Phoenix Spree sees strong revaluation from rising Berlin rents

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More good news reaching us from London-listed Phoenix Spree Deutschland, which invests in both residential and commercial properties mainly in Berlin. In its interim result, the company unveiled a 22.6% rise in portfolio valuation for its residential real estate investments.

For the 30th June, the company's portfolio was valued by property advisers JLL at €519.7m, up from €23.8m at 31st December, giving an increase in value per square metre of 17.4% to €2,307, up from the end-year figure of €1,965.

The company said that, on a like-for-like basis and after adjusting for the impact of acquisitions net of disposals, its portfolio valuation increased by 15.6% over the six months, reflecting a combination of yield compression and rental growth. Berlin valuations grew by 18.2%.

The company has bought property worth €30m so far this year and sold a large portfolio in the Nuremberg and Fürth region of Bavaria for €35.3m, realising a sales price of 11% over book value. This was done to generate funds for more investment in the Berlin region, where the company has 82% of its assets.

As at 31st December 2016, the Phoenix Spree portfolio consisted of 130 properties containing 2,785 residential units and 237 commercial units across Berlin and secondary cities in Germany, representing a total lettable area of 215,631 sqm. The primary assets are multi-apartment residential buildings mostly built pre-1914 or post-1990, with residential representing 84% of the portfolio. The company's business plan is modelled on buying apartment houses, upgrading and renovating, and privatising individual apartments.

This is where the company sees its main profit driver – arbitraging the difference between the value of an apartment block and the value of the individual apartments within it, which can be more than 60%. Buy more blocks, sell more apartments.

The company's NAV rose over the half-year by nearly 20% to €2.73, and with retns on new letting up by 7.8%, gross rental income rose to €15.9m from €13.5m. The company said it is enjoying strong reversionary rents, with new leases being signed at a premium of 27% to in-place rents, with almost negligible vacancies.

When it announced its full-year results in April, chairman Robert Hingley commented, "We have increased our presence in Berlin, where we continue to benefit from the significant undersupply of residential property and ongoing population growth, achieving higher letting prices and condominium sales at a premium."

 "German residential market dynamics remain positive, particularly in Berlin, where demand for rental property continues to outstrip supply significantly, and prices of existing housing stock compare favourably with new-build construction costs. Berlin’s population continues to rise and job creation trends remain strong, further adding to rental property demand."