Phoenix Spree Deutschland Share Discussion Threads

[apollocreed1] 22/8/2019 10:28

If I buy more of this stock with the pound GBP so low relative to the Euro, I'll take a spreadbet long GBP/EUR to hedge currency exposure.

[davebowler] 21/8/2019 08:45

Liberum
Phoenix Spree Deutschland

Confusion regarding court ruling leads to weakness for listed German residential sector

Mkt Cap £289m | Prem/(disc) -33.3% | Div yield 2.3%

Event

The German Federal Constitutional Court ruled yesterday that the 2015 rent cap is constitutional. A Berlin landlord that had set the rent too high had taken a complaint against the rent cap after being ordered to repay money to the tenant.

In 2015, the government passed legislation aimed at limiting rents charged on new tenancies in certain areas. The 2015 rent cap (Mietpreispremse) restricts the potential for rent increases upon re-letting to a maximum of 10% above the Mietspiegel or the level paid by the previous tenant. These do not apply to apartments that have been comprehensively refurbished and still allowed for recovery of modernisation costs. At the end of 2018, the Mietpreisbremse applied in 313 of 11,000 cities and municipalities in Germany

Liberum view

Yesterday's ruling is not related to the rent freeze proposals and should have no operational impact on the listed German landlords. Vonovia, the largest German landlord with a £41bn portfolio, confirmed as much in a statement yesterday afternoon. The majority of the sector sold off yesterday by c.3% following the announcement, which we believe is due to a misunderstanding that yesterday's ruling related to recent rent freeze proposals.

A draft bill for the rent freeze is due to be published by 31 August. This will be followed by a consultation period before entering the legislative process by 15 October. Under the proposals, the rent freeze would take effect from January 2020. We would expect several legal challenges to the rent freeze proposals. The legal department of the German parliament has already issued a report outlining that these are unconstitutional.

The uncertainty caused by the proposals has led to significant share price declines for the companies with Berlin exposure. Wide discounts are likely to remain until there is greater clarity for the sector. A rent freeze would likely deter development of new rental housing in the city and would reduce supply. We would expect much of the existing rental stock to be converted to condominiums by landlords with existing permissions. Phoenix Spree is well-positioned in this regard as it already has permission to convert over 50% of the portfolio to condominiums and is in the process of seeking further approvals. It also has a strong balance sheet (26% net LTV). The current market cap implies a 24% discount on the June 2019 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.

[riverman77] 20/8/2019 17:02

Berlin residential property is in huge demand with very limited supply. My view is that scarce assets such as these will ultimately go up in value significantly, irrespective of any rent controls. Of course, it's unclear if the rent controls will even be implemented. Also, PSDL is quite flexible and is used to working round regulations, e.g. around half the portfolio is in condominiums.

On a 30% discount, I see this as a strong long-term buy, although I admit it is likely to be weak for some time, so don't expect any short term bounce.

[alpal2] 20/8/2019 16:52

The shares may have had a dead-cat bounce but they're right down again. Which is better value PSDL or Summit?

[davebowler] 20/8/2019 12:16

Nick Greenwood of MIGO commentary in July's factsheet-

Phoenix Spree Deutschland was the biggest riser in July returning 6.93%. Phoenix Spree
has been weak since the Berlin state coalition government announced a rent freeze for five years, however in July the Federal government advised it was unconstitutional. Although not unexpected, this gave investors some confidence and the shares bounced.

[davebowler] 08/8/2019 09:35

Discount looks to be 33% if my figures are correct.Of course it is not adjusted for the markdown of assets following the recent rent controls.

[davebowler] 08/8/2019 09:33

Unadjusted NAV must therefore be Euro 665.2m value less Euro 168.4 debt = Euro 496.8 / 100.75 m shares = Euro 4.93 per share = £ 4.52

[davebowler] 08/8/2019 09:04

8 August 2019

Phoenix Spree Deutschland Limited

(The "Company" or "PSDL")

Portfolio Valuation and Condominium Agreement

Berlin Investment property valuation increases 3.7% for the half year to 30 June 2019

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

Increased portfolio value

As at 30 June 2019, the Portfolio was valued at EUR665.2 million by Jones Lang LaSalle GmbH, the Company's external valuers (31 December 2018: EUR645.7 million).

