fee |
(4.0) |
(2.8) |
0.4 |
(0.3) |
0.3 |
0.0 |
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) |
(53.9) |
Net finance charge |
(9.5) |
(6.0) |
(8.2) |
(7.5) |
(7.9) |
(4.5) |
Gain on financial asset |
0.0 |
(10.0) |
(2.2) |
7.3 |
26.9 |
0.3 |
Profit before tax |
56.4 |
28.6 |
37.9 |
45.3 |
(17.5) |
(58.0) |
Tax |
(11.1) |
(5.8) |
(7.6) |
(7.9) |
1.7 |
10.9 |
Profit after tax |
45.4 |
22.7 |
30.3 |
37.4 |
(15.8) |
(47.1) |
Non-controlling interest |
(0.3) |
(0.5) |
(0.5) |
(0.1) |
0.4 |
0.4 |
Attributable profit after tax |
45.1 |
22.3 |
29.8 |
37.3 |
(15.4) |
(46.7) |
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) |
(50.9) |
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% |
-12.4% |
BALANCE SHEET |
||||||
Investment properties |
632.9 |
719.5 |
749.0 |
759.8 |
761.4 |
704.6 |
Other non-current assets |
3.4 |
3.5 |
3.8 |
2.7 |
16.9 |
17.2 |
Total non-current assets |
636.4 |
723.0 |
752.8 |
762.5 |
778.3 |
721.9 |
Investment properties held for sale |
12.7 |
10.6 |
19.3 |
41.6 |
14.5 |
9.7 |
Cash & equivalents |
26.9 |
42.4 |
37.0 |
10.4 |
12.5 |
13.1 |
Other current assets |
7.5 |
9.5 |
8.4 |
11.7 |
10.1 |
13.7 |
Total current assets |
47.1 |
62.6 |
64.7 |
63.8 |
37.1 |
36.5 |
Borrowings |
(3.6) |
(17.8) |
(1.0) |
(0.9) |
(0.8) |
(1.0) |
Other current liabilities |
(13.2) |
(15.6) |
(9.6) |
(12.4) |
(15.9) |
(14.3) |
Total current liabilities |
(16.8) |
(33.4) |
(10.6) |
(13.3) |
(16.8) |
(15.4) |
Borrowings |
(191.6) |
(258.5) |
(286.5) |
(283.2) |
(311.3) |
(313.8) |
Other non-current liabilities |
(65.2) |
(76.8) |
(86.5) |
(86.1) |
(70.9) |
(59.8) |
Total non-current liabilities |
(256.9) |
(335.3) |
(373.0) |
(369.3) |
(382.2) |
(373.6) |
Net assets |
409.8 |
416.9 |
434.0 |
443.6 |
416.4 |
369.4 |
Non-controlling interest |
(2.0) |
(3.0) |
(3.5) |
(3.6) |
(3.2) |
(2.8) |
Net attributable assets |
407.9 |
413.9 |
430.4 |
440.0 |
413.2 |
366.6 |
Adjust for: |
||||||
Deferred tax assets & liabilities |
52.5 |
58.3 |
65.4 |
73.5 |
70.9 |
59.8 |
Derivative financial instruments |
6.0 |
16.0 |
18.2 |
10.9 |
(16.0) |
(16.4) |
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 |
410.0 |
IFRS NAV per share (€) |
4.05 |
4.23 |
4.48 |
4.74 |
4.50 |
3.99 |
EPRA NTA per share (€) |
4.58 |
4.92 |
5.28 |
5.65 |
5.10 |
4.46 |
CASH-FLOW |
||||||
Cash flow from operating activity |
13.2 |
1.5 |
8.1 |
7.8 |
2.2 |
(2.3) |
Income tax paid |
(4.7) |
(0.0) |
(1.3) |
0.2 |
(0.5) |
(0.2) |
Net cash flow from operating activity |
8.5 |
1.4 |
6.7 |
8.0 |
1.7 |
(2.4) |
Property additions |
(47.3) |
(32.2) |
0.0 |
0.0 |
(13.2) |
0.0 |
Proceeds from disposal of investment property |
86.0 |
13.5 |
7.2 |
13.8 |
21.0 |
9.4 |
Capital expenditure on investment property |
(7.9) |
(6.5) |
(4.2) |
(9.5) |
(16.4) |
(4.6) |
Other cash flow from investing activity |
0.0 |
0.1 |
(5.9) |
0.0 |
0.5 |
2.8 |
Cash flow from investing activity |
30.8 |
(25.1) |
(2.9) |
4.3 |
(8.2) |
7.5 |
Interest paid |
(5.1) |
(6.2) |
(7.5) |
(6.7) |
(7.3) |
(6.6) |
Bank debt drawn/(repaid) |
(27.0) |
64.6 |
11.2 |
(3.2) |
27.4 |
2.0 |
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 |
(4.5) |
Change in cash |
(0.3) |
15.5 |
(5.4) |
(26.6) |
2.0 |
0.6 |
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 |
13.1 |
Closing debt |
(195.3) |
(280.2) |
(291.4) |
(288.4) |
(315.8) |
(318.1) |
Closing net debt |
(168.4) |
(237.8) |
(254.4) |
(278.0) |
(303.3) |
(305.0) |
LTV |
26.1% |
32.6% |
33.1% |
34.7% |
39.1% |
42.7% |
Source: Phoenix Spree Deutschland data, Edison Investment Research
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