Phoenix Spree Deutschland Share Discussion Threads

[nimbo1] 01/7/2019 09:15

Decided to buy some

[charlie153] 26/6/2019 14:25

i tend to agree with you although i make the yield more like 2.5% (last year's dividends totalled c6.7p)

also they say 60% of the portfolio has permission to be split up and sold and i think this would be at an uplift give the rental controls should ultimately lead to increased purchase prices if rental supply decreases forcing people to buy. And even if the 40% of the portfolio left were to dramatically fall in value then you are covered by the share price discount.

[andyj] 26/6/2019 14:00

Me also. Discount to NAV now 30% and yielding 3.28%. The way I see it is that if legal challenges fail and part of the business model is damaged, it is temporary. What on earth happens after the five year freeze finishes? The supply will hardly be helped by a rent freeze, but as that nears completion rents could rocket upwards. Alternatively and more likely, either a different political party will assume governance, or likelier still, they will realise that it is not working as they thought it would as it constricts supply.In either scenario, PSDL recovers around 30%+ from the current levels.

[nimbo1] 26/6/2019 13:38

looks like another leg down coming - I'm interested, but when is the question.

[davebowler] 25/6/2019 14:01

Nick Greenwood of MIGO commentary on Berlin;


Miton Global Opportunities plc

Berlin – a microcosm for political polarity

June 2019


Berlin Residential Property has long been a theme in our portfolio however the developments of the past few weeks in the city have taken many by surprise. Anti-landlord rhetoric has been building for some time as rents have risen dramatically in the city but from an extraordinarily low base. Even today rents remain lower than any other major German city except Leipzig and are substantially lower than those in Munich. Despite this, there are many Berliner’s who yearn for the halcyon days of the 1990’s where rents were practically zero and there were a limited number of people moving to the city. They have been putting increasing pressure on the Berlin’s very left-wing coalition to step in. This culminated in June when it was announced that the local government were going to freeze rents for five years. Rent control would be a Federal, rather than Berlin, decision and the rest of Germany is unlikely to have much sympathy, nevertheless, the proposal will end up in the constitutional court and that will be a slow process leaving uncertainty to overshadow the market. Furthermore, it will not solve Berlin’s major issue; a housing shortage. As rents currently stand it is not economical to build new so there is very little supply coming on line whereas rising demand in the city is unlikely to abate. With rents capped this will not reverse, further exacerbating the problem. A good parallel would be Stockholm where similar regulation is already in place. As a result, there are very few properties on the rental market and any potential renters are compelled to buy. This increased the price of a property by three times and the wait for a rental apartment is now between nine and twenty years. We are hoping cool heads prevail in Berlin and they will not make a similar mistake as a continuation of such policies would result in a housing crisis. We believe that Phoenix Spree Deutschland (PSDL) remains a good investment and the de-rating of the shares are overdone. Rent roll is the key factor within their valuation methodology and although a rent freeze would not allow the trust to exploit the reversionary potential in the portfolio, it does mean the NAV is unlikely to fall. We predict that with the difficulties in the rental market, PSDL is likely to shift their business model into splitting up and selling off their assets into the private market. They have permissions to do this for around 60% of the portfolio which is likely to trigger a significant uplift. On the other hand, the other part of the portfolio is now very much stuck under the dead hand of regulation and we think it will be difficult to get permissions to convert the rest but management could develop their model from long-term leases to shorter, furnished leases, an area not subject to the same level of regulation. It would be reasonable to assume that given uncertainty combined with the adoption of an unproven model, that the market will place PSDL on a discount especially as uncertainty is more damaging to share prices than confirmed bad news which can then be priced in. Nevertheless, it should be remembered that PSDL shares had been de-rating for 18 months and that the trust owns scarce assets. This episode highlights that increasingly investors will have to face political uncertainty as the face of the politics in many areas of the world undergoes a dramatic shift. Populism has gradually been on the rise and established political parties are under increasing pressure from insurgent parties on both the extreme right and left. Many political certainties now lie in the past.

Regards,

Nick Greenwood Portfolio Manager

[podgyted] 19/6/2019 14:49

Ado and D Wohnen both down 4.5%

[edwardt] 19/6/2019 14:28

i would want this to yield 4% before i part with my wonga.

