Last close As at 05/08/2026
GBP1.62
— 0.00 (0.00%)
Market capitalisation
GBP149m
Research: Real Estate
A trading update from Phoenix Spree Deutschland (PSD) shows that the core rental business remained strong in H123 although property values declined further, and transactions activity remains subdued. It notes some recent signs of improved buyer interest in the condominium market, but it remains too early to call a turn. We will review our estimates when interim results are released in late September. H123 rental growth is ahead of our expectations but revaluation indicates downwards pressure on forecast NAV. Our forecasts are yet to reflect the adjusted adviser fee structure.
Phoenix Spree Deutschland |
To buy or to rent? |
Portfolio update |
Real estate |
14 August 2023 |
Share price performance
Business description
Next events
Analyst
Phoenix Spree Deutschland is a research client of Edison Investment Research Limited |
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A trading update from Phoenix Spree Deutschland (PSD) shows that the core rental business remained strong in H123 although property values declined further, and transactions activity remains subdued. It notes some recent signs of improved buyer interest in the condominium market, but it remains too early to call a turn. We will review our estimates when interim results are released in late September. H123 rental growth is ahead of our expectations but revaluation indicates downwards pressure on forecast NAV. Our forecasts are yet to reflect the adjusted adviser fee structure.
Year end |
PBT* |
EPS |
NAV**/ |
DPS |
P/E |
P/NAV |
Yield |
12/21 |
45.3 |
39 |
5.65 |
7.5 |
5.4 |
0.37 |
3.6 |
12/22 |
(17.5) |
(17) |
5.10 |
2.35 |
N/A |
0.41 |
1.1 |
12/23e |
(59.1) |
(54) |
4.37 |
0 |
N/A |
0.48 |
N/A |
12/24e |
0.8 |
1 |
4.38 |
0 |
208.8 |
0.48 |
N/A |
Note: *As reported on an IFRS basis including realised and unrealised gains. **Measured as EPRA net tangible assets per share. ***IFRS forecasts are highly sensitive to portfolio valuations, which remain highly uncertain, and for which we provide a sensitivity analysis.
Core rental business remains strong
Against a backdrop of higher inflation and interest rates, rental yields in the Berlin residential market have risen and rental property values have correspondingly fallen. The like-for-like decline in PSD’s portfolio value was 6.9% and in combination with rental growth the gross fully occupied yield increased to 3.3% from 3.1% at end-FY22. Supply and demand imbalances within the Berlin private rental sector remain firmly supportive of rental values and including a positive effect of the new Mietspiegel (rent index) PSD expects annualised like-for-like rental growth to accelerate from 5.5% at end-H123 to c 6.5% over the next 12 months. Although buyers of individual condominiums continue to sit on their hands and PSD’s notarisations are well below historical levels, the sales premium to book value (68% in H123) indicates underlying support for values.
Disposals to fund investment and dividends
Generating sufficient cash to fund PSD’s ‘refurbish and re-let’ rent reversion strategy and pay dividends is substantially dependent on condominium and/or other asset sales and a wide range of properties are being actively marketed. Given current market conditions and that the company’s share price remains at a material discount to NAV, disposals at a discount to book value are under consideration, although we do not expect the company to ‘chase down’ prices. 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.
Valuation: Deep discount to NAV
Share price performance across quoted German real estate has been weak over the past year, with an average decline of c 40%. PSD’s performance is similar over one year but well ahead over three years. Using end-2022 data, PSD shares trade at a P/NAV of 0.4x compared with the average for German listed peers of 0.3x.
Further details of the trading update
Condominium sales
Eight condominium units were notarised for sale in H123, with an aggregate value of €2.0m (H122: €3.0m, H222: €1.7m) at a 68% premium to the end-FY22 book value, well ahead of the average c 20% premium of the past three years.
Since the half year-end a further three units have been notarised, with an aggregate value of €1.0m. Unlike the units notarised in H1, these condominium units were occupied, and this is reflected in a significantly lower sales premium of 2.2% to the end-FY22 book value.
