Portfolio valuation as at 30 June 2022

4 August 2022

Phoenix Spree Deutschland Limited

("PSD" or the "Company")

Investment property valuation and business update

Phoenix Spree Deutschland Limited (LSE: PSDL.LN), the UK listed investment company specialising in Berlin residential real estate, announces the valuation for the portfolio of investment properties held by the Company and its subsidiaries (the "Portfolio") as at 30 June 2022.

Financial performance

·    Portfolio value increased by 1.4 percent to €812.4 million (31 December 2021: €801.5 million)  

·    9 condominiums units notarised for sale for an aggregate value of €3.0 million, representing a 20 percent premium to book value

·    A further 0.9 percent of the ordinary share capital bought back for a total consideration of £4.0 million at an average 24.2 percent discount to NAV

·    Strong balance sheet with net LTV of 37 percent

Portfolio valuation

Pricing in the Berlin residential property market has remained stable in the first half of the financial year. Although there has been a deterioration in buyer sentiment and, consequently, transaction volumes were significantly below peak levels, investment demand observed by Jones Lang LaSalle GmbH, the Company's independent valuers, continues to support current pricing. 

As at 30 June 2022, the Portfolio was valued at €812.4 million (31 December 2021: €801.5 million). This represents a 1.4 percent increase over the six-month period. On a like-for-like basis, excluding the impact of disposals, the Portfolio value increased by 1.9 percent during the first half of the financial year and 5.7 percent versus the first half of the prior year. This reflects an increase in rental values, improvements in the micro locations of certain Portfolio assets, investments in the Brandenburg asset and completion of the condominium splitting process in one building. The property valuation excludes the prepayment relating to the acquisition of Erkner which will be held at cost of €5.55m.

The valuation represents an average value per square metre of €4,318 (31 December 2021: €4,225), at a gross fully occupied yield of 2.8 per cent. (31 December 2021: 2.8 percent). Included within the Portfolio valuation are six properties valued as condominiums, with an aggregate value of €32.8 million (31 December 2021: eight properties, aggregate value €38.8 million).

Condominium notarisations of €3.0 million, at a 20 percent premium to book value.

During the first half of 2022, nine condominiums units were notarised for sale for an aggregate value of €3.0 million (H1 2021: €4.3 million).

Condominium notarisations during the second quarter of 2022 have been negatively impacted by concerns over increases in the cost of living, higher borrowing costs and uncertainty surrounding the crisis in Ukraine which have led to a deterioration in buyer sentiment and reduced investment volumes.

The average achieved notarised value per sqm for the residential units was €5,291, representing a 20 percent premium to book value and a 25.2 percent premium to PSD's average Berlin residential portfolio value as at 30 June 2022.

Share buybacks at a 24.2% discount to NTA

During six months ended 30 June 2022, the Company bought back a further 930,509 Ordinary Shares, representing 0.9 percent of the Ordinary Share capital, for a total consideration of £4.0 million. The average price paid represents a 24.2 percent discount to EPRA NTA per share as at 31 December 2021.

Since commencing its share buyback programme in September 2019, a total of 8,879,802 shares have been bought back, representing 8.8 percent of the issued share capital of the Company, for a total consideration of £30.5 million. The capital made available for the buyback programme has been funded through a combination of existing cash balances, refinancing and condominium sale proceeds.

Outlook

The last two months have seen a significant change in capital markets in reaction to inflationary pressures, consequential interest rate rises and expectations for future global central bank monetary policy. Investor and consumer confidence has additionally been impacted by the ongoing conflict in Ukraine. Although PSD's share price has significantly outperformed its listed peers during the first half of the financial year, these circumstances have created a degree of uncertainty across global equity markets from which PSD is not immune. However, PSD remains well positioned to withstand any current dislocations as they affect the Berlin residential real estate operating environment.

With a net LTV of 37 percent, the Company's balance sheet remains conservative, with an average remaining duration of the loan book exceeding four years.  Its first loan is not due to reach maturity until September 2026. Moreover, following a transition away from negative rates, the Company's interest rate hedging policy has seen cash borrowing costs decline, despite rising long term rates.

The Board considers the current level of gearing and cash balances to be appropriate at this stage in the real estate cycle and will not look to increase debt levels until such time as the market outlook becomes more stable. Accordingly, further buybacks will be dependent on condominium sales and non-core asset disposals rather than refinancing. The Board keeps disposal opportunities under regular review and, in view of the continuing significant discount of PSD's share price to EPRA NTA per share, it remains the current intention of the Board to deploy any proceeds over and above amounts required to fund normal working capital requirements and payment of dividends in the ordinary course to share buybacks.

Interim results

The Company intends to publish its interim results for the six months to 30 June 2022 in the final week of September 2022.

Robert Hingley, Chairman of Phoenix Spree Deutschland commented:

"The first six months of the financial year were characterised by significant market disruption caused by the combined effects of global inflationary pressures, rising interest rates and the ongoing conflict in Ukraine. Against this backdrop, it is pleasing that the Portfolio was able to deliver further valuation gains during the first half of the financial year.

Although financial market conditions have become more challenging, demographic trends within the Berlin market remain positive, with a significant undersupply of private rental property.  Affordability comparisons with other German cities remain favourable and the reversionary potential that exists within the Portfolio will continue to support rental values."

Legal Entity Identifier: 213800OR6IIJPG98AG39

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