[davebowler] 19/6/2019 11:26

Mkt Cap £290m | Prem/(disc) -29.0% | Div yield 2.3%

Event

As expected, the Berlin Senate yesterday approved a five-year rent freeze in the city. Headline details have only emerged to date as published information on the proposed legislation is still relative limited. The draft bill is scheduled to be presented at the end of August and, after approval by the Berlin Senate, will enter the legislative process in October.

The proposals state that rents will not be allowed to increase in multi-family houses in Berlin for five years. In the event of a new letting, the highest rent that can be charged is what the previous tenant was paying. This is regardless of whether the previous rent was below the level set by the Mietspeiegel. Prior approval would also have to be obtained for rent increases via modernisation works.

Liberum view

The Berlin residential market has been the subject of increasing political debate as public pressure has risen over the last 12 months. The rent freeze undoubtedly be challenged by industry participants. The constitutionality of the proposals have been questioned by several parties. This is because the German government has already comprehensively regulated rent prices at the federal level. It is unclear whether local governments can implement their own rental legislation, superseding federal rental laws.

A rent freeze would likely deter development of new rental housing in the city and would reduce supply which is the real issue. It will make housing cheaper in the short-term but it is unlikely to achieve the goal of making the city more affordable in the long-term. We would expect much of the existing rental stock will be converted to condominiums by landlords with existing permissions. This has occurred in other European cities with strict rent controls such as Stockholm. This has resulted in a situation where the waiting time for an apartment in Stockholm city centre is in excess of 10 years.

Phoenix Spree Deutschland has the ability to adjust its business model as it already has permission to convert over 50% of the portfolio to condominiums and is in the process of seeking further approvals. The company could also seek to change its letting strategy to focus on short-term furnished letting, which would not be affected by the proposed legislation.

We have illustrated a headline scenario below of the potential upside from the condominium sale process. The current market cap implies a 21% discount on the December 2018 portfolio value. Assuming the company can achieve sale prices in line with the level achieved in 2018, the potential upside is c.60% above the value implied by the current share rating. This makes no allowance for the time it would take to complete the disposal of a large number of units but should provide some reassurance on the optionality within the portfolio. We would expect the wide discount to remain in the short-term until there is greater clarity on the situation and the company's strategy to deal with the changing environment.

Potential upside from condominium sales







Dec-18 EPRA NAV €m 461.0

Market Cap


€m 324.8

Implied discount €m 136.2




Portfolio value €m 645.7

Implied discount as % of portfolio value -21.1%



Value per sqm € 3,527

Market cap implied value per sqm € 2,783

Condominium sale price in 2018 € 4,566




Upside from condominium sale price to implied book value 64.1%



Source: Liberum estimates

[edwardt] 19/6/2019 08:53

perhaps - the situation is a blow for capitalism and free market forces for sure. one thing for sure regulation making matters worse and the only ones who will win near term are the lawyers.

[gordongekko4] 18/6/2019 22:23

Mark my words, this is going back to 150p !!! the yield compression in Berlin (which has been the main driver behind the large increase in NAV) will make a U-Turn style revearsal now as investors will seek a higher yield on real estate in Berlin given that there is no more potential for increasing rent.

[redalert] 18/6/2019 13:46

it was approved

[podgyted] 18/6/2019 11:11

Seems to be:-



Not sure what the August date in Liberum note is about.

[edwardt] 18/6/2019 09:26

the ruling is today , right?

[jonwig] 17/6/2019 12:44

dave - thanks for the video. But, despite being dated 13/06, not a word about the current "issue" with PSDL!

[davebowler] 17/6/2019 11:05

Video from Miton Global well worth a listen.We get a big mention at 5 mins 30 sec.

[davebowler] 17/6/2019 10:36

Liberum;
Phoenix Spree Deutschland made its first announcement on Friday since media reports indicated that Berlin's urban development senator will put forward proposals for a five-year rent freeze in the city to the Berlin Senate.

Further details of the proposals are expected in August. The board believes there are concerns regarding the constitutionality of the new rent proposals as rental legislation has always been determined under federal legislation.

The board has also highlighted the flexibility within its business model and the company's track record over the past 12 years in the Berlin market which already has a number of rent controls in place. Over half of the properties in the portfolio are already split into condominiums.

Liberum view

At this stage, there is a limited amount the board can say until there is greater clarity on proposed rent freeze. The shares have fallen by -14.4% since the proposals first emerged and the stock now trades on a 27% discount to NAV. The share price decline is broadly in line with German-listed peers (Deutsche Wohnen -12.8%, ADO Properties -15.8%).