On a like-for-like basis, after adjusting for the impact of acquisitions net of disposals, the Portfolio valuation increased by 3.9 per cent in the six months ended 30 June 2019. This reflects the combined impact of market rental growth and the active management of the Portfolio.

New condominium agreement with Accentro Real Estate AG

Since the start of sales in Boxhagener Strasse, the Company's largest condominium project to date, the Company has successfully sold a total of 42 residential units and 3 commercial units to owner-occupiers, tenants and investors. The majority of the remaining 22 units are currently occupied.

In order to accelerate the sales process of the remaining Boxhagener Strasse units, the Company has concluded an agreement with Accentro Real Estate AG, one of Germanys leading condominium sales platforms.

Under the terms of this agreement, Accentro will market the remaining Boxhagener Strasse units through their extensive network on behalf of PSDL. After 18 months, Accentro is contracted to purchase any unsold units from the fund for a cash consideration, guaranteeing revenues on completion of contract.

Update on proposed rent controls

The proposed new Berlin State rent controls continue to create significant uncertainty which has negatively impacted the Company share price, resulting in a valuation discount to EPRA Net Asset Value as at 31 December 2018 of 28.6%. Both the share price decline and the discount are in line with the Berlin focussed listed peer group.

On June 2019, as expected, the Berlin Senate approved in principle the draft term sheet for the proposed bill for new rent controls. Although the proposed details and mechanisms are as yet unclear, there remain serious concerns regarding the legality and constitutionality of the draft proposal given that rental price laws have always been determined under German federal legislation.

A detailed analysis of the proposals will not be possible until the draft is presented at the end of August, after which there will be hearings from interested parties and experts and before entering the legislative process in October.

The legal research department of the Bundestag, the German Federal Parliament, issued a statement highlighting that the proposals violate the German Constitution in a number of key aspects and that there are numerous legal arguments to support the view that State law cannot supersede Federal law. We would expect an increasing number of legal challenges as details of the draft bill are made public at the end of August.

Given the uncertainty about the legal validity of the proposed rent controls, it is not yet clear what impact there could be on future property prices at this time. However, the interim portfolio valuation conducted by Jones Lang LaSalle GmbH does not factor in any impact on property values.

Strategic flexibility

Since the launch of Phoenix Spree 12 years ago, the regulatory environment has continually evolved. During this period the Company has successfully delivered positive returns to shareholders.

The Board believes that the Company retains significant flexibility to adapt its business model. As previously disclosed, over half of the buildings owned by the Company are already split into condominiums and the Company is in the process of completing a major refinancing which will deliver sufficient liquidity in order to take advantage of opportunities arising from market uncertainty.

Robert Hingley, Chairman of Phoenix Spree Deutschland, commented:

"It is pleasing that the Company has delivered another resilient performance for the first six months of the financial year. However, it is also clear that our main strategic priority for the remainder of 2019 is to reassure investors that the company can continue to adapt in the eventuality that the new Berlin rent proposals are introduced. Significant preparatory work is already underway, although there is still considerable opposition and uncertainty on both the legality and content of these proposals. I am confident that the Company will be well positioned to respond when the regulatory environment becomes clearer."

The Company expects to report its interim results for the six-month period ended 30 June 2019 towards the end of September 2019.

[davebowler] 16/7/2019 16:13

hTTps://www.theguardian.com/world/2019/jul/16/berlin-buys-670-flats-on-karl-marx-allee-from-private-owner

[nimbo1] 09/7/2019 15:21

nice to see this moving up a bit. hard work buying fear.

[cerrito] 04/7/2019 13:24

Questor in the Telegraph has a well reasoned article with a hold.

[nimbo1] 02/7/2019 11:46

looks like i could have been a little early...

[davebowler] 01/7/2019 08:59

For a copy of the recent presentation from Phoenix email- [e-mail]

[davebowler] 01/7/2019 08:56

Thanks.Its had the desired effect!

[nimbo1] 01/7/2019 08:15

Decided to buy some

[charlie153] 26/6/2019 13:25

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 13:00

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 12:38

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

[davebowler] 25/6/2019 13:01

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 13:49

Ado and D Wohnen both down 4.5%

[edwardt] 19/6/2019 13:28

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

[davebowler] 19/6/2019 10:26

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 07:53

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 21:23

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.