Reservations on a further seven units, with an aggregate value of €2.6m, have been received and are pending notarisation, representing a gross premium of 5.1% to the H123 book value. Three of the units are currently occupied.
Within the end-H123 portfolio valuation of €714.3m (end-FY22: €775.9m) the number of properties valued as condominiums had increased to seven (with an aggregate value of €39.2m) from six at end-FY22 (with a value €30.1m). Condominium valuations (as opposed to rental valuations) apply to just 7% of the portfolio, namely those properties that have all the relevant permissions required to be sold individually and where a sale has been approved by the board. In total, 78% of properties are legally split as condominiums, with the potential to be sold as such.
PSD says that properties approved for sale will generally include an element of occupied condominiums and it often becomes operationally and financially efficient to dispose of these at some point despite the lower sale premium.
Continuing rent premium
An already tight Berlin rental market is being further buoyed by those who otherwise would have been purchasers of condominiums remaining for longer in the rental sector, as well as inwards net migration, particularly from Ukraine. Meanwhile, supply is constrained by higher building and capital costs. Against this backdrop, new lettings in Berlin were signed at an average premium of 31% to the previous passing rent, consistent with the premium achieved in recent years.
Amendments to fee structure
In June, the AGM approved amendments to the fee structure that cap all ongoing property adviser fees, other than a new disposal fee and any performance fee that may become payable, to an aggregate €5.0m for 12 months from 1 July 2023. For FY22, aggregate asset management, capital expenditure monitoring and investor relations fees were €7.4m. Our unchanged forecasts for FY23 and FY24 currently include an amount of €6.7m in each year, including an asset management fee of €6.1m, lower than in FY22, reflecting a lower average NAV on which the fee is based.
The new disposal fee is set at 1% of the gross value of assets sold over the 12-month period, reflecting the board’s desire to align the incentives of the property adviser with the company’s intention to accelerate disposal activity.
To close the gap between our current fee forecasts and the new, lower fee cap would require the sale of assets with a gross value of c €170m. Reported gross assets at end-FY22 were €815m, although this will now be lower, primarily because of the €42m reduction in the portfolio valuation in H123.
Although it is not the board’s current intention, particularly at the current company valuation, the new arrangements are structured to allow for any potential offer for the company.
Forecasts to be updated in September
The details of our last published forecasts, included in this note, can be found here.
These assume an FY23 like-for-like decline in property values of 7.5%, reflected in a decline in NAV/EPRA net tangible assets per share of 14% to €4.37 at end-FY23 versus €5.10 at end-FY22. The H123 downwards move in like-for-like portfolio valuation is equivalent to c €0.6 per share.
Our forecast for FY23 like-for-like rental growth is 4.0%.