A rent freeze would likely deter development of new rental housing in the city and would reduce supply which is the real issue. We would expect much of the existing rental stock will be converted to condominiums by landlords with existing permissions. It would bring an end to the business model operated by landlords, such as Phoenix Spree, that seeks to achieve rental growth through refurbishment and re-letting.

Phoenix Spree Deutschland has the ability to adjust its business model as it already has permission to convert over 50% of the portfolio to condominiums and is in the process of seeking further approvals. The company could also seek to change its letting strategy to focus on short-term furnished letting, which would not be affected by the proposed legislation.

We have illustrated a headline scenario below of the potential upside from the condominium sale process. The current market cap implies a 19.5% discount on the December 2018 portfolio value. Assuming the company can achieve sale prices in line with the level achieved in 2018, the potential upside is c.60% above the value implied by the current share rating. This makes no allowance for the time it would take to complete the disposal of a large number of units but should provide some reassurance on the optionality within the portfolio.

Potential upside from condominium sales


Market Cap
£m 298.2m

€m 334.8m

Dec-18 EPRA NAV Euro 461.0m


Implied discount (Euro 126.1m)


Portfolio value 645.7

Implied discount as % of portfolio value -19.5%


Value per sqm 3,527

Market cap implied value per sqm 2,838

Condominium sale price in 2018 4,566

Upside from condominium sale price to implied book value 60.9%



Source: Liberum estimates

[podgyted] 15/6/2019 12:01

I think their point is condos can be sold when they become vacant. These are at a premium to NAV and they'll simply do more because the differential will become more attractive.

My view - not specifically spelt out anywhere.

"In addition to its core rental business,
the Company also selectively identifies
a small number of condominium
projects. The Company is committed
to operating within the relevant
regulatory and planning frameworks
at all times during the condominium
realignment process.

This strategy is considered where a
significant differential exists between
the market value of a rental unit within
an apartment block and the resale
value of a unit as a private apartment,
or where there is limited opportunity
to generate further value as a rental
building. The process involves legally
splitting the freeholds in a small
number of selected buildings.

The sales comprise a combination
of vacant and occupied units and
can augment returns to reinvest in
the Portfolio on further acquisitions.
As at 31 December 2018, 90 units
representing proceeds of €26.9 million
had completed since condominium
sales commenced in mid-2015."

[jonwig] 14/6/2019 20:07

I have the impression (post #329) that properties with existing permission to convert to condos are excluded. It's unclear, though, I agree.

This new article discusses the legality of the proposal:

[atalbot1] 14/6/2019 19:30

Would someone more knowledgeable than myself be able to shed light on the implication of this part of the statement please regarding the 5 year rent freeze:

“As per the Annual Report over half of the buildings the Company holds are already split into condominiums”

Are condos excluded? Thanks GLA

[davebowler] 14/6/2019 13:21

Statement re. Share PricePhoenix Spree Deutschland (LSE: PSDL.LN), the UK listed real estate company specialising in Berlin residential property, provides a statement regarding new Berlin state rent proposals.The Board notes the recent weakness in the share price of Phoenix Spree, which has resulted in the shares trading at a 27% discount to EPRA Net Asset Value as at 31 December 2018. The decline in share price is in line with the listed German peer group and, the Board believes, reflects market concern following press reports of the possibility of new rent controls being proposed by the Berlin state government.Further details of the proposals are expected to emerge during August, which the Company will review carefully. To the extent that rental legislation has always been determined under Federal legislation, the Board believes there are serious concerns regarding the constitutionality of the new rent proposals and there is no certainty that these proposals will come into effect. We would expect an increasing number of legal challenges.It should be noted that there already exist a number of rent control instruments in the Berlin market and, during its 12 years of operation, the Company has adapted many times to the changing environment while still delivering positive returns to investors each year. The Board believes the Company has significant strategic flexibility to adapt its business model if required. As per the Annual Report over half of the buildings the Company holds are already split into condominiumsFurthermore, there is a significant body of evidence from other markets where stringent rent controls have been imposed which seek to limit rent levels to below that set by the market indicating that this leads to a reduction in the supply of rental properties.As previously disclosed, the Company is in the process of completing a significant refinancing which will deliver sufficient liquidity in order to take advantage of opportunities arising from this uncertainty.

[jonwig] 14/6/2019 11:02

A moderately reassuring statement: