Phoenix Spree Deutschland (PSD), the London-listed investor in Berlin residential real estate, has been teeing up a series of property sales with a view to repaying debt and for investment in existing holdings prior to selling them into the market.
In its recent trading update, the company said it was "examining strategic options", allowing it to significantly boost the number of individual condominiums which it can make available for sale in the future. This, and recent behaviour by the company, suggest it is preparing for a serious lightening of its holdings in the German capital, where it has long been a pure-play on residential housing in the city.
In its most recent deal, it sold a multi-family unit in Neukölln for €4.8m, a value of €2,249 per sqm or a 2.6% discount to the purchase price when buying it in September 2022, after extensive modernisation.
In a series of sales due to be closed over the next six weeks, two units have already been sold, with a further four pending. The two, the first a vacant unit in bare shell condition in Zillestrasse which was sold for €426,600 - (€4,750 per sqm and a 9.5% premium to book value), and the second, a rented unit in Fregestrasse, was sold for €298,000 (€3,401 per sqm) at a 19.6% discount to book value. Four further units representing a combined sales volume of €1.33m and a value per sqm of €3,941, are expected to be notarised imminently.
The shares, which have lost two thirds of their value over the past three years, imply a portfolio valuation per sqm of under €2,500 - a discount of 64% to the most recently published EPRA NTA. A recent downward lurch in the share price was due to the removal of the company from the FTSE EPRA index from March 18th, according to a company statement.
In January of this year, German residential developer The Grounds cancelled a contract worth €18.5m for the development of 34 homes in Erkner, just outside Berlin, at Phoenix Spree Deutschland's request. PSD had forward funded the deal (REFIRE reported on the deal in April 2022), which was expected to generate a rental income of €652,670 per annum.
The Grounds said it was expecting a compensation payment of €5.5m from Phoenix Spree Deutschland, while the project would continue to be developed. The first houses are expected to be completed in summer 2024, while a new buyer is sought.
Prior to the recent disposals, and as at 30th June 2023, PSD's portfolio consisted of 94 properties containing 2,477 residential units and 137 commercial units, with a total lettable area of around 186,500 sqm. Over 1,900 units, or 77% of the portfolio, are now split up into condominiums, which in the Berlin market command a valuation premium over their rental equivalents, which are subject to more restrictive legislation.
Condominiums can be sold directly to private investors, although PSD sometimes has to wait a while until a critical mass of apartments are empty before it makes sense to sell a block or a building. Additionally, working with local partners can complicate things because they can be slow to sell assets at under what they see as an optimal portfolio size.
Last year, PSD agreed a deal with its external manager in Berlin, QSix, to pay it a 1% disposal fee as an incentive to sell assets, while capping its other ongoing fees at a lower rate than the previous year's, as a further incentive to focus on new sales.
QSix invests in German residential property across two strategies, for Phoenix Spree Deutschland and in cooperation with affiliates of Partners Group, the global private markets firm. It manages more than €1bn of AUM in Germany (for PSD), and operates Commercial Real Estate Lending and UK Housing & Specialist Mortgages.
Last month QSix hired industry veteran Christian Daumann to be CEO of its German operations, succeeding Jörg Schwagenscheidt, who has been CEO since 2015. Daumann spent the last four years as Head of Investments, Germany, for Ivanhoé Cambridge, the real estate subsidiary of the Quebec state fund and global investment group CDPQ.