Exhibit 1: Financial summary
Year ending 31 December, €m unless stated otherwise |
2018 |
2019 |
2020 |
2021 |
2022 |
2023e |
2024e |
INCOME STATEMENT |
|||||||
Revenue |
22.7 |
22.6 |
23.9 |
25.8 |
25.9 |
27.7 |
28.8 |
Total property expenses |
(15.8) |
(14.2) |
(16.4) |
(16.1) |
(17.1) |
(16.1) |
(16.4) |
Gross profit |
6.9 |
8.4 |
7.5 |
9.7 |
8.8 |
11.6 |
12.4 |
Administrative expenses |
(3.2) |
(3.1) |
(3.3) |
(3.4) |
(3.3) |
(3.2) |
(3.2) |
Gain on disposal of investment property |
1.0 |
0.9 |
2.2 |
1.5 |
(0.2) |
(1.1) |
(0.1) |
Fair value movement on investment property |
66.1 |
41.5 |
41.5 |
38.0 |
(42.2) |
(58.2) |
0.0 |
Property advisor performance fee |
(4.0) |
(2.8) |
0.4 |
(0.3) |
0.3 |
0.0 |
0.0 |
Separately disclosed items |
(1.0) |
(0.3) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Operating profit |
65.9 |
44.6 |
48.3 |
45.4 |
(36.5) |
(50.9) |
9.1 |
Net finance charge |
(9.5) |
(6.0) |
(8.2) |
(7.5) |
(7.9) |
(8.2) |
(8.3) |
Gain on financial asset |
0.0 |
(10.0) |
(2.2) |
7.3 |
26.9 |
0.0 |
0.0 |
Profit before tax |
56.4 |
28.6 |
37.9 |
45.3 |
(17.5) |
(59.1) |
0.8 |
Tax |
(11.1) |
(5.8) |
(7.6) |
(7.9) |
1.7 |
9.2 |
0.0 |
Profit after tax |
45.4 |
22.7 |
30.3 |
37.4 |
(15.8) |
(49.9) |
0.8 |
Non-controlling interest |
(0.3) |
(0.5) |
(0.5) |
(0.1) |
0.4 |
0.2 |
(0.0) |
Attributable profit after tax |
45.1 |
22.3 |
29.8 |
37.3 |
(15.4) |
(49.6) |
0.8 |
Closing basic number of shares (m) |
100.8 |
97.8 |
96.1 |
92.8 |
91.8 |
91.9 |
91.9 |
Average diluted number of shares (m) |
99.0 |
102.1 |
98.9 |
95.0 |
92.1 |
91.8 |
91.9 |
IFRS EPS, diluted (€ cents) |
46 |
22 |
30 |
39 |
(17) |
(54) |
1 |
DPS declared (€ cents) |
7.5 |
7.5 |
7.5 |
7.5 |
2.4 |
0.0 |
0.0 |
EPRA NTA total return |
13.1% |
9.3% |
8.8% |
8.4% |
-8.4% |
-14.2% |
0.2% |
BALANCE SHEET |
|||||||
Investment properties |
632.9 |
719.5 |
749.0 |
759.8 |
761.4 |
718.0 |
726.4 |
Other non-current assets |
3.4 |
3.5 |
3.8 |
2.7 |
16.9 |
16.9 |
16.9 |
Total non-current assets |
636.4 |
723.0 |
752.8 |
762.5 |
778.3 |
734.9 |
743.3 |
Investment properties held for sale |
12.7 |
10.6 |
19.3 |
41.6 |
14.5 |
7.2 |
7.2 |
Cash & equivalents |
26.9 |
42.4 |
37.0 |
10.4 |
12.5 |
4.0 |
2.8 |
Other current assets |
7.5 |
9.5 |
8.4 |
11.7 |
10.1 |
10.1 |
10.4 |
Total current assets |
47.1 |
62.6 |
64.7 |
63.8 |
37.1 |
21.3 |
20.4 |
Borrowings |
(3.6) |
(17.8) |
(1.0) |
(0.9) |
(0.8) |
0.0 |
0.0 |
Other current liabilities |
(13.2) |
(15.6) |
(9.6) |
(12.4) |
(15.9) |
(14.8) |
(15.3) |
Total current liabilities |
(16.8) |
(33.4) |
(10.6) |
(13.3) |
(16.8) |
(14.8) |
(15.3) |
Borrowings |
(191.6) |
(258.5) |
(286.5) |
(283.2) |
(311.3) |
(320.7) |
(326.8) |
