Up to 9% NAV Total Return for Phoenix Spree Deutschland

UK listed investment company Phoenix Spree Deutschland, which specializes in Berlin residential real estate, has released results from a thorough external analysis of its residential holdings in the capital, and says that, despite the Mietendeckel or rent cap prevailing in the city, the current investment demand fully supports current pricing.

The company’s portfolio was assessed at year-end by external valuers JLL at €768.3m, an increase of 5.2% over the period twelve months previously. It increased by 6.3% after acquisitions net of disposals, reflecting the combined impact of yield compression along with a further decline in interest rates during the company’s financial year, it said. 

The JLL discounted cash flow method used by JLL is based on the assumption that the Berlin Mietendeckel will be fully implemented by Phoenix Spree and will last for its proposed five-year lifespan, although many observers (including Phoenix Spree) believe that Germany’s Constitutional Court will overturn the ruling in a decision later this year. 

The valuation as at year-end represents an average value per sqm of €3,977 (2019: €3,741) and a gross fully occupied yield of 2.4% (2019: 2.9%). This would put most of the apartments in the ‘modest to upper’ category by Berlin standards. Included within the portfolio are nine properties valued as condominiums, with all sales permissions granted, with an aggregate value of €52.4 million (2019: €26.5 million). 

This is important in light of the Federal Government’s current efforts to limit the ability of landlords to convert their properties into condominiums for sale, and thus lowering the available rental stock – a very thorny issue particularly in Berlin, where the Mietendeckel has already drastically reduced the number of apartments being offered for rent.

In 2019 the company introduced a new flexible condominium strategy, involving splitting its buildings into individual condos which can be sold, similar to becoming the freeholder in a block of leasehold apartments. This gives the company the flexibility to exit from individual apartments if the market is just not there, or rental becomes too unattractive.

The company teamed up last year with Accentro Real Estate AG, a leading German condominium sales platform, which it said should accelerate condominium sales over the next two years. This arrangement guarantees a certain minimum revenue for Phoenix Spree Deutschland, of €4.5m in the second half of 2020. Of the company’s holdings, 63% are registered as condominiums, with applications for a further 22% of the portfolio underway.

Phoenix Spree said the impact of COVID-19 on its tenants’ ability to fulfill their rent obligations was limited, with over 99% of all residential and commercial rents collected in 2020, about the same as rent collections in 2019.

Phoenix Spree also said it had refinanced €21.4m of existing loans, setting up a new more flexible facility with Natixis Pfandbriefbank AG, which released a further €8.1m in cash and a better maturity date. It is non-amortising, as against the debt it replaced which amortised at 1.5% per annum, and treats the sale of assets as condominiums for favourably.

The company’s share price, listed on the London Stock Exchange, has been trading sideways for the past two years. Management has been buying back its own shares over that time, paying an average price of 30% below EPRA NAV of currently about GBX 4.81. The current stock price is about GBX 3.30.