Phoenix Spree’s bet on Berlin market heralds 53% NAV total return

Phoenix Spree’s bet on the Berlin market has paid off: the UK-listed investment company specialising in German residential real estate achieved an NAV total return of 53% in 2017, in a sign that Berlin can generate hefty returns.

The group’s average rent per sqm has risen by 6.9% on a like-for-like basis across the portfolio and 8.4% in Berlin, 3% more than its Berlin-focused peers, brokerage firm Liberum said last week, with new lettings in the city signed at an average 40% premium to passing rents.

NAV performance has been driven by a 40% like-for-like revaluation gain, due to both yield shift and continued letting gains. The gross fully occupied yield on the portfolio now stands at 3.4% compared to 4.8% in December 2016.

‘The increase in value of Phoenix Spree’s portfolio is largely due to the increase in its revaluation at the end of last year. Berlin has been a very strong market for the last two-to-three years and the rental market has been performing very well,’ Mike Hilton, founder of UK-based real estate advisory firm and fund manager PMM Partners, which advises Phoenix Spree, told REFIRE.‘If we have an empty unit, we can typically let it at a significant premium because demand is very strong. Residential rents have been increasing by 8% a year – the strongest growth in any rental market. Our average rents are around €8 per sqm, which rises to €12 for a new letting. Rents have basically doubled over the last five years. This year, we anticipate rental growth of between 5% and 6%.’

Phoenix Spree also continues on the acquisition trail, Hilton said. It has made €81m of acquisitions since the beginning of last year.‘As in previous years, we’d like to invest between €50m and €100 m in Berlin this year and we’re very focused on acquisitions,’ he said.

Strong demand for assets in the city also makes it an ideal time to sell. Earlier this year, PMM advised Phoenix Spree on its sale of portfolio of 17 non-core properties in Nuremberg and Fürth for€35.25m.The properties in Nuremberg netted three times what was paid for them in 2008, Hilton said.Following a number of non-core asset disposals, the portfolio now focuses purely on the Berlin market, as the company seeks to capitalise on the high growth dynamics in the city. Investment demand for assets is extremely high, particularly for portfolio transactions. In December, US investment giant Blackstone acquired Phoenix Spree’s peer, Taliesin Property Fund, in an all-cash deal valuing the firm at €260m, representing a 10% premium to its average share price of around €46.31 that month. The deal was carried out by two newly-formed investment vehicles, Wren Bidco and Canary Bidco, both of which are controlled by Blackstone.

Phoenix Spree has‘an attractive pipeline of opportunities’ in Berlin, according tothe group’s chairman Robert Hingley: ‘The market outlook remains positive, given the ongoing undersupply of rental property.I am delighted with the company's performance and continued growth, our strongest year yet. Since listing in 2015, we have successfully delivered against our strategy of investing in and growing the portfolio and realising the value from within it, resulting in a total return to shareholders of 106%.’ (ssk)