Other non-current liabilities |
(65.2) |
(76.8) |
(86.5) |
(86.1) |
(70.9) |
(61.7) |
(61.7) |
Total non-current liabilities |
(256.9) |
(335.3) |
(373.0) |
(369.3) |
(382.2) |
(382.4) |
(388.5) |
Net assets |
409.8 |
416.9 |
434.0 |
443.6 |
416.4 |
359.1 |
359.9 |
Non-controlling interest |
(2.0) |
(3.0) |
(3.5) |
(3.6) |
(3.2) |
(3.0) |
(3.0) |
Net attributable assets |
407.9 |
413.9 |
430.4 |
440.0 |
413.2 |
356.1 |
356.9 |
Adjust for: |
|||||||
Deferred tax assets & liabilities |
52.5 |
58.3 |
65.4 |
73.5 |
70.9 |
61.7 |
61.7 |
Derivative financial instruments |
6.0 |
16.0 |
18.2 |
10.9 |
(16.0) |
(16.0) |
(16.0) |
Other EPRA adjustments |
(5.4) |
(6.8) |
(6.4) |
(0.3) |
0.0 |
0.0 |
0.0 |
EPRA net tangible assets (NTA) |
461.0 |
481.4 |
507.6 |
524.1 |
468.1 |
401.8 |
402.6 |
IFRS NAV per share (€) |
4.05 |
4.23 |
4.48 |
4.74 |
4.50 |
3.88 |
3.88 |
EPRA NTA per share (€) |
4.58 |
4.92 |
5.28 |
5.65 |
5.10 |
4.37 |
4.38 |
CASH FLOW |
|||||||
Cash flow from operating activity |
13.2 |
1.5 |
8.1 |
7.8 |
2.2 |
7.3 |
9.3 |
Income tax paid |
(4.7) |
(0.0) |
(1.3) |
0.2 |
(0.5) |
0.0 |
0.0 |
Net cash flow from operating activity |
8.5 |
1.4 |
6.7 |
8.0 |
1.7 |
7.3 |
9.3 |
Property additions |
(47.3) |
(32.2) |
0.0 |
0.0 |
(13.2) |
(4.9) |
0.0 |
Proceeds from disposal of investment property |
86.0 |
13.5 |
7.2 |
13.8 |
21.0 |
11.2 |
4.9 |
Capital expenditure on investment property |
(7.9) |
(6.5) |
(4.2) |
(9.5) |
(16.4) |
(15.0) |
(13.3) |
Other cash flow from investing activity |
0.0 |
0.1 |
(5.9) |
0.0 |
0.5 |
0.0 |
0.0 |
Cash flow from investing activity |
30.8 |
(25.1) |
(2.9) |
4.3 |
(8.2) |
(8.6) |
(8.4) |
Interest paid |
(5.1) |
(6.2) |
(7.5) |
(6.7) |
(7.3) |
(7.1) |
(7.2) |
Bank debt drawn/(repaid) |
(27.0) |
64.6 |
11.2 |
(3.2) |
27.4 |
0.0 |
5.0 |
Share issuance/repurchase |
0.0 |
(11.5) |
(6.0) |
(20.5) |
(4.2) |
0.0 |
0.0 |
Dividends paid |
(7.5) |
(7.7) |
(7.0) |
(7.4) |
(6.9) |
0.0 |
0.0 |
Other cash flow from financing activity |
0.0 |
0.0 |
0.0 |
(1.0) |
(0.5) |
0.0 |
0.0 |
Cash flow from financing activity |
(39.6) |
39.2 |
(9.3) |
(38.8) |
8.5 |
(7.1) |
(2.2) |
Change in cash |
(0.3) |
15.5 |
(5.4) |
(26.6) |
2.0 |
(8.5) |
(1.3) |
FX |
(0.0) |
(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 |
4.0 |
Closing cash |
26.9 |
42.4 |
37.0 |
10.4 |
12.5 |
4.0 |
2.8 |
Closing debt |
(195.3) |
(280.2) |
(291.4) |
(288.4) |
(315.8) |
(323.3) |
(328.3) |
Closing net debt |
(168.4) |
(237.8) |
(254.4) |
(278.0) |
(303.3) |
(319.3) |
(325.5) |
LTV |
26.1% |
32.6% |
33.1% |
34.7% |
39.1% |
44.0% |
44.4% |
Source: Phoenix Spree historical data, Edison Investment Research forecasts
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