Phoenix Spree returns to acquisition trail following Mietendeckel interruption

The UK-listed Phoenix Spree Deutschland (PSD), a pure-play investor in Berlin residential housing, recently posted its full-year annual results for the year ended 31st December 2021, which saw it boosting its before-tax profit for the year by nearly 20%. Its gross rental income rose by 7.9%.

The company says it generated an 8.4% NAV total return in 2021, driven by a 6.3% like-for-like revaluation gain in the period, reflecting increased market rents and progress in its condominium splitting programme, a key component of its business model. PSD benefited last year from the rejection by Germany's Constitutional Court of the Berlin-imposed Mietendeckel, or rent freeze, which saw valuations rebound strongly.

PSD's portfolio value per sqm was €4,225 at December, up from €3,977 a year before. The gross fully occupied yield on the portfolio is 2.8%. Like-for-like rental growth of 3.9% for the 12 months to December 2021, helped to maintain the company's track record of uplifts, with new lettings in Berlin being completed at an average 33.8% premium to passing rents.

The average rent achieved on new lettings was €12.2 per sqm, representing a 4.4% increase on the prior year. Rent collection has remained robust at 97% and the EPRA vacancy rate is low at 3.1%. All of PSDL's leases had been structured to allow for the back payment of rents due for the period during which the Mietendeckel had been in place, and the company has collected 95% of the back-dated rent which could be claimed from tenants.

Last year PSD notarised €15.2m of condominium sales, at an average price of €4,988 per sqm - an 18.3% premium to the December 2020 book value. Important for the company, in the light of pending legislation which will impact the ability of landlords to convert rental apartments into condominiums (for private sale and ownership), is that 75% of its Berlin portfolio has already been legally primed for future sale, with a further 10% in the application process.

As a result, PSD said, it had restored the pre-Mietendeckel levels of capex investment (€9.5m) to capture the reversionary upside in its existing portfolio. It also recently completed its first acquisition in two years, the forward-funding for €18.5m of a new development of 34 semi-detached houses in the Berlin suburb of Erkner. The properties are projected to generate a rental income of €652, 670 per annum.

Located not far from the new Tesla giga-factory in Grünheide, the new houses have a KfW 55 energy efficiency rating, one of the highest ratings available, so they should perform well. PSD's yardstick for new acquisitions at the moment is summed up by a statement in its accounts: "The Company will continue to review future potential acquisition opportunities. These will be pursued only in instances where they meet the Company's strict investment return criteria and screen favourably against the alternative of share buy-backs."

Last year PSD bought back 4.5% of its ordinary share capital for €17.7m, paying an average price at a 17.8% discount to the EPRA NAV per share.

Among his comments, chairman Robert Hingley said: "The reversionary potential that existed within the Portfolio before the introduction of the Mietendeckel is again evident following its withdrawal, and the value within our Portfolio has been further underpinned by our ongoing ability to sell condominiums at a premium to book value."

"Berlin market dynamics remain positive and affordability comparisons with other German cities are still favourable. Moreover, it is expected that Berlin demographic trends, particularly net inward migration, will further strengthen when restrictions associated with COVID-19 are permanently removed."